In a relatively short period of time, PBMs went from transactional business to managing all aspects of the plan’s pharmacy component. With three major PBMs, Express Scripts, OptumRx and CVS, dominating almost 80% of the market, there is obvious concern about the correlation between the profitability of these companies and the rapidly increasing costs for consumers and employers.
Let’s take a look at some of the components that are siphoning money from your bottom line and your employees’ pockets without adding value.
Many PBM decisions are made based on the rebate percentage being received by the client because it’s easily comparable on a spreadsheet. A common objection to a pass-through contract is that the rebates are given up. When there are drugs on the formulary like Duexis, you’ll see that there is a grossly misaligned incentive to include them.
Companies are chasing a rebate for something that is simply a compound of ibuprofen and famotidine (generic Pepcid) and costs over $2,500 for a 30 day supply when the over-the-counter solution is less than $15!
PBMs love these due to the massive rebates given by the manufacturers to include them in their standard formularies. Recently, 46% of formularies included Duexis. Does yours?
Specialty drugs also have enormous rebates relative to their retail costs. Many of these can be obtained for little to no cost by using an alternative source. Would you trade an 18% rebate for the privilege to pay $0? Of course, you would.
Many companies with are happy with their high percentage generic usage under the premise that this reduces their overall costs. Generic does not equal low cost, especially in the PBM world.
Spread pricing is the difference in the amount paid to pharmacy and the amount billed to the employer. The spread is kept by the PBM as profit. Here’s an example:
- Pharmacy buys the drug for $3
- Patient fills the prescription with their employer sponsored health care plan
- PBM pays $5 to the pharmacy – the difference is the pharmacy’s profit (Fair, right?)
- PBM bills employer’s plan for $12 and keeps the spread as their profit (Ouch)
Once spread pricing is added in, the cost for the prescription may end up costing 4 to 90+ times as much. Great business model for a company that doesn’t make anything or carry inventory!
This may seem like death by a thousand cuts, but there are many medications that have enormous spreads of hundreds and even thousands of dollars that cut deeply.