It is time for a more nuanced discussion about pharmacy benefit managers.

We study the price competition among multiple branded drug manufacturers when their drugs are distributed through a common pharmacy benefit manager (PBM). The PBM develops a drug benefit plan for its clients, which includes a formulary list that specifies the copayment for each branded drug, and a list of prices to be charged to the clients for each of the branded and generic drugs. Client organizations decide whether to contract with the PBM and pay the majority of drug costs, while the plan enrollees select which drug to consume. An important feature when multiple branded drugs are distributed through a common PBM is that the PBM's market size, measured by the number of prescriptions filled, depends on the aggregate attraction of all the drugs under the PBM's plan. Therefore, the branded drug manufacturers involuntarily cooperate in affecting the PBM's market size, while competing for the market shares under the PBM's plan, which leads to an intricate co‐opetition among the branded drug manufacturers. We characterize the PBM's optimal copayment and pricing decisions, and establish conditions for the equilibrium analysis of the price competition among the branded drug manufacturers. In particular, we provide a sufficient condition for the uniqueness of the equilibrium, and characterize the equilibrium in closed form. We apply our model to study the strategic implications of vertical integration between a branded drug manufacturer and the PBM. By comparing the pre‐ and post‐integration equilibrium outcomes, we characterize the impact of vertical integration on the branded drugs’ market shares and copayments, the non‐integrated branded drug manufacturers’ effective wholesale prices and profits, the integrated PBM's total market size and profit, the aggregate profit of all branded drug manufacturers and the PBM, consumer surplus, and social welfare. We further explore the impact of vertical integration through numerical study.

We model the competition among multiple pharmacy benefit managers (PBMs) for the patronage of a client organization. Each PBM selects a list of prices to be charged to the client organization for each of the branded and generic drugs within a therapeutic class (price decision) and a formulary list that assigns branded drugs to preferred or nonpreferred tiers (formulary decision). Drug manufacturers offer rebates to PBMs for drugs on preferred tier of formularies. The individuals participating in the client’s pharmacy benefit plan are the ones consuming the drugs and making purchasing decisions, whereas the client organization is paying the majority of drug cost. The choices of the individuals and the client organization are governed by different utility measures. For this complex drug distribution setting and for competing PBMs, we show the existence and uniqueness of a pure Nash equilibrium on aggregate formulary and price decisions, which represent the welfare-adjusted cost and welfare-adjusted price of each PBM’s plan, respectively. We characterize each PBM’s optimal formulary and equilibrium price decisions and discuss the impact of various model primitives. We apply our model to gain insights on the impact of mergers in the PBM industry.

Despite the fact that prescription drugs are an increasingly important component of modern health care, especially for the elderly and disabled populations suffering from chronic conditions, 35% of Medicare beneficiaries lack any form of prescription drug insurance. Congress is currently debating six major proposals to extend insurance protection to outpatient prescription drugs under Medicare. Five of these proposals suggest the use of pharmacy benefit managers (PBMs) to improve the cost-effectiveness of the prescription drug benefit. A Tufts Center for the Study of Drug Development (Tufts CSDD) survey of eight leading PBMs shows that during the last five years PBMs have increased their enrollment of Medicare beneficiaries considerably. PBMs currently facilitate moderate to full access to pharmaceuticals for approximately 20% of Medicare beneficiaries. Seven of the eight PBMs surveyed are also developing disease management programs targeted specifically at the Medicare population. However regarding the feasibility of a universal prescription drug benefit, a number of issues concerning how to structure government contracts with PBMs and how to meet certain political challenges to PBM mediation remain unresolved.

