PBM Coalition Aims to Curb Pharma Excesses

Me and my wife were independent pharmacy owners, and if you talk to an independent pharmacist, they will say, “These darn PBMs don’t pay us an appropriate price, and we lose money when we fill prescriptions.” And there is some truth in what’s being told there.

What’s happening is that big PBMs put a contract in place with these pharmacies. Unfortunately, there is a precedent the pharmacies don’t, or aren’t allowed to, negotiate the contract. They just end up signing it. As you can imagine, every time one of these contracts is put in front of them, it’s stricter, and they receive less payment. Eventually, they are legitimately not making very much money for the work they do to dispense medication.

Then, the PBM also has a contract with a self-insured employer, so there’s two contracts. When a plan member goes to the pharmacy and gives them the prescription, the non-transparent PBM charges the employer [for example] $123. With the other contract, between the PBM and the pharmacy, the cost could be $100. They mark it up for the employer by $23. And that’s called spread. The self-insured employer has no idea that the pharmacy didn’t get paid $123 and that the PBM retained that $23. That’s just one of 59 known ways that traditional PBMs make money off not being transparent.

Employers should be looking for what the PBM is actually getting paid. They should be asking if the price they are being charged for medication is transparently passed to the pharmacy. That’s the question they should be asking the PBM, and 85% of the time, or maybe I should say 75% of the time, the answer is going to be, “We can’t tell you that.”

But Liviniti does exactly what we’ve described. We pay the pharmacies exactly what we charge the employer, so there’s no markup on the ingredients. Whatever the best price is that we can negotiate with a pharmacy we share with the employer immediately. In fact, when we renegotiate pharmacy pricing—which we just recently did with a large national chain pharmacy—the updated rates provide savings to employers immediately, the next day, rather than waiting for when the contract renews. As we have grown, these negotiations are more impactful and easier to produce more effective returns to self-insured employers, as larger pharmacy chains want to renegotiate to drive volume to their pharmacies.

The only efficient way you can find out the cost of a drug is to go to GoodRx and it tells you what you should be paying at pharmacies, but it doesn’t tell you what the PBM is paying.

For example, if you go on GoodRx, it might tell you the price of Enbrel is $7,584. Now for Liviniti members, they can go on our website and type in their information. What we show on our site is the cost of the drug is $7,017.44 and we have the ability to get a rebate of nearly $4,000. There just happens to be a coupon that will save the patient and employer money, so the best price for the drug at Liviniti is $3,047.

Right now, if you are the HR director that is trying to put together this plan design, the whole goal is to give access to medications for an affordable price. Well, Enbrel has six other competitor products. You don’t want all six on the formulary; you want a couple of them. But if you don’t know the net price, the rebate, or that there is a coupon, you never know what the best price is when you’re making formulary decisions. Right now, it’s the PBMs, who make money on the rebates, that are creating the formularies. What drugs do you think they are going to put on their formulary?

We have the pleasure of serving nearly 750,000 lives. We are proud to provide our service to over 2,000 self-insured employers. It’s great stuff. But what’s frustrating for me is that the vast majority of our clients are small-market employers, ranging between 500- and 1,000-life companies, meaning large employers are not receiving these transparent and pass-through services. We do have some jumbo accounts like a 60,000-life group in Philadelphia. But what is frustrating for me is the big PBMs hold back rebates to give to their jumbo accounts. They purposely pay their smaller accounts smaller rebates, which allows me to compete, which is why we often win small accounts. But as far as organizations like Fortune 500 employers, they [bigger PBMs] hold all of their rebates and pay more of them back to a group like Southwest Airlines. This makes it look like the traditional PBM offers more value. But the traditional PBM is taking from the smaller employer and including more expensive drugs on the formulary to make it appear they bring more value, when they are actually increasing everyone’s cost.

