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State of Reform Conference occurs annually here in Anchorage. I was honored to speak with House colleagues on a panel related to work in the Legislature. (R to L: Rep Zack Fields, Rep. Mike Prax, Rep. Genevieve Mina, me)
SB 121 is my bill related to Pharmacy Benefit Managers (known as PBMs).
You’ve likely never heard of them, but they decide what medication you can receive under your insurance plan, how much it will cost and what pharmacy you can use.
They are a middleman that manages prescription benefits for your insurance plan. They negotiate opaque pay-to-play transactions with drug manufacturers, using additional layers of middlemen themselves.
These companies are the primary drivers of increases in prescription drug costs. Unbelievably, PBMs dwarf the drug manufacturers (PhRMA) in size, scope, scale and power over the ultimate cost of prescription drugs at the pharmacy counter.
PBMs generate some $315 billion annually by controlling five income streams:
· Rebate sharing (manufacturer pays to PBM to get their drug on the formulary),
· pharmacy spread payments (the difference between the cost of drugs and what PBMs pay pharmacies),
· their PBM-owned pharmacies,
· administrative fees,
· and direct & indirect fees on pharmacies, contracts to be in the network for medications covered by insurance, pharmacy fees & fines.
There are several PBM companies, but the three largest –
· CVS Caremark (under Aetna - the pharmacy service segment of CVS Health and a subsidiary of the CVS drugstore chain),
· Express Scripts (under Blue Cross, Cigna, Humana, an independent publicly traded company),
· OptumRx (the pharmacy service segment of UnitedHealth Group Insurance)
These 3 PBMs control approximately 89% of the prescriptions filled in the United states- serving about 270 million Americans.
When a new drug is available, PBMs negotiate agreements with drug manufacturers to receive kickbacks in the form of rebates and other pay-to-play fees in exchange for formulary placement.
(A formulary is the list of drugs covered by your insurance.)
The stated intent of this relationship is to keep costs down for the insurance plans that PBMs work for. However, study after study have shown that PBM practices actually drive UP prescription drug costs.
In fact, the very core of the business model that PBMs are based on incentives to use more expensive drugs and an overall greater prescription drug spend.
There are 3 interested parties hiring PBMs:
· Insurance companies pay PBMs to manage drug costs and negotiate rebates from manufacturers.
· States pay PBMs to negotiate lower prices and intend for those rebates and lower prices to be passed on to their beneficiaries.
· Manufacturers, who pay rebates to the PBM do so to secure preferred placement on the insurance plan's formulary.
The insurance company wants the PBM to keep their costs down. So, the PBM negotiates with the manufacturer to get price reductions for the medications. However, they don’t pass a very significant portion of those negotiated price concessions on to the plan.
The PBM creates lists of drugs with various tiers that insurance will pay for. The list is their formulary. If a drug is on their formulary, the customer pays a copay according to the tier that the given medication is on.
If the medication isn’t on the formulary list, the PBM denies coverage. In many cases, they require the medical provider to prescribe another drug or for the patient to pay for the prescription completely out of pocket, even if their formulary alternative is not therapeutically equivalent.
That formulary is a big deal to the manufacturer. They want their newest, highest cost drugs on the highest tiers of the formulary. There’s no profit for them to have people using generics that work just as well at lower cost. The manufacturer is willing to give price reductions to get their newer, costly drugs on the highest PBM formulary tiers that your hc provider and you get to choose from.
So, the PBM negotiates huge price reductions and rebates on the drugs. The manufacturers are forced to buy in or the PBMs simply will not cover their product(s).
You may think that you, as the consumer, get to enjoy the discounts that the PBM offers. Not true. Between insurance and the PBM that they own, that money stays with them.
You may think that the PBMs discounted price gets passed on to the pharmacy. It doesn’t. The pharmacy pays the whole price for the drug from the manufacturer. But the PBM doesn’t reimburse the pharmacy that entire price.
In fact, the PBM negotiates a “price guarantee” for all drugs on their formulary with the plan (insurance company). They separately “negotiate” a separate and lower reimbursement rate for they will pay the pharmacy for the exact same drug.
the difference between what the PBM charges the plan compared to what they pay pharmacy for the drug is called the “spread.” Several states have documented spread of hundreds of millions of dollars captured by the PBMs from State government insurance plans.
PBMs closely protect data in attempts to hide their spread pricing, but most studies have pegged the average cost of spread pricing around $8 per prescription.
The reimbursement to independent pharmacies for generic drugs is set using pricing tables set up by the PBMs using proprietary, secret, and non-standardized Maximum Allowable Cost (MAC) lists.