The Myth that the State can do Better: Medicaid Drug Prices and Managed Care Organizations

Recent US media and policy attention on insulin affordability has focused on the role of manufacturers in setting prices; however, the role of other drug distribution intermediaries in determining prices has received less attention. To estimate the share of net expenditures on insulin captured by manufacturers, wholesalers, pharmacy benefit managers, pharmacies, and health plans from 2014 to 2018. This cross-sectional study of the US insulin market was conducted in 2020 using 2014-2018 data from multiple sources, including list and estimated net prices from SSR Health for 32 insulin products, mean use weights from a commercial pharmacy claims database, mean acquisition costs and reimbursements from the Centers for Medicare & Medicaid Services, mean spread and share of rebates retained by pharmacy benefit managers from state Medicaid and drug transparency reports, and profit margins from the public filings of distribution system participant companies. Participants were insulin manufacturers, drug wholesalers, pharmacies, pharmacy benefit managers, and health plans. Mean list and net insulin prices, mean net expenditures on insulin, share of expenditures retained by each distribution system participant. Between 2014 and 2018, mean list prices of 32 insulin products increased by 40.1% (from $19.60 to $27.45), while mean net prices received by manufacturers decreased by 30.8% (from $10.53 to $7.29). Net expenditures per 100 units of insulin increased by 3.2% (from $15.11 to $15.59) while the share of a hypothetical $100 insulin expenditure accruing to manufacturers decreased by 33.0% (from $69.71 to $46.73) and the share accruing to health plans decreased by 24.7% (from $13.82 to $10.40). The share of insulin expenditures retained by pharmacy benefit managers increased by 154.6% (from $5.64 to $14.36), the share retained by pharmacies increased by 228.8% (from $6.21 to $20.42), and the share retained by wholesalers increased by 74.7% (from $4.63 to $8.09). Results of this cross-sectional study of the distribution of insulin expenditures suggest that policies to control insulin costs should consider all entities throughout the insulin distribution system. Manufacturers represented a decreasing share of insulin expenditures, and pharmacies, pharmacy benefit managers, and wholesalers accounted for a growing share; all entities play a role in increasing insulin costs.

a pharmacy benefits manager performs pharmacy benefits management services for an entity offering pharmacy benefits to their customers pharmacy benefits manager does not include a health insurer licensed in the state if the health insurer or its subsidiary is providing pharmacy benefits management services exclusively to its own insureds or a public self funded pool or a private single employer self funded plan that provides such benefits or services directly to its beneficiaries

State Watch

Most recent proposals to add a prescription drug benefit to the Medicare program suggest using pharmacy benefit managers (PBMs) to control costs and promote quality. However, the proposals give little detail on the institutional arrangements that would govern PBM operations and drug procurement. The recent Congressional Budget Office cost estimate of the Clinton administration's proposal reflects this lack of detail on how PBMs would function. We sketch an approach for structuring PBM operations that focuses on competition among PBMs, manufacturers, and distributors; incentive pricing; and risk sharing with PBMs.

