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Angry at Big Pharma? Direct it at Big PBM!

Updated: Sep 26, 2022

Big Pharma has a very bad reputation, 58% disapprove, however people should REALLY be pissed at another small group of companies or "oligopolies," according to Scott Knoer PharmD, MS, FASHP, the former CEO of APhA or the American Pharmacists Association. The top three PBMs, pharmacy benefit managers, in the US are CVS/Caremark, Express Scripts and OptumRx Group Holdings Inc and they control 80% of the market share for prescription benefits in the US. With that high market share comes lots of power and thus corruption which I will expose in this article. I'm not going to pretend that I'm the only person talking about exposing PBMs. Ben Link and Antonio Ciaccia at 46 Brooklyn Research and the Columbus Dispatch have both been at it for years. However, the general public still doesn't really know or understand the harm PBMs cause for the entire healthcare system. I interviewed two pharmacists for this article who have intimate experience with PBMs: Bryce Platt, PharmD and Scott Knoer. They are pharmacists who worked in positions where they got to see what happens behind closed doors and are now consulting with clients to show them the truth.

Let's start with the basics. What is a PBM in the most simplest terms? According to Dr. Platt a PBM is supposed to help insurance companies determine which drugs have "better ROI" based on "clinical cost effectiveness." Prescriptions are "supposed to decrease hospitalizations and medical costs." According to Dr. Knoer they are a "middleman between insurance companies and patients."

Now let's find out what needs to be EXPOSED to the public. Per Dr. Platt it is about the "opaqueness of contracts between the PBM, pharmacy and payer" as the PBM "keeps the difference in cost" of the medication called "spread pricing." Another important part according to Dr. Platt is that "formularies are structured based on drug rebates instead of ROI for the payer." Drug rebates occur when a pharmaceutical company pays a PBM to put their drug on the formulary or in a better place on the formulary. If this sounds like a bribe to you, according to Dr. Platt and Dr. Knoer you would be correct. Not only is it a bribe Dr. Knoer also believes it is extortion by the PBM against the pharmaceutical companies for formulary placement. According to Dr Platt, PBMs are able to be prosecuted under "antitrust laws" and the executives are even liable under "criminal laws with fines and even jail time."

According to Dr. Knoer the industry phrase is "pay to play." Doctors can't take kickbacks from pharmaceutical companies so why are PBMs allowed to take "rebates" or a bribe which decides whether a medication is covered or not? Therefore, rather than your medication being covered because it is good it is because the pharmaceutical company paid the right bribe. If we go into more granular detail, Dr. Knoer agrees with Dr. Platt on the above and added DIR fees, which are fees charged to pharmacies by PBMs. According to Dr. Knoer DIR fees are an example of something "government screwed up by creating performance metrics that pharmacists have little control over, allowing manipulation of the system to line the pockets of the PBMs." DIR fees are a way PBMs can take money back from pharmacies when patients are not taking their medication however Dr. Knoer explained these are things pharmacies often have no control over. Dr. Knoer also mentioned that "PBMs are in bed with the brokers, they are getting kickbacks!" When an insurance company looks for a PBM they often go through a broker which has a financial incentive to push towards the PBM which give them the biggest commission, not the one which will do the best job.

Both Dr. Platt and Dr. Knoer agreed that they noticed the start of these seemingly illegal actions started in 2017/2018 with the advent of DIR fees and spread pricing. Since then Dr. Platt believes PBMs need to be prosecuted under "antitrust monopoly laws" and Dr. Knoer agrees and goes further to say PBMs are "arrogant, don't care about the havoc they are wreaking and have a brazen lack of shame."

For retail pharmacists, PBMs should be seen as their biggest enemy as they are the reason for profit margins going down every year to the point that "50% of drugs lose money, 40% break even and 10% make money" according to Dr. Platt. According to Dr. Knoer "20 years ago you had time to talk to patients but now, due to reduced margins because of PBM shenanigans, pharmacies need very high volume to make up for the reduced reimbursement per prescription. This has led to an incredibly stressful work environment in community pharmacies as pharmacists are forced to work at an often unsafe pace and this is negatively impacting patient care.”

So what needs to be done? According to Dr. Platt, "PBMs will not change on their own" and Dr. Knoer says "they need to be regulated." They are also both happy that the "FTC is doing a probe now" which is surprising since according to Dr. Platt the "FTC has not been enforcing laws for the past 50 years." Dr. Knoer added that: “The vertically integrated oligopolies need to be broken up; state laws need to ban spread pricing; DIR fees need to be illegal; and PBMs should be required to be fiduciaries for their clients. They are not acting in the best interests of insurance companies or the employers they represent. They are not acting in the best interest of insurance companies but in the interest of their own bottom-lines. Which is exactly what oligopolies do. They abuse their position and have so much power that even their clients that pay them have no choice.

This might be dramatic but I asked them also who is more evil: PBMs or big pharma? According to Dr. Platt "neither is good but PBMs are worse because they have much more power." Pharma "uses clinical research as a marketing tool" as "they own the whole clinical research vertical so they can manipulate that." Also "pharma is trying to make PBMs happy instead of focusing on patients." According to Dr. Knoer, "PBMs are more evil because they do nothing of value" and goes on to say "pharma at least makes drugs." "We would not have had Pfizer or Moderna" vaccines or "cancer therapies, mRNA pipeline, gene therapy." According to Dr. Knoer there is "no question pharma adds value" however ,"PBMs don't."

Dr. Knoer has not been shy about his feelings about PBMs and explained when he was the Chief Pharmacy Officer at Cleveland Clinic that executives at CVS Health called his boss and told him "to be quiet." He explained that not surprisingly "all the C-suites are talking to each other."

Dr. Platt also wanted to note that specialty pharmacy is an aspect of PBMs that they tote to payers can reduce costs although they don't achieve this partially due to "horrible communication." Specialty drugs are an industry term for prescriptions that are expensive and require special counseling. PBMs either have their own specialty pharmacies that will deliver the medication or they will contract with one or a few specialty pharmacies to handle certain medications. The point of this arrangement is to control the cost however according to Dr. Platt it only fills their bank accounts with more money at the expense of insurance companies and patients.

According to Dr. Platt there is a silver lining with a small group of PBMs called "transparent PBMs" including Capital Rx and MakoRx. Instead of keeping the rebate from the pharmaceutical company they pass on the rebate to the insurer. Therefore instead of a bribe it is just a discount for the payer. Dr. Platt explained that "their contracts and fees" are transparent "so there isn't spread pricing." According to Dr. Knoer these PBMs "say they will be transparent but the money is so big that they start playing shell games." However, he did note that Capital Rx and EmsanaRx, a Public Benefit Corporation founded by Greg B. are both "trying to do it right."

Long story short, PBMs are under the microscope of the FTC and hopefully will be regulated for everybody's sake. When people complain about drug prices they blame pharma, insurance companies and the pharmacy. They never think of PBMs because they don't know they exist.

About the Author: Dr. Steve Malen, PharmD, MBA is a medical communications and clinical management consultant



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