IN THE PUBLIC EYE

Waiting for pharmacy benefit manager (PBM) reform from Washington? Here’s what to do now.

Author: Tammi Starkey, Alliant

 

A recent survey found that 60% of large-company benefit leaders said their PBM contracts were opaque, overly complicated and contained clauses that profit the PBM at the expense of employers and patients.

 

Fortunately, Washington is working on PBM reform, one of the rare issues for which there is agreement between both parties in Congress and the Trump administration. It is important to note that consensus isn’t always enough to create legislation, and any passed law will take time to come into force.

What follows is a guide to the problems with PBM contracts, the reform proposals and two approaches to address the existing issues that do not require waiting on Washington: (1) Finding a new generation of PBMs committed to more transparency and (2) Negotiating a more transparent arrangement with your current PBM.

 

The problem with large PBMs

Pharmacy benefit managers were created to reduce employer costs, yet over time they have evolved in ways that often incentivize increases in plan sponsor and employee costs:

  • Vertical integration: Nearly 80% of the prescription market (which totaled $600 billion in 2023) is controlled by PBMs run by the three largest health insurance carriers: CVS Caremark (owns Aetna), Optum RX (owned by UnitedHealth Group) and Express Scripts (owned by Cigna).
  • Spread pricing: PBMs charge employers more than they pay pharmacies for drugs, keeping the difference.
  • Drug company rebates: These payments are often in return for PBMs steering business to their products and can include other undisclosed fees.
  • Misaligned incentives: By favoring their own specialty and mail-order (or retail) pharmacies, PBMs may be restricting competition and limiting their interest in negotiating the lowest pharmacy markups. A recent FTC study found that PBMs often charged employers a markup for specialty drugs distributed through their affiliated pharmacies of more than 100% — and sometimes more than 1,000%. Recently, the big PBMs have started joint ventures to manufacture their own generic and biosimilar drugs, creating another potential conflict.
  • Secrecy: PBM common practices such as spread pricing, rebates, contractual gag clauses and price list manipulation have created an environment ripe with opaqueness and confusion for employers.

 

The proposed legislation

Congress has been looking closely at PBM reform for several years, and a detailed bipartisan bill was removed from last December’s stop-gap budget. Leading committees are now working to pass something similar. Two bills that passed committee last year were reintroduced:

 

Other proposals go further, including the Patients Before Monopolies Act, which would ban PBMs and insurance companies from owning a pharmacy.

 

The states have been busy as well, increasing their oversight of PBM practices through new legislation and reporting requirements. Unintended consequences from this are a concern for consultants and employers looking to control costs.

Employers and their advisors can’t afford to wait to scrutinize their PBM’s business practices and press for more advantageous contracts. The time is now to:

  • Look at the fine print: A typical PBM contract may specify high-level drug discounts, rebates and dispensing fees. With more research, you can find exclusions and key definitions, such as what is a “specialty drug.”
  • Press for full pass-through of rebates: Work through every category and proposed exception to insist that rebates for all drugs go to the employer.
  • Ask about conflicts: How does the PBM interact with its affiliated pharmacies? Are reimbursements different than those for independent pharmacies? Are the dispensed drugs made by brands it owns?
  • Check its approach to cost control: What is its philosophy for adding drugs to its formulary? How does it generate prior authorization guidelines for drugs with high rebates? What percent of authorization requests are approved?
  • Audit performance: At the end of a contract, demand a detailed itemization of all claims to ensure that the PBM has met its commitments. If it hasn’t, fight for a financial adjustment.

 

Whether your company decides to find a new PBM or renegotiate its deal with the current provider, there are a lot of details to consider. An experienced broker or consultant will help you sort through those complex contracts. If Washington passes PBM reform, that advisor will also be able to adapt your plan to take maximum advantage of the new rules.

 

How Alliant Can Help

The pharmacy team at Alliant is made up of industry specialists, pharmacists and data specialists who provide marketplace perspective and insights, vendor capabilities and practical knowledge to secure the best pricing and contract arrangements.

 

Our buying power and partnerships enable us to support your benefits strategy, pharmacy program and cost management throughout the entire program lifecycle. Get in touch with an employee benefits advisor today.