Back to table of contents Previous article Next article Government NewsFull AccessHHS’s Proposed Drug Rebates Rule Would Raise Premiums; Benefits UnclearLinda M. RichmondLinda M. RichmondSearch for more papers by this authorPublished Online:14 Mar 2019https://doi.org/10.1176/appi.pn.2019.3b11AbstractA prescription drug rule proposed by the Trump administration would bar drugmakers from giving rebates to plans, resulting in higher premiums for Medicare Part D enrollees across the board. The ultimate impact on prices at the pharmacy counter remains unclear.The Trump administration has proposed a controversial plan aimed at lowering prescription drug prices that would put an end to the practice of drugmakers giving rebates to certain health plans and their pharmacy benefit managers (PBMs).iStock/MJ_PrototypeThe rule would affect enrollees in Medicare Part D drug plans and lower-income individuals enrolled in Medicaid managed care plans. If finalized as expected next year, the rule would raise monthly premiums in Medicare Part D drug plans by as much as 22 percent but would provide uncertain benefits at the pharmacy counter. Analysts say the plan would likely trickle down to the rest of the health insurance marketplace.The proposed rule would legally bar rebates that drug manufacturers now pay to health plan sponsors—and the PBMs under contract with them—driving a certain volume of sales or providing a certain market share. The rebates are based on the list price of drugs, so when prices go up, the rebates are larger.These arrangements may create a perverse incentive for drugmakers to raise their list prices—and for plans to favor these more expensive drugs—to obtain higher rebate payments, according to the proposed rule, published by the Department of Health and Human Services in the February 6 Federal Register.Drug companies announced large list price increases for 2019, by one analysis, about 6 percent per drug, according to the proposed rule. However, these price increases are not supported by inflation, increased costs of goods, or increased demand, but they instead “reflect significant distortions in the distribution chain.” Nearly every drug company reporting a price increase in January said that most or all of the increase reflected the cost of rebates being paid to health plans or their PBMs, according to a fact sheet issued by the administration.Under the current system, patients pay a share of their medication cost based on the list price of the drug at the point of sale. The health plans or their PBMs later receive rebates on those medications, but that discount is not passed along to patients.The proposed rule would end the safe harbor arrangement that shields drugmakers paying these discounts from anti-kickback statutes. The proposed rule would also establish a new safe harbor for drugmakers that choose to give rebates directly to consumers at the point of sale.“There is tremendous uncertainty about how this rule would work and how it would affect beneficiaries in terms of out-of-pocket costs and program spending,” said Juliette Cubanski, Ph.D., M.P.H., M.P.P., associate director of the Program on Medicare Policy at the Kaiser Family Foundation. “This is a bold experiment, but it’s also a very risky experiment in terms of the potential impact on the prescription drug marketplace. What’s unequivocal is that everyone enrolled would see an increase in premiums.”An analysis by Milliman of the potential impact of the proposal commissioned by the administration projects premium increases of 12 percent to 22 percent per member per month. Cubanski pointed out that the proposed rule provides no guarantee that drugmakers will choose to lower list prices or provide rebates to consumers, although all patients across the board will see their premiums go up.Regardless, not all patients take rebate-eligible medications, which are typically reserved for expensive brand-name drugs that have several competing medications, Cubanski pointed out. Under the Medicare Part D plan, antidepressants, antipsychotics, and anticonvulsants are part of the so-called “protected classes” drugs for which plans are required to cover all or substantially all of them. As a result, rebates for these drugs for psychiatric conditions tend to be lower, if they are offered at all.The drug rebate system is somewhat of a mystery, since discount arrangements for specific drugs are considered proprietary information that drugmakers are not required to disclose.“There’s some level of uncertainty as to whether patients would see any savings if you take away rebates for plans,” Cubanski concluded. “Because the rule does not change drugmakers’ fundamental ability to set list prices wherever they want them.”APA has been advocating to make prescription drugs affordable and accessible to those who need them and is reviewing the proposal, along with a coalition of medical organizations, and will be filing comments by the April 8 deadline.Stephen J. Ubl, president and CEO of Pharmaceutical Research and Manufacturers of America (PhRMA), applauded the administration’s proposal and said these types of reforms will especially help patients with chronic diseases who are often not benefitting from the current rebate system.“We need to ensure that the $150 billion in negotiated rebates and discounts are used to lower costs for patients at the pharmacy,” he added. ■Comments on the proposed rule, “Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees (42 CFR 1001)” may be submitted here. ISSUES NewArchived

