Exploring Pharmacy Benefit Manager Reforms: Transparency
PharmaNewsIntelligence explores the current PBM landscape and how transparency reform differs from current industry standards.
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- Pharmacy benefit managers (PBMs) have received criticism over the past couple of years for pocketing savings intended for patients. While this rhetoric is true for some PBMs, a small subset of the market advocates for PBM transparency and implements it into their practices.
PharmaNewsIntelligence interviewed Joseph M. Shields, Esq., managing director of Transparency-Rx, to discuss the current PBM industry, PBM transparency, and potential areas for reform.
What Are PBMs?
To start, Shields described the intended purpose of pharmacy benefit managers, noting some of their targeted vital functions.
“The theory behind them was to serve as an intermediary — on behalf of employers or plans as an attempt to manage and provide analysis, guidance, and other tools and solutions associated with drug pricing as an intermediary on behalf of the plan — between both the drug manufacturers who are producing medicines and critical solutions for the market and the pharmacy or other services that may be delivering those medications to patients and consumers,” he explained.
According to a 2019 report from the Commonwealth Fund, PBMs have three primary roles, including the following:
- Developing and maintaining lists of covered medications
- Negotiating rebates and discounts from manufacturers
- Working with pharmacies to reimburse drugs
The Accreditation Council for Medical Affairs (ACMA) notes that PBMs act as a third-party negotiator between pharmacies and manufacturers, developing pharmacy networks, reviewing drug usage, and processing claims. Additionally, Elevance Health estimates that approximately 80% of Americans with health insurance have prescription drug plans managed by PBMs.
Theoretically, PBM usage should have reduced healthcare spending by community pharmacies and beneficiaries.
However, since the inception of PBMs and their integration into the healthcare system, the market has shifted, skewing PBMs’ roles away from their initial intentions. Shields told PharmaNewsIntelligence that the three largest PBMs control approximately 80% of the market share, achieving this proportion through mergers and acquisitions.
Vertical integration within the market has resulted in most PBMs being owned by the largest insurers in the country. The ACMA estimates that CVS Caremark, Express Scripts, and OptumRx control approximately 89% of the market share.
What Are Transparent PBMs?
Despite three companies controlling a majority of the market share and public attention on rebates pocketed by PBMs, a smaller subset of the marketplace focuses on transparency.
“We represent a cohort of that marketplace, and it's transparent PBMs who I think approach drug pricing frankly very differently than their larger competitors,” noted Shields.
Although transparent PBMs have been around for quite a while and integrated into many existing models, the rhetoric surrounding the largest PBMs that hold most of the market share has caused the public to consider transparent PBMs a new concept.
Shields explained that many of the PBMs involved with Transparency-Rx are community pharmacists or people who came out of the healthcare market with criticism of larger competitor’s approaches, fairness, and integrity. Looking for a way to improve costs and service is the common goal of Transparency-Rx members.
“The backbone of the approach is that transparency occurs beyond disclosable fees. It’s a holistic approach,” he emphasized. “It’s done to distinguish them from the approach that their larger competitors have taken on.”
While spread pricing models, which allow PBMs to line their pockets by charging health plans and employers more for generic drugs than they cost, are the standard for the larger PBMs in the market, transparent PBMs function differently.
“The fundamental difference is — given where the drug pricing and policy debate has been — we rely on a model that sort of advances flat administrative fees that are closed to the patient or the plan. We don't generate profits from spread pricing. Any of the sort of profits that are generated from the cost of the medicine are passed through,” Shields revealed.
The savings a 100% pass-through can deliver allows companies to improve patient care, enhancing patient-management programs. These strategies have allowed Transparency-Rx to use evidence-based approaches to promote medication adherence and improve the healthcare experience.
“On average, the transparent PBMs save around $20 per person per script against their larger competitors, the traditional spread-pricing PBMs. The savings can average as much as 30% when they go head-to-head. So, there's a drug affordability aspect to it.”
Beyond financial concerns, Shields also commented on the policy issues, noting that some voices of larger PBMs and insurers dominated policy discussions. These dominant voices drowned out the positions of smaller and mid-size companies. This format resulted in a perceived resistance to PBM reform, even though other companies already implemented this model.
“When drug pricing got talked about, there was always a narrative about being against PBM reform, when in fact there are a lot of companies now reflected in Transparency-Rx that were in favor of it and were embracing it not only because they thought it was a good idea, but because it already reflected their business models,” Shields noted.
What Tools Can Educate the Public?
In addition to advocating for policy changes, leaders at Transparency-Rx launched a digital media campaign to explain PBM transparency and how it impacts patients.
“We're trying to educate stakeholders and policymakers on how the market's already functioning, that there is a trustworthy and reliability aspect to it,” explained Shields.
He noted that the policymakers and advocates should be confident in these reforms because they have been tested by transparent PBMs who do not have as big of a market share as their larger competitors.
“We're a national organization. We wanted to ensure we were educating stakeholders, thought leaders, and policymakers about the issues we see and the impact transparent PBMs are having.”
Through the advertising campaign, Transparency-Rx is trying to inform the public about the impact of transparent PBMs on cost savings and drug affordability.
What PBM Reforms Are Priorities?
PharmaNewsIntelligence asked Shields to identify priorities in PBM reform moving forward. First, he emphasized the importance of addressing spread pricing models and pass-through, noting that de-linking PBMs could help solve that concern.
Additionally, he noted that understanding all the players and stakeholders is critical for PBM reform.
“There are entities in the traditional PBM ecosystem that folks just aren't talking an awful lot about,” added Shields. Considering other players, such as group purchasing organizations, and their priorities can establish an understanding of the PBM landscape and inform reform.
“Whether it's through disclosure requirements or other acts or efforts, our third priority is to help level the playing field and take corrective action to what's been a tilted and coercive market,” he continued. “The fact that there's so much concentration just within three companies, and there are certain practices that they've advanced or taken on that raise eyebrows in terms of the approach they take or unwillingness to share information or key data is something we're particularly attentive to in the competitive market.”
Overall, Shields acknowledges the importance of open competition between PBMs. Businesses should be able to have a meaningful choice of PBMs that focus on transparency.
