Monthly Archives: November 2017

The “Sopranos” of The Pharmaceutical Industry: Pharmacy Benefit Managers (PBMs) and How THEY Drive Costs UP.

Kevin R. Campbell, MD, FACC

CEO, PaceMate

Today, the New York Times reported that drug companies, insurers and pharmacies may “team up” to create effective monopolies.  Company executives argue that this would be better for patients and would improve care and outcomes—however, nothing could be further than the truth.  These conglomerates would further limit access and drive up costs.

Many patients and physicians have found frustration when attempting to prescribe a particular medication for a particular condition.  Often only certain drugs are “on formulary” (which means they are on contract) at a particular institution.  In the world of drug prices and availability, pharmacy benefit managers or PBMs serve as intermediaries between health plans, manufacturers and pharmacies.  PBMs are companies—such as Express Scripts, CVS CareMark and others–that are hired by health care plans and tasked with determine what drugs are available in a certain plan and which covered patients have access.  According to Forbes, Express Scripts, the leader in PBM market share generated 101 billion dollars in 2015.

How The PBM Mafia Works

Most PBM decision makers have absolutely NO medical training and have no idea how or why a particular therapy works.  They are simply there to manage cost—AND to fatten their own wallets during the process.  For every drug transaction, PBMs receive BOTH a reimbursement fee as well as an administrative fee.  In addition, when PBMs place a particular drug on formulary, they receive rebates and more fees from manufacturers which are NOT passed on to the consumer.  PBMs operate in a world with little oversight and even less transparency.  In other words, PBMs are middle men who are paid on both sides of the transaction—similar to the way in which Tony Soprano and his Captains ran their garbage business in New Jersey.

PBMs claim to drive down costs in healthcare by negotiating discounts, managing formularies to obtain rebates, encouraging generics and non specialty medications as well as increasing the use of their own mail order pharmacies.  In reality, however, PBMs actually drive costs up by using their “middle man” position to increase their own profits.  They work to negotiate contracts with drug manufacturers, health plans and pharmacies that maximize THEIR profits at expense of patients and physicians.  PBMs rely on a shady business maneuver known as “spread pricing”—which is the difference between what PBM charges a health plan for a certain drug and what it reimburses a pharmacy for dispensing it.  The PBM, in turn, is able to increase its margins as neither the health plan or pharmacy has any idea what the other is paid.  PBMs have a great deal of power to determine how YOU, the patient, is treated by your physician through determining tiers of drugs, formularies and preferred drugs.  One would think that efficacy, safety and actual DATA would determine which drugs get “preferred” status—but in the PBM world, its all about which drugs pay the best REBATES.  (Sound familiar? Remember Tony Soprano and all of the bribery, intimidation and other misdeeds? Similar to Tony’s “businesses”, every year, there is a bidding war among manufacturers and the company with the largest rebate (chunk of money to be paid to the PBM) always gets the preferred tier.

How Does This Affect Doctors and Patients?

Once a formulary is set, PBMs work to make it difficult to deviate from its tiers of offerings.  This can have a substantial impact on the doctor-patient relationship and can impact the way patients are treated.  For example, most PBMs put “step edits” in place in order to force physicians and patients to go through a series of preferred drugs prior to getting the drug that the physician originally intended for the patient.  This can result in unwanted side effects and significant delays in treatment.  If a PBM decides to switch to another drug mid year (which is almost always due to a more profitable contract with a different manufacturer), patients are forced to give up a stable therapy for a non-medical reason.  This can lead to disruption in therapy and negative patient outcomes.  The PBM system often stifles innovation as it makes it much harder for new drugs and biosimilar drugs to enter the market.  This can also lead to a non-acceptable lag in getting new therapies to the patients who need them most.  Ultimately, the PBM system and rebates related to PBM profits incentivizes higher drug prices—the higher the list price, the higher the rebate to the PBM.

What Can Be Done?

First of all, we must shed light on the activities of the PBMs and expose them for the mobsters that they are.  We must educate the public, patients, physicians and our legislators in Washington.  While healthcare reform seems unlikely at this time, Congress could act to limit the power and price gouging associated with PBM activities.  Transparency must be mandated—we should all be able to see the flow of cash between manufacturers, PBMs and pharmacies and identify areas of abuse.  In addition, transparency would allow prescribers to see exactly what each prescription really does cost.  Most importantly, we must allow doctors to use the drugs that are best indicated for their patients based on scientific data—NOT based on what generates the most profit for PBM executives.

Acknowledgments:  I would like to thank Dr. Madelaine Feldman–a practicing rheumatologist in New Orleans, Louisiana and leader in the fight against PBMs for her assistance in researching this particular piece.


(photo via screenshot, HBO, The Sopranos)