Pharmacy benefit management (PBM) companies promote mail order programs that typically dispense 90-day quantities of maintenance medications, marketing this feature as a key cost containment strategy to address plan sponsors' rising prescription drug expenditures. In recent years, community pharmacies have introduced 90-day programs that provide similar cost advantages, while allowing these prescriptions to be dispensed at the same pharmacies that patients frequent for 30-day quantities. To compare utilization rates and corresponding costs associated with obtaining 90-day prescriptions at community and mail order pharmacies for payers that offer equivalent benefits in different 90-day dispensing channels. We performed a retrospective, cross-sectional investigation using pharmacy claims and eligibility data from employer group clients of a large PBM between January 2008 and September 2010. We excluded the following client types: government, third-party administrators, schools, hospitals, 340B (federal drug pricing), employers in Puerto Rico, and miscellaneous clients for which the PBM provided billing services (e.g., the pharmacy's loyalty card program members). All employer groups in the sample offered 90-day community pharmacy and mail order dispensing and received benefits management services, such as formulary management and mail order pharmacy, from the PBM. We further limited the sample to employer groups that offered equivalent benefits for community pharmacy and mail order, defined as groups in which the mean and median copayments per claim for community and mail order pharmacy, by tier, differed by no more than 5%. Enrollees in the sample were required to have a minimum of 6 months of eligibility in each calendar year but were not required to have filled a prescription in any year. We evaluated pharmacy costs and utilization for a market basket of 14 frequently dispensed therapeutic classes of maintenance medications. The proportional share of claims for each therapeutic class in the mail order channel was used to weight the results for the community pharmacy channel. Using ordinary least squares regression models, we controlled for differences between channel users with respect to the following confounding factors: age, gender, presence or absence of each of the top 11 drug-inferred conditions (e.g., asthma/chronic obstructive pulmonary disease, cardiovascular disease), drug mix, and calendar year. We calculated estimated predicted means holding all covariates at their mean values. For both 90-day dispensing channels, we calculated number of 90-day claims per member per year (PMPY) and cost per pharmacy claim, with all claims counts adjusted to 30-day equivalents (i.e., number of 90-day claims × 3). Differences were compared using t-tests for statistical significance. Of 355 PBM clients prior to exclusions, 72 unique employers covering 644,071 unique members (range of approximately 100 to more than 100,000 members per employer) were included in the analysis. On an unadjusted basis, community pharmacies represented 80.8% of 90-day market basket claims (in 30-day equivalents: 3.97 claims PMPY vs. 0.95 in mail order) and 77.2% of total allowed charges. After adjustments for therapeutic group mix and patient characteristics, predicted mean pharmacy claim counts PMPY were 4.09 for community pharmacy compared with 0.85 for mail order (P less than 0.001). Predicted mean allowed charges per claim for community and mail order pharmacies did not significantly differ ($49.03 vs. $50.04, respectively, P = 0.202). When offered maintenance medications through community and mail order pharmacies on a benefit-equivalent basis, commercially insured employees and their dependents utilized the community pharmacy channel more frequently by a margin of more than 4 to 1 in terms of claims PMPY. Overall allowed charges per claim for community and mail order pharmacy did not significantly differ.

The advent of direct-acting antivirals (DAAs) has created an avenue for transplantation of hepatitis C virus (HCV)-infected donors into uninfected recipients (D+/R-). The donor transmission of HCV is then countered by DAA administration during the post-operative period. However, initiation of DAA treatment is ultimately dictated by insurance companies. A retrospective chart review of 52 D+/R- kidney recipients who underwent DAA treatment post-transplant was performed. Patients were grouped according to their prescription coverage plans, managed by either commercial or government pharmacy benefit managers (PBMs). Thirty-nine patients had government PBMs and 13 had commercial PBMs. Demographics were similar between the two groups. All patients developed HCV viremia, but cleared the virus after treatment with DAA. Patients with government PBMs were treated earlier compared to those with commercial PBMs (11days vs 26days, P=.01). Longer time to DAA initiation resulted in higher peak viral loads (β=0.39, R2 =.15, P=.01) and longer time to HCV viral load clearance (β=0.41, R2 =.17, P=.01). D+/R- transplantation offers patients an alternative strategy to increase access. However, treatment can be profoundly delayed by a third-party payer authorization process that may be subjecting patients to unnecessary risks and worsened outcomes.

