Who’s on the hot seat now?
Mark Thill
Frustration breeds scapegoats. Chicago sports fans know this better than anyone. So do the many players in the healthcare industry – payers, policy-makers, physicians, the public, healthcare administrators, supply chain and contracting professionals.
Their frustration goes along these lines: “No matter what we do, we can’t seem to improve the quality of healthcare, lower cost and increase access to care. And we’ve tried everything – DRGs, HMOs, ACOs, GPOs, bundled payment, individual mandates.”
When things don’t work, people look for solutions … until they don’t. Then we look for someone to blame. The latest healthcare villains appear to be pharmacy benefit managers. And boy, do the accusations against PBMs sound like those leveled at GPOs from time to time.
PBMs are companies with whom payers contract to negotiate drug prices and formulate drug benefits programs.
Speaking at the American Hospital Association Annual Membership Meeting in May, CMS Administrator Seema Verma described how PBMs work:
“In Part D, a group of negotiators works on behalf of Medicare, to get a good deal for our beneficiaries. Plans hire PBMs to manage their drug benefit and to negotiate with drug manufacturers. PBMs negotiate with drug manufacturers by extracting rebates in exchange for putting the manufacturers’ drugs on the plan’s formulary. The manufacturer has an incentive to pay the PBM a rebate, because if the manufacturer’s drug does not get on a plan’s formulary, then the manufacture loses market share.”
So far so good. Then she went on to say: ” … PBMs are serving two customers – being paid both by manufacturers for getting on formularies and by plans for managing their drug benefit. This makes it unclear who they’re actually aligned with.
“The higher a manufacturer’s list price, the larger a rebate will be, since rebates are calculated as a percentage of list price. And the higher the rebate, the more money that plans and PBMs get. The bottom line is that all of the incentives are lined up for manufacturers to set higher and higher prices.”
Her concerns were echoed in the administration’s “American Patients First” plan, designed to lower drug prices.
If all this sounds familiar, it should. For years, opponents of group purchasing have argued that because GPOs get a percentage of sales, they profit when manufacturers keep their prices high. So where’s the incentive to lower prices? Who are GPOs representing? Health systems, or manufacturers?”
Drug prices are a concern. No doubt about it. But is eliminating PBMs the answer?
Mark Thill