Practicing medicine is hard. We don’t completely understand the human body. Patients and providers don’t always see eye to eye. Much of medicine in America is corporatized and controlled by third parties. None of them are quite as loathsome as the PBM or pharmacy benefit manager.
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Defining the PBM
A pharmacy benefit manager is a corporation that manages prescription drug benefits on behalf of an insurance company. Express Scripts, CVS/Caremark, and OptumRx are examples of PBMs. PBMs negotiate with drug manufacturers and pocket the savings. Savings that ought to be passed on to the patient.
Why do Pharmacy Benefit Managers Exist?
Because health insurers have inserted themselves so deep into American healthcare, they struggle to perform basic functions. Something so basic as prescription drug coverage, for example. Rather than simplify mercurial eligibility requirements wholly designed to limit their need to spend money, insurers sell off this function to a PBM.
How do PBMs Make Money?
Remember when the only financial transactions in healthcare were between a patient and his doctor or pharmacy? No? Neither do I. American healthcare is the most opaque and complex financial system on the planet.
PBMs profit by nabbing manufacturer rebates. All the PBM has to do is ensure the manufacturer’s drug ends up on a particular plan’s formulary. Quid pro quo. Have you ever had the unfortunate experience of your insurer refusing to pay for a medication you’ve taken forever? This is why. PBMs.
PBMs can also mark up the cost of a drug and line their pockets with the spread. They operate mandatory mail-order pharmacies and charge all sorts of fees for processing prescriptions. Some PBMs sell drugs to your local pharmacy, and again, make a profit on a baseless markup.
Why are PBMs so Bad?
Pharmacy benefit managers are the ultimate middlemen. They take advantage of a complex system and add to the bloat. And this all goes on behind closed doors. Forget about getting an itemized statement from your dictatorial PBM.
PBMs don’t like it when you take a stand either. Up until 2018, gag clauses were included in PBM contracts with pharmacies. This blocked pharmacists from disclosing the cash price of drugs if it was less than the patient’s copay.
Pharmacy Benefit Managers Increase the Cost of Drugs
Conceived in the 1960s to process drug claims, PBMs are now partly responsible for rising drug prices. There is no competition. Express Scripts and CVS alone feed off 240 million Americans. Mergers and acquisitions ensure that monopolies stay in power.
What about generic drugs? Surely a PBM can’t mess that up, right? Wrong. PBMs control the formularies that divide medications into pricing tiers. One might think that generic drugs would always be on the lowest tier, but that’s not the case. 90% of the medications prescribed in America are generic, yet thanks in part to PBMs, costs continue to rise.
One of the ways PBMs profit is by spread pricing. As previously mentioned, they mark up medications and keep the difference. The infamous clawback inflates drug prices allowing for larger profits. But then drug manufacturers respond by raising their prices to cover fees they are charged by the PBM. In the end, the customer loses.
Let’s say a pharmacy sells you a drug for $5 that it acquired for $3. That leaves a $2 profit to the pharmacy when the patient pays in cash. But when you try to pay with your insurance, the PBM dictates a higher cost, say $10, and keeps $5 for themselves.
Remember the EpiPen drama from a few years ago? PBMs inflated the cost of EpiPens to over $600, swiping over $300 in rebates for themselves. The cost of insulin has also skyrocketed in recent years. Would you like to guess why?
Since the nation’s largest PBMs incorporated, the cost of providing prescription drug benefits has risen over 1,000%. Pharmacy benefit managers and their insurance collaborators have been projected to make more than 3 times the profit of the world’s largest tech companies combined. That cash has to come from somewhere…
Don’t Forget to Shop Around
PBMs are kind of like big department stores on Black Friday–you only think you’re getting a deal because they raised the price before cutting it back down. And PBMs blame it on all the pharmaceutical companies.
Why can’t pharmacies get their meds somewhere else? There are wholesalers, but insurance companies may drop in contractual requirements to use certain PBMs if a pharmacy is to take their patients.
This is why I always tell my patients to shop around for their prescriptions. I frequently reference GoodRx and make sure my patients know that they shouldn’t be paying more for a prescription than what they could spend paying cash. In my area, Walmart and Walgreens are frequently among the most expensive options–sometimes double or triple what the patient might pay elsewhere.