Yes, and it has to do with group purchasing organizations. The purpose of a GPO is to negotiate rebates with drug manufacturers. Let’s hypothetically say a GPO secures $1 million in rebates from a major pharmaceutical company. The GPO takes their cut, let’s say 30%, but no one really knows what they take because GPOs are not transparent. After they take their 30% cut, there are $700,000 in rebates left. The GPOs then pass those on to a rebate aggregator subsidiary company. That’s who I get to work with. So all of a sudden, my rebates are cut by 30%, and then the rebate aggregator takes their cut, which ranges between 7% and 10%. When the rebates get to me, I’ve got $600,000, and I pass 100% on to the clients in a way that is transparent to a specific drug. My competitors choose to hand those rebates out any way they want to because there is no transparency. In my world, as long as we pass all the rebates that we receive and don’t take a cut of them, we’re competitive. But we could do so much more if rebates were transparent from the GPO from the starting point.

Why is a rebate not considered a kickback? A cardiologist cannot accept a payment from a primary care doctor to refer them, because that’s a kickback and in violation of the Stark Law. It’s illegal; it’s just bad behavior. But federal safe harbor regulations specifically say that rebates are not illegal; they’re part of normal business practice. If you really want to fix the industry, we should fix that. If we got rebates out of the picture, normal economics, in my opinion, would occur. But rebates pay an unbelievable amount of people and entities. Rebates are paid to wholesalers and distributors, employers, and even Medicaid and Medicare plans.

Many of the larger PBMs include the more expensive drugs on the formularies because they make more money off those. A PBM can really increase the cost to an employer by requiring the brand-name drugs to be dispensed rather than generics, simply because a PBM can harvest a percentage of the rebate as revenue.

For all the PBMs in the industry, about 91% of prescriptions dispensed now are generics. My competitors are only at about 87% generic prescriptions, and I’m at 91%. But that 4% difference is millions—billions—of dollars of savings. We don’t make money off of the rebate, so we want the generics to be on the formulary as soon as possible so employers immediately save money. We’re aligning philosophically with the employer to get them access to the cheapest drugs.

We’re helping educate these legislators to understand that definitions are very important to PBM reform. We’d like to get to the point where there’s nothing connected to PBMs making money based on what drugs are on the formulary. The term for this is delinking. [Delinking would not allow PBMs, rebate aggregators, wholesalers, etc. to have a revenue model based on the cost of a drug or pharmacy claim. It would, in essence, remove spread pricing, require transparent rebates, and permit a PBM to profit from administrative fees only.]

There are 46 bills, all in different statuses, dealing with the problem in Congress. In my opinion, the most comprehensive bill is U.S. SB 1339 [The Pharmacy Benefit Manager Reform Act]. Senators Bernie Sanders [I-Vt.] and Bill Cassidy [R-La.] introduced the bill and run the committee it’s in, the Committee on Health, Education, Labor, and Pensions. [The bill would require more transparency by PBMs, including annual reports to their plan sponsors; prohibit spread pricing; require PBMs to give all rebates, fees and discounts to the employer; and penalize PBMs that don’t follow the legislation.] We have worked with both senators and provided the language that needs to go into that bill and hope it will be presented to the Senate floor to be voted on. We continue to educate legislators that this bill has the most comprehensive opportunity to create reform.

The other 45 bills, for the most part, are missing something. Remember, there are 59 ways PBMs make money, and if you miss one of them, that keeps the corridor open for bad behavior. We really have to get it right. I’m actually very optimistic something is going to pass soon. When you look back over the last eight to 10 years, there is a very strong bipartisan gathering around the idea that PBM reform needs to happen. What I’m probably the most worried about is something passing where things get carved out in negotiations and it actually does more harm than good. The GPOs truly are a monopoly. If that doesn’t get fixed, all they’ll do is not take 30% anymore; they’ll take 50% of the rebates from the manufacturers. The traditional PBMs will not let go of their power over rebates if they are not forced to become transparent.