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PBM Accountability is Vital for Employers, Too

Today most pharmacy benefit managers (PBMs), despite their assurances, contribute to higher costs in the drug supply chain. Some PBMs have transformed themselves into giant organizations that are well-organized and lobby policymakers to protect their interests, and fight fiercely against efforts to make their operations transparent or to hold them accountable. The Midwest Business Group on Health, a nonprofit business group of self-insured public and private employers, recently released a report urging that businesses take steps to ensure PBMs are accountable and really reducing drug prices.

Healthcare costs are continuing to rise, and aggressive mergers and acquisitions have resulted in three PBMs-Express Scripts, Optum, and CVS--controlling at least three-fourths of the PBM market. PBMs can greatly influence drug prices, and a lot of their revenue comes from retaining a percentage of the drug's price or through discounts and rebates, giving them an incentive to increase prices and focus on more expensive medicines. They also get money by charging plan sponsors more than they pay pharmacies to fill the prescriptions, and since PBM contracts are usually opaque, plan sponsors are unaware that PBMs are keeping a fair amount of money for themselves.

And when drug costs are lower then patient copays, PBMs often force pharmacies into contracts where they have to sell the drug at the contracted rates. PBMs then "claw back" the excess copay but prohibit pharmacies from telling patients about cheaper options. They also use direct and indirect remuneration fees as backdoor fees, imposing them on pharmacies even after drug claims have already been paid. Finally, PBMs may refuse to adopt newly released drugs or they may require price protection rebates from drug manufacturers.

How can employers combat the above abuses and ensure that PBMs reduce drug costs? There are several ways: Companies should hold the supply chain and PBMs accountable by demanding more efficiency and transparency in their contracts with PBMs. They should not be complacent about the mandates some PBMs require and ask tough questions to protect their interests and their employees. Employers could also support each other through local and regional coalitions to provide a counterbalance to PBM power.

One possible suggestion: Use a transparent PBM or a pharmacy benefit administrator (PMA). PBMs all remove the spread between the amount paid by the plan sponsor for drugs and the amount paid to the pharmacy, and their contracts are transparent and disclose all financial flows and fees. Or companies could offer value-based designs for drugs instead of using formularies (lists of medicines). Other specific actions include having independent pharmacy and transaction committees analyze PBMs, exercising full auditing rights in PBM contracts, and requiring performance based contracting.

Businesses can take many actions to make sure PBMs reduce drug costs instead of raise them. The more companies that adopt these recommendations, the better.

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