PBMs have also been known to go after pharmacies for clerical errors and then refuse to pay their part. These roguish practices bring in hundreds of billions of dollars a year. Department of Health and Human Services Secretary Alex Azar called it a “perverse system”.
More Problems with Pharmacy Benefit Managers
PBMs make your healthcare provider’s life miserable, too. If you are a doctor or PA, you know this firsthand. With so many different insurance plans, how is a clinician supposed to know which drugs are preferred on that patient’s plan? Rather than concerning themselves with what medication is best, doctors and PAs play a never-ending game of “which medication can I actually get today?”
Capricious formularies aren’t even half of it. Before a healthcare provider writes a prescription, he or she must know whether that particular medication is subject to step-through or prior authorization. That’s right–your doctor doesn’t determine what medication is best for you, the PBM does.
Your Doctor Hates PBMs
If there’s one thing that clinicians shouldn’t spend more time on, it’s filling out paperwork. Prior authorizations must be completed by hand, through the EMR, or through third-party services like Cover My Meds. Doctor’s offices sometimes employ extra staff just to perform these functions. At least coverage decisions are instantaneous, right? Wrong again. It can take days to weeks for a PBM to respond to a prior authorization.
It’s asinine that I can’t order a medication or imaging test without “authorizing” it first. This means getting a blessing from the insurer or pharmacy benefit manager. Besides filling out needlessly complex forms, we often have to send medical records for review. When they don’t automatically reject these requests, sometimes without even a feigned attempt at review, they will conclude that what the doctor has determined to be relevant is “not medically necessary”.
Is “not medically necessary” code for “we really care about what’s best for you”? Not really. It usually means they don’t have all the information necessary to approve or reject a particular request. Ultimately, it means they just don’t want to pay.
Consolidation and Integration
Another way PBMs monopolize your healthcare is by purchasing your insurance company! Yeah, CVS bought Aetna in 2018 for $69 billion. The most expensive healthcare deal in the history of the world.The tail now wags the dog. CVS was already the largest pharmacy chain in the US and the second-largest PBM. But it works the other way, too. Cigna bought Express Scripts, the nation’s largest PBM, that same year. That deal went for $67 billion. The Chief Health Officer at CVS made $36 million last year. Controlling your healthcare makes a lot of people very rich.
But bigger players can negotiate bigger discounts, right? In theory, yes. Competition fosters innovation and keeps prices low, something monopolies aren’t known for. CVS even owns thousands of clinics known as Minute Clinics and larger health-focused stores called Health Hubs. By the way, CVS gets some points for being on the ball and accurately promoting Physician Associates.
In a surprisingly self-contradictory gesture, however, the AMA spoke out about the anti-competitive nature of such acquisitions. “The AMA protects patients and physicians by opposing anti-competitive health care mergers,” notes their website. I wonder why they so ferociously oppose the evolution of PAs then? That just might be considered anti-competitive.
The FTC Declines to Do Its Job
Just this month, the Federal Trade Commission missed an opportunity to shed light on the shadowy business practices of the largest pharmacy benefit managers. The 4 person panel was evenly split and so no decision to hold PBMs accountable was made.
In response to their ruling, the National Community Pharmacists Association had this to say: “Two members of the FTC just let the worst actors in the market off the hook. After hearing hours of testimony by community pharmacists and patients, all of whom painted the same shocking picture about PBM abuse, and not a single witness there to defend the PBM industry, it is inexplicable that two members of the commission could vote against the study. Their decisions could not possibly have been based on what was heard today.”
The Future of Pharmacy Benefit Managers
Lawmakers across the country are requiring that pharmacy benefit managers be more transparent. And it’s a good thing, too. Without knowing all of the ways PBMs suck profit out of the healthcare system, costs will continue to rise. Experts propose a flat fee system.
Some employers are taking matters into their own hands. Caterpillar, Inc. now acts as its own pharmacy benefit manager. But should they have to? Do you want your employer to control your income and your healthcare, too? Caterpillar does promote generics but also discourages expensive heartburn and cholesterol medicines–isn’t that the doctor’s call?
PBMs: The Once and Future King?
Pharmacy benefit managers have enormous power. Presently, they use that power to extract profit from the American healthcare system adding to its insane cost. But their very size could be used for good. But for now, there are just too many people trying to feed off this trough.