Susan Hayes Is Fed Up
Susan is currently working on her Ph.D. at the world’s leading center in healthcare fraud, the University of Portsmouth in the United Kingdom. Her biggest concern today in the pharmaceutical sector of the healthcare industry is the lack of transparency in prescription drug pricing. —Editor
CVS is really two companies—a pharmacy chain and the PBM Caremark.
Anthem will be using Caremark while Caremark owns Aetna. There are geographic markets where Anthem and Aetna compete. I don’t see this relationship lasting long.
Amazon announced it’s getting into the PBM business last year. The scuttlebutt is they’re now looking for a backbone claims processor.
The Affordable Care Act is not what it used to be when Obama was president. Amazon’s thinking is we have all of these young millennials in high-deductible plans. They’re going to want to purchase drugs cheaply, and they’re going to want them delivered next day—just like they get their groceries and everything else from Amazon.
I think that’s Amazon’s play. But it will need a claims processing system to adjudicate that and tie into other PBMs. The question is will other PBMs play nice with Amazon?
No. They can’t get the drugs out the door because of their legacy systems.
You’ve got all these different legacy platforms and huge 70,000-square-foot mail order facilities, which are just nothing but overhead. You don’t need to house these medications in one central location. That’s how Amazon gets things to you quickly. It has the product out in the field, and it never really takes possession of it.
I ordered a book on a Saturday, and literally it was in my mailbox the next day. That’s what millennials are expecting from their prescription drugs, and that’s what Amazon promises to deliver.
Everywhere within the cycle of a prescription drug there is lack of transparency. I think most notably when people say there’s lack of transparency what they’re talking about is a lack of understanding of prescription drug pricing.
Here’s an example. You buy your Lisinopril. You have a $10 co-pay, and you pay the pharmacist. She gets another $2. It’s a $12 prescription. And then your employer gets charged $25. The PBM takes the $13 spread and does not disclose it to the plan sponsor or to the pharmacy. Neither understands where the money went. Who made $13 on that prescription? They just never tell you.
When we help an employer with a pharmacy benefit plan, if it’s a traditional or spread contract, it’s difficult, if not impossible, to figure out what the PBM is going to make. You also don’t know what fee they’re going to take behind my back on claims.
In your example of a $25 co-pay, say the member has paid the entire co-pay based on the contract between the PBM and the plan sponsor. That contract allows them to take the entire co-pay, even if the cost of the drug is lower. Certain contracts allow that. That’s one side of it.
And then you go to the pharmacy and they’re not being told what’s going on. The pharmacy’s arrangement with the PBM is to be reimbursed a lower price—or the lower of the cost of the drug and the co-pay. Then the PBM claws back the amount that the pharmacist has already taken as part of the co-pay.
It’s estimated in the research that we’ve done that it’s about $15 to $20 a script. Some may only be $1 or $2—like a generic—but the brands may be $40 or $50.
PBM salespeople’s commissions are based on profitability. They know exactly what the profitability of each new sale is going to be. The PBM salesperson plays a delicate game. If he sets the price low enough to obtain the business, he then faces the conundrum that he must get the margin as high as possible so he can be compensated.
It depends on each individual PBM. There are probably some making 3% to 5% profit, but then they’ve outsourced everything. The more insourcing, the more ability they have to make profit.
Express Scripts now even owns a wholesaler. Do you realize how bizarre that is? Because wholesalers are the ones that establish pricing. When your PBM owns a wholesaler, think about that. They buy drugs from that wholesaler. That wholesaler sets the price. You’re buying from a wholesaler you own and control and you tell what to do.
You have smaller PBMs that have their own retail network contracts, and those can be transparent because they own the contract between their company and the pharmacy chain. They know exactly what they’re going to be reimbursing the pharmacy chain.
Some smaller PBMs resell other PBMs’ networks. A small PBM may go to Magellan, for example, and Magellan owns their own contracts. Magellan will then sell them the retail network. At that point, the PBM that’s using Magellan does not know what Magellan’s spread is. So, yes and no. Some of these smaller PBMs are transparent, and some aren’t.
