On July 23, the Florida Alliance for Healthcare Value held the second session of its first-ever virtual Summer Education Series, which due to COVID-19, was created in lieu of the 2020 Annual Conference. This two-hour session featured industry veteran Alex Jung, MBA, Partner & Managing Director of EY-Parthenon, who covered trends and policy changes in the drug value chain.
Jung opened by discussing how pharmacy benefit managers (PBMs) have become the single biggest purchaser of drugs and how significant consolidation within the PBM market has resulted in three major players — CVS Caremark, Express Scripts and OptumRX. These three companies now control 80 percent of all prescription volume, giving them an ecosystem with significant leverage and power.
PBMs generate their revenue from multiple sources, including network spread, specialty dispensing, rebate share, administrative fees and clinical program fees. They spread the price by collecting a variety of service fees in addition to the discounts and rebates they receive from the drug manufacturers. Rebates are provided back to the PBMs to secure favorable formulary placement.
Jung detailed four key PBM market trends that have emerged in recent years:
- Vertical integration with health insurance companies and specialty pharmacies
- Scrutiny around rebates, including demand for more transparency and models that feature no or lower rebates
- Payer and government pressures, especially regarding spread pricing
- Specialty drug dispensing, which now accounts for more than 50 percent of PBM profits
Increased Legislation to Address Rising Drug Prices Targets PBMs
Jung explained how blame for high drug prices has fallen partially on PBMs, pressuring governments to implement legislative solutions to regulate the industry. Governments have focused on three primary problems:
- PBMs use manufacturer rebates to increase profits instead of reducing drug prices for patients.
- PBMs increase drug costs through price spreading agreements and use out-of-pocket patient costs to increase their profits.
- PBM plan design prevents patients from quickly accessing the best possible drugs from their pharmacy of choice.
Some of the specific actions recommended in legislative efforts include the following:
- Forcing PBMs to fully report rebate amounts and recipients as well as to pass all rebates through the payor
- Banning gag clauses and claw backs, including prohibiting restrictions on pharmacists and others to inform patients about less expensive options or charge co-pays higher than drug costs
- Restricting spread pricing between what the PBM pays pharmacies and what payors are charged
- Limiting out-of-pocket costs for patients, including limits on cost-sharing and co-pay amounts and restricting co-pay accumulator programs as well as prohibiting or restricting the use of step therapies not tied to clinical impact
Federal PBM legislation has focused primarily on Medicaid and Medicare. Many legislative proposals have been delayed because of COVID-19 but are expected to re-emerge and pass.
“It isn’t an ‘if,’ it is a ‘when’ because there is bipartisan support,” explained Jung.
In addition, many states have passed or proposed policies focused on PBM transparency and increasing patient access. Some states are even getting together to sue PBMs. Many of these lawsuits are still in the discovery stage. Some will settle, but others are expected to go to trial.
“This is the tail end of the current economic model for PBMs,” said Jung. “The clock is ticking.”
One significant piece of legislation that already passed in October 2018 is “The Patient Right to Know Drug Prices Act.” It prohibits gag clauses that bar pharmacists from telling consumers when it would cost less to pay cash for a prescription than the co-pay required under their health plan.
Additional Challenges: Impacts on Claims Data and COVID-19
Jung also explained some additional issues within the prescription drug delivery system that are creating challenges for employers.
“Forty percent of prescriptions are now paid for in cash in the U.S.,” she stated. “While you as an employer aren’t paying for this claim, it also isn’t showing up in your claims data which can interfere with predictive models and data analysis.”
In addition, she stated that 40 percent of prescriptions are abandoned at pharmacies because the patient can’t afford them.
“Again, this may not show up as a claim, but it can have significant health consequences,” explained Jung.
To further complicate matters, Jung reported that only one in five patients prescribed a chronic disease medication takes it as advised.
“The end result is many patients are getting sicker and deferring care,” she stated. “This has been exacerbated by COVID-19 and the delays in care it has caused.”
Furthermore, Jung explained how the overall healthcare market looks very different than it did just 6 months ago. With COVID-19 and the resulting unemployment and economic impact, there has been an even greater shift toward government insurance programs. More than 60% of Americans are now covered by a government plan such as Medicaid or Medicare, and that is expected to grow. The reduction in commercial insurance has caused employers to lose leverage.
“Commercial plans used to be the 800 pound gorilla,” said Jung. “Now they are getting smaller and smaller.”
Recommended Employer Actions
Jung closed her presentation with six actions employers can take to better manage their PBM contracts:
- Require your PBM partners to fully report the actual total amount of rebates they receive by drug and manufacturer and provide an accounting of the aggregate dollars they are crediting your plan.
- Restrict the ability of your PBM partners to charge your plan more than they pay to pharmacies for drugs — in effect, eliminate the price spreading that is occurring.
- Prohibit gag-orders and claw backs to ensure patients are informed about the least expensive options.
- Restrict levels of cost sharing for high-priced drugs and consider making generic drugs free to eliminate issues with affordability.
- Prohibit or restrict the use of step therapies unless there is strict clinical differentiation approved by independent clinical research.
- Enforce fair contracting practices for independent pharmacies as compared to PBM-affiliated or PBM-owned pharmacies that are advantaged.
She wrapped up by emphasizing the power of employer alliances.
“They can magnify the employer voice,” Jung said. “They also have an opportunity to band together to develop direct purchasing contracts with drug companies.”
The session concluded with additional discussion on some of the specific concerns shared by employers, including biosimilars, generics, rebates and the role of claims data. Patrick Peters, Director of Benefits for Orange County Government, emphasized that health care is local and asked Jung how local employers can do a better job contracting with PBMs. She recommended sharing information and talking to each other about purchasing choices and terms. She reiterated the need to eliminate gag clauses and suggested having audit rights in the contract to increase transparency of fees, discounts and spreads.
Ashley Bacot, Director of Risk Management for Rosen Hotels and Resorts, embraced the recommendation for employers to unite to address the issues surrounding pharmacy benefits. “It’s time to work together as a common voice — to step up, be bold and make good things happen,” he said. “We can’t wish this away. It’s time to do the right thing and turn this around.”
Thank you again to our Summer Education Series sponsors: Amgen, Centivo, Genentech, Heron Therapeutics and Signify Health.