These reimbursements are frequently below the pharmacy’s cost of buying the drugs from the wholesaler.
The professional fee for the pharmacist to dispense the drug is often zero or only a few cents, not covering their costs.
The independent pharmacy is required to sign a contract with the PBM, if the pharmacy wants to consumers to be able to fill their prescriptions at the independent pharmacy. The independent pharmacy loses money on many transactions, but cannot refuse to fill money-losing prescriptions without violating terms of their PBM contracts.
The contracts force the independent pharmacy to agree to low reimbursements, low or zero dispensing fees, random surprise audits, and fines and penalties if they miss a comma or zip code in their reports.
The reason for these unfair contracts is that the PBM/insurance company also owns its own pharmacy chains. Not only brick and mortar pharmacies but also mail-order pharmacies. The PBM wants to force customers to use only their pharmacies, thereby increasing yet more the profit margins for the PBM.
This model does NOT work in Alaska.
· Critical medications often do not make it to patients in AK from mail order pharmacies on time, leaving patients without their life saving medications and potentially no alternatives to receive their medications.
Furthermore, the number of compromised, temperature-sensitive prescriptions mailed to Alaskans from out of state PBM-owned pharmacies is truly astonishing. In fact, it is an immediate public health threat.
· PBMs contract with health insurance plans to provide covered drugs at a specific rate. Separately, they contract with pharmacies to reimburse them at a different (lower) rate. These are take-it or leave-it contracts where PBMs hold all the power over pharmacies.
PBMs often require
· step-therapy (require “failing” drug to go to next)
· or the PBM suddenly changes the formulary without warning;
This is called non-medical switching.
The healthcare provider is then forced to prescribe a medication that is usually much more expensive and may not have the best effect for the patient.
So PBMs retain a portion or all the rebate. When PBMs started to be investigated for this rebate retention, they created Group Purchasing Organizations (GPOs) to hide rebates and it adds at least 8% to the cost of drugs. Many states have looked behind the curtain and found PBMs capturing millions of public dollars.
These PBM practices are driving up the cost of medications. Pharmaceutical costs make up 22% of healthcare costs.
In addition, the State of Alaska government, and local governments purchase health insurance for public employees. This is about 64,000 employees and as many or more family members.
The rebates are not passed on to the State of Alaska, private employers or Unions. The data about the spread pricing (the discount price and the reimbursement to pharmacies) is not public and the State does not even know this number.
Bottom line: There is evidence that the State of Alaska, Dept of Administration doesn’t really know what the PBM (currently OptumRX) is costing state government for the PBM so-called services they are imposing on Alaskan public employees.
Data from other states indicate that the cost to the State is in the billions of dollars.
The control that PBMs have over what medication you can take, how much it will cost, and where you can receive the medication is enormous.
Their bottom line - $315 Billion/year and higher costs to you.
Good News!
Alaska has an answer to these issues!!!
Senate Bill 121
Ensures Patient choice of pharmacies, and secure and safe medications for Alaskans. The bill will give our Alaska pharmacies more leverage and legal standing when dealing with one-way contracts, under-reimbursements, appeals, and restrictive policies imposed on them by PBMs.
1. Guarantees freedom of patient choice of pharmacy. The bill will bolster patient choice by barring Pharmacy Benefits Managers (PBMs) from funneling patients to PBM-approved pharmacies, which are often owned by or affiliated with the PBM.
2. Guarantees patients safe and efficient access to clinician-administered drugs. This bill will enhance patient wellbeing and safety by ensuring that the medications are delivered to the proper setting and on-time.
3. Puts an end to other objectionable PBM practices by bringing them within the Alaska Unfair Trade Practices and Consumer Protection Act. This bill will require equitable reimbursement to pharmacies; equitable copay, fees or conditions for all insured persons; prohibit requiring mail-order pharmacy use; and more.
4. Strengthens procedures for pharmacies to get full reimbursement from PBMs. This bill empowers local and clinical pharmacies.
More Information
How the Secrecy of Middlemen Inflates Drug Prices. The Hill
Force transparency into the drug supply chain, unleashing market forces on middlemen whose hidden deals generate excessive profits. They contribute nothing to the development of new medicines yet soak billions of dollars from taxpayers, employers and patients.
Here's a 2 minute VIDEO outlining the PBM world.
Lawsuit - Filed April 18, 2023. Lake County, IL v. PBMs/Manufacturers.
Reading just pages 1-9 (Introduction) spells out the PBM & manufacturer control of insulin pricing and access.
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