Pioneer Institute Study Calls for Reforms to Ensure that Pharmacy Benefit Manager Practices Benefit Patients, Healthcare Payers

Congress likely to take up PBM reform early this year; Pioneer Institute Calls for PBM’s to be more transparent

BOSTON –A new study released today by the Pioneer Institute expressed concern over the lack of transparency surrounding Pharmacy Benefit Managers (PBM’s) role in serving patients. The study cites a lack of competition, transparency and appropriate oversight making it unclear who actually benefits from them.

“The structure and amount of the rebates PBMs negotiate are hidden from patients, employers and government entities,” said Dr. William Smith, co-author of “How PBMs Work: A Primer” with Dr. Robert Popovian. “It’s unclear how much the concessions PBMs negotiate help patients and how much they help themselves and other healthcare players.”

PBMs establish drug formularies, or the list of drugs available to those enrolled in a particular health plan. But how formularies are constructed is opaque. They are the pivotal deciders in how much a drug will cost as it gets passed onto a patient.

PBMs routinely ask manufacturers what rebates, fees and concessions the manufacturers are willing to pay in return for preferred placement on a formulary, which includes features like low out-of-pocket costs for patients and minimal paperwork for providers that make the medications more appealing.

Sometimes formularies include requirements that patients “fail first” on a cheaper prescription before they can be given the medicine a provider prescribed. Other times they require providers to fill out “prior authorization” forms before a prescription can be filled.

“One fundamental problem is that currently, PBMs are incentivized to favor medications with high list prices and larger rebates over lower-priced alternatives,” Dr. Popovian said. “These misplaced incentives can skew coverage toward higher-priced brand-name drugs.”

Reports from the Senate Finance Committee and the Federal Trade Commission found that retail prices for insulin continually rose even though the net price was unchanged. As a result, patients paid more for medications and manufacturer profits decreased. In some cases, PBMs even excluded generic drugs from their formularies.

Spread pricing is a practice in which PBMs charge clients such as patients, employers and government more than they reimburse pharmacies for dispensing drugs. A study by the Schaeffer Institute found that the federal government could have saved $4.5 billion over two years by paying cash prices for drugs at Costco rather than reimbursing PBMs for Medicare Part D drug benefits.

Concentration in the PBM market has led to less competition and higher profits. The three largest PBMs (CVS Caremark, Express Scripts and Optum) manage 79 percent of drug claims for around 270 million people. Revenue for the four largest PBMs has doubled in the last eight years to more than $1 trillion.

With Congress likely to take up PBM reform early this year, Drs. Smith and Popovian recommend ensuring that savings benefit patients and healthcare payers by requiring PBMs to disclose rebates, fees and concessions; eliminating incentives favoring higher-priced medications; prohibiting spread pricing and enforcing antitrust laws to promote competition in the PBM market.

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Dr. William S. Smith is Senior Fellow & Director of Pioneer Life Sciences Initiative. Dr. Smith has 25 years of experience in government and in corporate roles. His career includes senior staff positions for the Republican House leadership on Capitol Hill, the White House Office of National Drug Control Policy, and the Massachusetts Governor’s office where he served under Governors Weld and Cellucci. He spent ten years at Pfizer Inc as Vice President of Public Affairs and Policy where he was responsible for Pfizer’s corporate strategies for the U.S. policy environment. He later served as a consultant to major pharmaceutical, biotechnology and medical device companies. Dr. Smith earned his PhD in political science with distinction at The Catholic University of America.

Dr. Robert Popovian is the Founder of the strategic consulting firm Conquest Advisors. He also serves as Chief Science Policy Officer at the Global Healthy Living Foundation, Senior Healthy Policy Fellow at the Progressive Policy Institute, and Visiting Health Policy Fellow at the Pioneer Institute. He previously served as Vice President, U.S. Government Relations at Pfizer. One of the country’s foremost experts on every significant facet of biopharmaceuticals and the healthcare industry, he is a recognized authority on health economics, policy, government relations, medical affairs, and strategic planning. Dr. Popovian has published extensively and referenced on the impact of biopharmaceuticals and health policies on costs and clinical outcomes in the most prominent medical sources and media publications, including the Wall Street Journal, Clinical Economics and Outcomes Research, The Oncologist, Journal of Vaccines and Vaccinations, Journal of American Pharmacists Association, Journal of Health Economics and Outcomes Research, USA Today, Washington Examiner, Managed Healthcare Executive, and The Hill. He is also a sought-after speaker and has been invited to provide detailed presentations, briefings, and expert reviews for the U.S. Congress and dozens of state legislatures, as well as at conferences and medical symposiums throughout the country and worldwide. Dr. Popovian is one of the select few researchers to study and publish clinical and policy-related economic analysis and empirical data regarding emerging payment models in the U.S. healthcare system and for biopharmaceutical reimbursement. His insight and analysis also led to one of the first inclusions of health outcomes data in a labeled indication of a biopharmaceutical. Dr. Popovian serves on the Board of Councilors of the University of Southern California School of Pharmacy, is an Adjunct Clinical Assistant Professor at the School of Pharmacy at Rutgers and is an advisor to the Value of Life Sciences Innovation program at the Schaeffer Institute. Dr. Popovian completed his Doctorate in Pharmacy and Master of Science in Pharmaceutical Economics and Policy degrees with honors at the University of Southern California. He has also completed a residency in Pharmacy Practice/Adult Internal Medicine and Infectious Diseases at the Los Angeles County-USC Hospital and a fellowship in Pharmaceutical Economics and Policy at USC. Robert and his family reside in Los Angeles, CA, and Alexandria, VA. Robert’s wife, Maylin Popovian is alumnus of University of Southern California, Rossier School of Education and Pepperdine University. His eldest daughter is a graduate of University of California Los Angeles, and his youngest daughter is attending University of California San Diego.

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