Many employers, who were trying to keep a lid on the cost of medical treatment for their employees, hired pharmacy benefit managers (PBM’s) to assist them. PBM’s market themselves as being an agent of the employer for whom they can negotiate prices with drug companies and keep down drug costs. Sounds really good in theory, doesn’t it? Someone who knows their way around the drug industry and can keep them from overcharging you.
As is so often the case in our convoluted and inefficient medical delivery system, “Not so fast.” In the view of many who want to improve our system, PBM’s and drug companies have entered into an unholy alliance to enrich themselves at the expense of employers, insurers and patients.
The most common complaint about PBM’s is that they really don’t save money in their negotiations with the drug companies. The drug companies see them coming and know that they are going to be asked for discounts. So like any good negotiator, the drug companies give themselves some room to negotiate. They do this by raising the retail price of the drugs the PBM’s are going to want to buy. These drugs are the ones most commonly used by patients and everyone in the system knows what they are. The PBM’s and the drug companies negotiate and the drug companies reluctantly agree to give discounts to the customers of the PBM’s. The PBM’s charge a fee to their customers, usually a percentage of the discounts they have been able to secure. There are a number of major problems here that are not immediately apparent.
The first is that the “discounted” price may not be much less, or may even be more, than what the price would have been had the drug company not raised it in anticipation of negotiations with the PBM’s.
The second is that the PBM’s have to be paid and their fee is added onto the “discounted” price of the drugs. Unless there was really a discount here, and there almost never is, the fees of the PBM’s makes the drugs even more expensive than they would have been had there never been a PBM.
The third is that the inflated price created by the drug companies to give them negotiating room is the price that has to be paid by anyone who does not have a PBM to negotiate discounts. This means patients with no drug insurance or patients with large deductibles or anyone for that matter who has not hired a PBM.
Now for the bait and switch. Most PBM’s have urged their clients to switch from brick and mortar pharmacies to mail order pharmacies. There are some good reasons why mail order pharmacies can be cheaper than brick and mortar stores. Mail order pharmacies do not have the fixed costs of maintaining a brick and mortar store. They can purchase in larger quantities than brick and mortar stores can purchase. They can dispense larger amounts of medicine at one time, thereby reducing the cost of filling a prescription.
So far, so good. Except that in practice, these mail order pharmacies have been charging far more than their brick and mortar competitors for the same medicines. Health care advisory firms and the Wall Street Journal have been tracking this development and what they have found is very disturbing. For example, generic drugs filled by mail order pharmacies were, on average, marked up to a price three times higher than the same drugs dispensed by brick and mortar pharmacies. Branded drugs were even worse. On average branded drugs were marked up three to six times higher than the same drugs at a chain pharmacy and 35 times higher than at an independent pharmacy. Over the past decade, the annual volume of drug sales at mail order pharmacies has increased from $86 billion to $206 billion.
In light of these price disparities, why are PBM’s still urging their clients to use mail order pharmacies? I know this may come as a shock to some, but the mail order pharmacies are owned by the PBM’s that are pushing their use. The PBM’s are buying the drugs from the drug companies, selling the drugs to themselves, and then selling them at inflated prices to their clients. And PBM’s are big players. The largest three PBM’s, all owned by big health insurance companies, process 80% of all prescription insurance claims.
The recurring problems of our broken health care delivery system are on full display here. A few big players have gamed the system to get rich at our expense. They are siphoning billions of dollars from the system while providing nothing in return. They will fight tooth and nail to keep the system the way it is so they can continue to profit from it. When will we say, “Enough is enough.”?
