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Pharma has little visibility into the growing area of PBM fees

Lack of consistent insight into PBM service fees puts drugmakers at a disadvantage when calculating prices.

Efforts are afoot to increase transparency in the opaque drug supply chain, but one area is becoming murkier: the fees that healthcare middlemen charge manufacturers. 

Such fees have emerged as a major new profit center for pharmacy benefit managers (PBM), but one which is not well understood by the pharma companies who pay them. 

Most contracting by PBMs and their contracting entities — group purchasing organizations (GPO) — takes place behind closed doors.

Health policy researchers privy to such matters say the PBMs and GPOs are consistently inconsistent not only when it comes to classifying their fees but with whom they’re sharing this information. One question that has emerged is this: who has complete visibility and who doesn’t? 

“Some manufacturers may have visibility to the fact that more than 20% of their dollars that they’re paying out are bonafide [service fees], and some manufacturers may not be aware,” said one policy expert who preferred to remain anonymous due to the sensitive nature of the topic. “We don’t know how much a manufacturer really knows, because it’s classified by the PBM and the GPO.”

How is the game played?

Prescription drug benefits in the commercial market are, for the most part, controlled by the four biggest PBMs — Express Scripts, OptumRx, Prime Therapeutics and Kaiser Pharmacy. They negotiate on behalf of insurers and employers for what they say are lower prices and contract with pharmacies to deliver the drugs to consumers.

In return for their drugs being placed on PBM formularies, manufacturers offer rebates — most of which the PBMs pass on to their customers. However, those negotiations are hidden from view, as are the exact nature of what PBMs and GPOs decide to retain as fees. 

What we do know is that these charges are growing. 

Fees tied to drug prices doubled, from $3.8 billion in 2018 to $7.6 billion in 2022, according to a recent report focused on these new PBM profitability drivers. Fueling that growth were increases in traditional administrative fees, supplemental or uncategorized fees, as well as the emergence of vendor fees and data/portal fees levied by contracting entities. Fees are also associated with specialty pharmacy fulfillment.

A map of all the PBM “value pools” by the report’s author, Nephron Research, shows some 11 fees, all with different nomenclature. Too, there is inconsistency among the various middlemen in how they define and label these costs. What one calls “data access fees” could mean something different to another. 

All told, fees account for 22% of the PBM profit pool, “more than offsetting” a decline in rebates, which are the better-known source of PBM compensation, observed Nephron Research. 

Navigating the unknown

Other experts pushed back on the notion that manufacturers are completely in the dark on what they pay back to the PBM. 

After all, there is a contractual arrangement that stipulates such things; it’s far from an arbitrary process. At the end of the day, both parties benefit from the opacity — PBMs make money on fees and drugmakers stand to profit through increased market share. 

Still, there is one area in which the experts seem to agree. 

As pharma firms told Nephron, PBMs are directing a growing share of fee proceeds toward subcontractors (i.e., the GPOs), as opposed to channeling them into traditional PBM operations. That offshoring phenomenon has the potential to reduce fee pass-through and transparency to sponsors and patients.

All of this may widen the gap in manufacturers’ awareness related to what exactly they think is a bona-fide service fee and what isn’t. The lack of — or, at the very least, uneven — visibility contributes to a dysfunctional drug supply chain. 

For one, by not knowing exactly how much they’re giving in fees, pharma may be off in calculating their drugs’ average sales price (ASP). Government price is calculated based on ASP. Moreover, the ambiguity may actually encourage the PBM and GPO to create new fees.

Congress looks to act

Pressure is mounting to address this issue, with bipartisan bills from three committees in the House and two in the Senate aiming to reform drug distribution in part by reining in PBM business practices. 

Researchers from the USC Schaeffer Center have called on lawmakers to “force transparency” by ensuring the final legislation includes a mandate for the government to collect transaction prices among insurers, PBMs and pharmacies and then publish benchmarks based on actual prices. 

Just this week, perhaps responding to that pressure, pharmacy titan CVS Health said its nearly 10,000 retail locations plan to move to a more transparent “cost plus” method of getting reimbursed by plans and PBMs. This follows a similar move by the Cigna-owned PBM Express Scripts after the model had been used by Mark Cuban’s Cost Plus Drugs since his pharmacy’s inception in 2021.

CVS also debuted an offering for clients of its PBM, CVS Caremark. Caremark will offer clients pricing designed to reflect a drug’s true net cost, as well as visibility into administrative fees. That option, dubbed TrueCost, will work hand-in-hand with the new retail-pharmacy payment scheme.

PBMs and GPOs hide behind a veil of secrecy. This has allowed them to take an inconsistent approach to disclosing fees in contracts. Some PBMs may be compelled, either by seeing more of their peers do it or by government edict, to adopt a more transparent approach.

Allowing a peek behind the curtain could help fix the ailing drug supply chain. Then again, divulging too much would expose the back-door arrangements that both of these entities — the middlemen and the manufacturers — make at either the patient, payer or pharmacy distribution points. 

Alas, full disclosure of all manufacturer-PBM contracting seems like a longshot at this point.

Reporter: Marc Iskowitz



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