Back to table of contents Previous article Next article Professional NewsFull AccessReport Urges Businesses To Improve MH CoverageKate MulliganKate MulliganSearch for more papers by this authorPublished Online:3 Jan 2003https://doi.org/10.1176/pn.38.1.0008With funding from the Robert Wood Johnson Foundation, the National Health Care Purchasing Institute issued the monograph “Making the Business Case for Improving Mental Health Care: How to Maximize Corporate Resources” in September.The institute, which is part of AcademyHealth, was founded to improve the purchasing practices of major corporations and government agencies.Patricia Pittman, senior manager at AcademyHealth, and Veronica Goff, former vice president of the Washington Business Group on Health, wrote the report.The authors opened with the statement, “The mental health of employees needs to be a key concern for employers who wish to improve employee productivity and work quality. Mental disorders are highly prevalent and enormously costly, but they are also exceedingly treatable.”They cited a study by E.R. Berndt that found that total medical expenditures of those with mental disorders were 4.5 times higher than those with no disorders (Health Affairs, July/August 2000). (Costs of treatment for mental illness are included in the total medical expenditure figure.)Indirect costs associated with mental illness, according to the authors, appear to be even greater than the money spent on treatment.R.C. Kessler published an economic analysis that found that when the costs of depression treatment were compared with the costs of lost productivity, 45 percent to 98 percent of treatment costs were offset by increased productivity (Health Affairs, September/October 1999).Former APA president Daniel Borenstein, M.D., lauds a health policy think tank for helping to promulgate the business case for mental health.Former APA president Daniel Borenstein, M.D., told Psychiatric News, “I’m delighted to see a nonpartisan health policy organization issue a report that affirms the message APA has been promulgating for several years.”He commented that “although the devil is in the details,” the report is particularly useful in the examples offered of companies that are providing good mental health benefits and in the references that help make the business case for mental health.Borenstein said that the report was timely because there is a greater public awareness of the value of mental health services. The potential importance of that trend, however, is threatened by rising costs of insurance premiums and of health care overall.During his presidency, Borenstein launched APA’s Business Initiative.The authors offered action steps for employers in four areas:• Care seeking: Empower employees to seek care through education and outreach programs.• Benefits design: Facilitate access to care through benefit designs and contracts with vendors that emphasize early intervention, appropriate treatment, and continuity of care.• Vendor accountability: Promote strategies that hold vendors accountable for improved coordination of delivery and evaluation of behavioral health and medical benefits.• Disability: Reduce disability and turnover through active disability management, return-to-work plans, and job accommodations.Pittman and Goff noted that employers often use behavioral health carveouts and wrote that “such arrangements may make coordination among plans more complex.” Nonetheless, “they also usually improve access to behavioral health services and result in an overall reduction in employer costs.”Lloyd Sederer, M.D., New York City’s executive deputy commissioner for mental hygiene, told Psychiatric News, “Although sometimes access is improved by carveouts, the duration of treatment generally is shorter, and its quality is uncertain.”In March 2002, APA’s Board of Trustees approved a position statement stating that “the separation of the funding and delivery of psychiatric and/or substance abuse services (carveouts) from general medical services is detrimental to providing high-quality comprehensive care.” The statement was approved by APA’s Assembly in November 2001.Sederer facilitated APA’s Business Initiative when he was the association’s director of clinical services.The authors acknowledged that spending on psychiatric medications has risen steadily, although behavioral health spending now totals just 3 percent to 5 percent of all health care expenditures.The report recommended that employers ask their pharmacy benefit managers (PBMs) to provide a formal clinical review of new drugs, including recommendations for placement in the formulary and evidence-based utilization protocols. The report also stated that drug formularies should have more than one medication in each class and offer variety in pricing.Sederer said, “Employers should not be encouraged to hand off review of new drugs to PBMs, which have an economic motivation to encourage use of the least expensive medications.”He added that access to a broad range of antipsychotic medications is important because adherence problems with those medications are greater than with other kinds of medications and the consequences of nonadherence can be devastating.The authors also encouraged the use of PBM databases to examine and improve prescribing patterns, treatment compliance, and patient outcomes.“Excellent idea,” commented Sederer. “PBMs have data that can be used to analyze how utilization affects results for patients.”The report is posted on the Web at www.nhcpi.net. ▪ ISSUES NewArchived