You’ve got to ask some really deep questions. Do you own your own retail network? Are you leasing another PBM’s retail network system? Do you know what spread the networks are taking? And then do the same thing with rebates.
I think originally in 1985 that was their mission. I think their mission today has become much murkier. They changed their allegiance somewhere between 1985 and now—depending on the company—to the drug manufacturers and insurance carriers as they merge.
If you are a very large health plan and you want to have a PBM relationship, you don’t have many choices. There’s not a middle tier that’s going to have the ability to take on five million or two million lives. That’s probably why Kaiser does it themselves. But others don’t have that ability.
For most employers between 1,000 and 10,000 lives, you don’t want to go to those big PBMs. Big PBMs are already serving 80 million lives. They’re not going to love a client with 5,000 or 1,000 lives. They’re not going to give them attention or account service or be beholden to them.
If you’re a 1,000-life employer, you’re going to probably go to the middle tier and get very good service. And then it’s going to depend on you and where you are and who’s your account rep. If you’re a hospital, you probably would go to American Healthcare. They excel in that line of business. If you want to go with Magellan, you’re probably some kind of government. You know, they do really well with government plans.
Each one of these middle-tier PBMs has a personality. You can’t really say who the best is. It depends on you and who you are and what your baggage is.
That is a whole can of worms. The state of Arkansas passed legislation that basically told PBMs they couldn’t reimburse a pharmacy less than what you could buy that drug for. Arkansas is pretty unique. Arkansas has a lot of rural pharmacies. You don’t have a lot of big chains buying in huge bulk. The state is saying PBMs can’t reimburse anyone less. The trade association representing PBMs sued Arkansas to stop this. I think they will prevail.
South Dakota has similar legislation. Alaska has talked about it. It is nuanced because it is so spread out. One of the things PBMs forbid their pharmacies in network to do is mail prescriptions. They don’t want competition with their own mail order facility. But in Alaska, where you have to go an hour and a half to get a prescription drug—that’s the local pharmacy—a lot of the local pharmacies there mail drugs, and PBMs want to kick them out of the network. I mean, how else are these people living in small villages in Alaska going to get their prescriptions?
Connecticut is considering legislation promoting transparency, saying you need to be able to understand prices. If you ask your PBM, they have to explain the differentials in pricing as well as you may choose an auditor of your choice. I don’t know where that’s going in Connecticut, but Hartford is the insurance capital of the world. Will that affect transparency?
I think the feds have missed the boat. I think when President Bush passed Medicare Part D, the federal government could have required they negotiate pharma pricing. They did not. That’s unfortunate because now we’ve got Medicare Part D where you’ve got the same thing going on with spread pricing. Allegedly, there’s not supposed to be spread pricing in Medicare Part D, but there are all kinds of other games that are being played.
The federal government had the opportunity to negotiate drug prices, just like Canada, just like England, just like every other first-world country. Instead, they let the market compete, and that was a mistake. Can the feds ever catch up now that the cat’s out of the bag? I don’t think so.
Probably 10-15%, easy. And, you know, like for one of my clients, we have been auditing them and their PBM for 12 years. You would think that by this time the PBM would be aware that we were auditing and that we’re going to have findings every year and that they would do things the right way. And every year we have money coming back to our clients because we audit.
To give the PBMs credit, this is a hard business to come up with a financial projection. Because you have a bunch of employees on January 1 and even after a completely transparent pass-through arrangement, you don’t know where those employees are going to go. You don’t know if they’re going to go to Walgreens or independent pharmacies. You have to bet on where they’re going for their prescriptions and then come up with a discount off average wholesale price that’s going to meet that.
PBMs are not always accurate in their forecasting. They’re going to make mistakes. They’re going to make projections that they know they can’t meet just to get the business. That’s where we come in to audit these programs. And that is a major problem right now of auditing.