PBM Practices

Everything you need to know about why pharmacy benefit managers are bad for your health, wallet, and tax bill

A Few "Trade Secrets" PBMs Don't Want You to Know About:

  • Gag Clauses and Copay Clawbacks

  • Exorbitant Spread Pricing

  • Formulary Exclusions

  • Keeping Manufacturer Rebates

  • Deceptive Marketing and Scare Tactics


Thanks to the efforts of a few diligent investigative journalists, lawmakers and citizens are beginning to understand the detrimental side effects of having PBMs in the prescription medication supply chain. However, more and greater effort is needed to curtail PBM power to prevent them from profiteering off the back of patients, consumers, and taxpayers.

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DIR Fees and Clawbacks: What’s the Difference and What’s Being Done to Stop Them?

If you have trouble understanding the difference between Direct and Indirect Remuneration fees (DIRs) and copay clawbacks (“clawbacks”) you’re far from alone.

DIR is a catch-all term that covers the monies that a Medicare Part D plan/PBM may collect to offset member costs. Originally a performance metric designed to incentivize plan sponsors for improved health outcomes, DIRs are now involuntary “concessions” made by pharmacies that produce free-flowing revenue streams for pharmacy benefit managers (PBMs).

DIR fees come in numerous forms, including penalties and other charges often unknown to the dispensing pharmacy. DIRs are assessed as a “clawback” -- the pharmacy doesn’t “pay” the PBM, the PBM deducts these fees directly from the pharmacy’s bank account or by reducing future reimbursements without notice and weeks after the initial transaction.  DIR fees can also take the form of service fees, network access fees, administrative fees, reconciliation, etc. 

By contrast, copay clawbacks occur when a patient’s copay is higher than the price of the medication, whether the patient is using a commercial or federally-funded plan. The pharmacy collects the patient’s copay, and the PBM “claws back” the money over and above the contracted reimbursement, and keeps that money as profit. ​

If gag clauses - which are clearly anti-consumer - are illegal, why wouldn't DIR fees, which are both anti-consumer AND anti-taxpayer, also be illegal?

The problem with DIR fees:  PBMs use arbitrary and opaque DIR fees to derive record profits at the expense of independent pharmacies, plan sponsors, and most importantly consumers.  The lack of transparency surrounding DIR fees allows PBMs to clawback money from the pharmacies, without any indication to the pharmacy of related measures that would allow a pharmacy to plan accordingly. Additionally, DIR fees are not adjudicated at the point of sale, meaning the pharmacy lacks knowledge of if, when, and how much a DIR fee on a prescription may be. This lack of understanding inhibits pharmacists' ability to implement new patient care services as they do not know what their reimbursement will be and if they will be able to afford to provide new services.

 

In 2018 President Trump signed the "Know the Lowest Price Act" and the "Patients' Right to Know Drug Prices Act" into law. Both now make the practice of gag clauses in PBM contracts illegal and should alleviate future copay clawback situations, but leave the lingering question of why it was necessary to contractually bind pharmacists from counseling patients on less expensive options for purchasing their medicine in the first place. 

"The only way to stop Americans from being kept in the dark about how much of their hard-earned money is going to PBMs and their shareholders is by demanding laws that require complete PBM transparency -- especially when taxpayer dollars are involved."

Monique Whitney, Executive Director, PUTT

Exorbitant Spread Pricing

PBMs charge employers, health insurers and state governments for every prescription filled under their drug benefits plan. PBMs also reimburse pharmacies for the cost of filling the same prescriptions.

However, very often the difference between what the PBM charges the insurance provider and what it reimburses the pharmacy are VASTLY different. The spread - as it is called - can be hundred, sometimes thousands of dollars difference and is one of the main ways PBMs generate hundreds of millions of dollars in profit annually. 

A recent study in Ohio found that CVS Caremark, the PBM that administers the majority of the state’s Medicaid prescriptions, was charging Ohio Medicaid nearly $6 a prescription, which is almost 5 times the standard rate. Think of the number of prescriptions Ohio’s Medicaid program covers each year and multiply by 6 -- that’s the profit PBMs made off Ohio taxpayers for “administration”. Not for dispensing prescriptions or counseling patients … just “administering claims”. Now imagine that happening in all 50 states and it’s easy to understand how unregulated PBMs grew to be a $315 billion industry.  Check out this new analysis of what taxpayers in states are spending vs. the real cost of medications.