Pharmaceutical manufacturers rarely reduce drug list prices, but 3 expensive treatments for hepatitis C experienced significant list price reductions in 2018. Understanding the impetus for these price reductions could inform policies to reduce drug spending. To estimate the differences in manufacturer and health care organization revenue from the Medicare Part D program following list price reductions for hepatitis C treatments, accounting for manufacturer discounts to eligible health care organizations under the 340B drug discount program and manufacturer rebates to pharmacy benefit managers. A cross-sectional analysis of Medicare Part D claims for hepatitis C treatments in 2016 was conducted. Data analysis was performed in February 2019. Using the observed price changes from 2018, manufacturer and 340B health care facility net revenues for each drug were estimated before and after the price change based on 2016 use, adjusting for estimated 340B health care organization discounts and pharmacy benefit manager rebates. The 340B health care organizations include hospitals, clinics, and other organizations that meet federal standards to participate in the 340B program and were actively enrolled in the 340B program from January 1 to December 31, 2016. Manufacturer discounts to 340B health care organizations are based on the price of a drug before rebates to pharmacy benefit managers, and a reduced list price would reduce discounts to 340B health care organizations. Health care organization-level claims data were obtained from the Medicare Part D Provider Utilization File, and health care organizations were matched to Health Resources and Services Administration Office of Pharmacy Affairs Information System to identify 340B-eligible health care organizations. Eligible claims included claims for ledipasvir with sofosbuvir (Harvoni; Gilead Sciences Inc), sofosbuvir with velpatasvir (Epclusa; Gilead Sciences Inc), and elbasvir with grazoprevir (Zepatier; Merck). Health care organizations were considered 340B eligible if their practice address was a registered 340B entity for the entirety of 2016. Discounts to 340B health care organizations and pharmacy benefit managers for each drug before and after the price change were the primary outcomes. Other outcomes included per-treatment and aggregate manufacturer and 340B health care organization net revenues for each drug before and after the price change and the share of claims prescribed by 340B health care organizations for each drug. Per-treatment manufacturer net revenues were estimated for 340B health care organizations, non-340B health care organizations, and a weighted average revenue across health care organization types. The 3 hepatitis C treatments evaluated had 30% to 41% of claims prescribed by 340B-eligible health care organizations, greater than the 14% 340B prescribing rate for all Medicare Part D drugs. Based on use data from 2016, list price reductions for hepatitis C treatments in 2018 were estimated to have increased aggregate manufacturer net revenues for 3 treatments by $181.9 million-a 28% increase. Aggregate 340B health care organization net revenues were estimated to have been $181.9 million lower-a 74% decrease. List price reductions for hepatitis C treatments may have increased drug manufacturer net revenues, owing in part to lower discounts provided under the 340B program and the high share of sales subject to those discounts. Policymakers should consider the role of 340B discounts when evaluating policies to reduce drug spending.

BackgroundObservational data are increasingly being used for pharmacoepidemiological, health services and clinical effectiveness research. Since pharmacies first introduced low-cost prescription programs (LCPP), researchers have worried that data about the medications provided through these programs might not be available in observational data derived from administrative sources, such as payer claims or pharmacy benefit management (PBM) company transactions.MethodWe used data from the Indiana Network for Patient Care to estimate the proportion of patients with type 2 diabetes to whom an oral hypoglycemic agent was dispensed. Based on these estimates, we compared the proportions of patients who received medications from chains that do and do not offer an LCPP, the proportion trend over time based on claims data from a single payer, and to proportions estimated from the Medical Expenditure Panel Survey (MEPS).ResultsWe found that the proportion of patients with type 2 diabetes who received oral hypoglycemic medications did not vary based on whether the chain that dispensed the drug offered an LCPP or over time. Additionally, the rates were comparable to those estimated from MEPS.ConclusionResearchers can be reassured that data for medications available through LCPPs continue to be available through administrative data sources.

A safety event drew attention to unsafe and inappropriate payer formulary alerts. These alerts display formulary, coverage, and eligibility data from the pharmacy benefits manager in response to an electronic prescription. They are intended to redirect prescribers to medications that are covered by insurance; however, these alerts were found to be inaccurate and contribute to potentially harmful alerts. Our objective was to reduce inappropriate payer formulary alerts by 30% within 1 year and to change the ePrescribing certification requirements to prevent future instances of harm. Using process mapping we identified the changes that were required both locally and nationally through our electronic health record (EHR) vendor and ePrescribing transaction broker. We partnered with vendors to show the safety risk and to suggest modifications to the payer formulary alert content and ePrescribing certification criteria. On the basis of the new criteria, we modified and deactivated inappropriate alerts. Rates were followed weekly for 13 months and a control chart was used to track progress. From January 2014 to January 2015, we reviewed 59 325 payer formulary alerts from ambulatory care and 11 630 from the emergency department and inpatient wards. Both local and national modifications resulted in significant and sustained decreases in inappropriate alerts. Enduring and meaningful change required partnership with multiple stakeholders, including EHR vendors, ePrescribing vendors, and pharmacy benefits managers. Improving drug alerts, reducing alert fatigue, and promoting value-based prescribing in the EHR will likely require similar partnerships.