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Your Drug Rebate Check Is in the Mail…to Switzerland

More than 7 million US citizens depend on insulin to live, but more than 16 percent of Americans, are rationing their dosages, putting them at risk of death, and hospitalization. Jennifer Feighner, M.D., an Oklahoma hospitalist, admits patients weekly because they cannot afford their insulin, which has risen 10-fold in price since it debuted in 1996. And it turns out a substantial portion of these cost increases is landing at shadowy Swiss financial entities, rather than the pockets of customers thanks to Pharmacy Benefit Managers (PBMs).

Desperate patients correctly sense that greed is responsible for their potentially fatal plight, but they will have a tough time identifying the source of their frustration thanks to the murky and convoluted web established by PBMs. These entities take in more than 80 percent of the cost for each vial of insulin sold and receive a similar proportion of the $800 billion Americans spend on prescription drugs each year. For this outsized slice of the healthcare pie, one would expect that PBMs must serve a vital role to medical and pharmaceutical innovation that improve the lives of patients and the efficiency of providers. One would be wrong.

PBM corporations are glorified middlemen. Their role in the pharmaceutical marketplace is to decide what medications will be included in and excluded from the formularies covered by insurers. They do not serve or benefit a single American battling illness or a single doctor treating patients. They have morphed into parasites, adding a draining overhead that can only be guessed at to the total cost of the system.

The three largest PBMs—Optum Rx, CVS Caremark, and Express Scripts—all sit in the top dozen of the Fortune 500. Each has attempted to scapegoat pharmaceutical manufacturers for rising prices, while hoping that Americans fail to notice the ever-larger share of drug prices that PBMs pocket in the process. They justify these windfalls by claiming to send shadowy “rebates” that eventually get passed down to customers struggling to afford life-saving treatments.

Americans might think that the rebates are flowing to the patients, when in fact PBMs are lining their own pockets with rebate checks. A CVS Caremark executive revealed at a recent Senate hearing that the savings do not flow to customers but are instead sent to entities called Group Purchasing Organizations (GPOs). These self-described “rebate aggregators” are oftentimes owned by or subsidiary to…the PBMs issuing the rebates. It seems that for CVS Caremark, some $8 billion in rebates are flowing to themselves, and a few billion to their GPO based in Switzerland.

Congress appears poised to address the insulin crisis and the parasitic behavior of PBMs. This was most evident on May 10 when the Senate Health, Education, Labor, and Pension Committee (HELP) held a hearing on making insulin affordable. Senator Roger Marshall (R., KS), a practicing physician, and freshman Senator Markwayne Mullin (R., OK), drilled deep into where these rebates were going, and while the PBM executives were forced to disclose the Swiss ties among other sketchy financial details, they were far from forthcoming.

The HELP committee hearing, led by Senator Sanders (D- VT) was a bipartisan helpful first step to identifying the culprit that has caused so much pain to my patients, but has merely scratched the surface of the issue. PBMs have for too long operated in the shadows of the health system. It is long overdue for measures to ensure transparency in their operations and money trail.

The PBM reform act passed out of committee May 11. It ensures that 100% of the rebates from Drugmakers, distributors and aggregators like the new GPOs formed by PBMs go to the plan sponsors. Better yet, there is transparency in these machinations of money, and substantial penalties to be sure that it is so. Additionally, PBM must provide rationale for formulary placement.

One policy widely supported yet not adopted, is an amendment "Delinking Revenue from Unfair Gouging (DRUG) Act" introduced by Tim Kaine ( D-VA) and Marshall would get at the heart of why generics and biosimilars are discriminated against on formularies. This amendment would delink PBM payments based on percentage of a prescription drugs list price. Currently PBM can make more money by choosing a more expensive Med, this amendment would force them into receiving a bona fide flat fee.

The Senate, House of Representatives, and especially the American people deserve to know how much these rebates are, how they are affecting which drugs are covered, and exactly where they are going, because it is sure not the everyday American who is seeing the savings. While government regulations aren’t the best solution to these problems, it is nice to see our elected leaders taking an interest in a problem that they created.

Author: Marion Mass, M.D. is a practicing pediatrician, co-founder of Practicing Physicians of America and leadership in Free2Care.

1 comment

1 Comment

I do not believe this article states anything about rebates actually reducing costs to the patient and secondly addressing the extremely low reimbursements to pharmacies. Both have to be addressed.

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