Starting to see why your prescriptions cost so much? But wait, it gets worse.  

Americans are actually paying PBMs three times: when they pay their insurance premiums, when they pay their copay and when they pay their taxes. But PBMs are not required to disclose how much they mark up their services and the cost of the prescriptions they administer to anyone, even the government.  

And while there’s nothing wrong with making a profit, how much is enough? Too much? 

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Gag Clauses & Copay Clawbacks

Contracts with “gag clauses” bar pharmacists from telling their customers when they could pay less for a medication if they paid directly out of pocket instead of going through their insurance. Pharmacies that violate the gag clause risk stiff financial penalties and could be kicked out of the insurance provider’s pharmacy network - effectively a death sentence for some pharmacies.

Why would a PBM care if the pharmacist tells the patient it’s cheaper to buy their medicine without using their insurance? Because consumers are often unwitting participants in a scam called a copay “clawback”. A “clawback” happens when the patient’s copay is more than the pharmacy’s cost for the drug. For example, if a customer’s prescription copay is $20 but the pharmacy’s cost is $5, the PBM claims -- or “claws back” -- the extra $15, which it keeps as profit.  

Several states have laws banning the use of gag clauses but PBMs still engage in the practice, even while publicly stating they do not use gag clauses or engage in clawbacks. 

The only way to know for sure is to demand laws that require complete PBM transparency, with the same level of regulation and oversight that health insurers are subject to because, unlike health insurance companies, PBMs are not regulated. 

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Rebates & Exclusionary Formularies

Some PBMs make deals to include or exclude certain medications from coverage under a prescription benefit plan’s list of covered drugs (called “the formulary”) in exchange for rebates, or payments, from manufacturers.  The better the rebate, the more likely a drug will be included in the formulary. No rebate often means the drug will be excluded from the formulary.
 
These backroom deals mean patients are often forced to take medications that are not what their doctors prescribed or not in their best medical interest. Sometimes it means they have to switch medications they’ve been on for years or that have worked for them because of PBM rebate manipulation.  Sometimes it means waiting for access to medication while their health declines. 

This is especially true for certain autoimmune diseases such as Rheumatoid and Psoriatic Arthritis. Earlier this year, CVS Caremark launched a new plan aimed at Rheumatoid Arthritis coverage but excluded some medications and put barriers in place for access to others.  


On products with huge volume discounts, PBMs keep the manufacturer payments rather than passing the discount on to health plan sponsors - usually the patient’s employer or the government, in the case of Medicaid and Medicare -  and patients.


PBMs must be stopped from putting their own profits ahead of patients’ interests. The only way to do that is to call for new, tougher laws that prohibit PBMs from accepting rebates in part or whole from drug manufacturers.

Deceptive Marketing, Forced Mail-Order & Steering Patients to PBM-Owned Pharmacies

Contracts with “gag clauses” bar pharmacists from telling their customers when they could pay less for a medication if they paid directly out of pocket instead of going through their insurance. Pharmacies that violate the gag clause risk stiff financial penalties and could be kicked out of the insurance provider’s pharmacy network - effectively a death sentence for some pharmacies.

Why would a PBM care if the pharmacist tells the patient it’s cheaper to buy their medicine without using their insurance? Because consumers are often unwitting participants in a scam called a copay “clawback”. A “clawback” happens when the patient’s copay is more than the
 

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pharmacy’s cost for the drug. For example, if a customer’s prescription copay is $20 but the pharmacy’s cost is $5, the PBM claims -- or “claws back” -- the extra $15, which it keeps as profit.  

Several states have laws banning the use of gag clauses but PBMs still engage in the practice, even while publicly stating they do not use gag clauses or engage in clawbacks. 

 

The only way to know for sure is to demand laws that require complete PBM transparency, with the same level of regulation and oversight that health insurers are subject to because unlike health insurance companies, PBMs are not regulated. 

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