What employers should know about recent news coverage about PBMs

August 16, 2024

Pharmacy Benefit Managers (PBMs), have been all over the news recently. There are multiple lawsuits complaining that they overcharged clients, and the Federal Trade Commission and the House Committee on Oversight and Accountability issued critical reports. The Wall Street Journal and the New York Times have reported instances where PBMs directed members to more expensive sources, some of which were mail order houses that they own. Congress has been considering legislation to regulate PBMs, but this legislation has not progressed toward passage.

PBMs are a critical part of the pharmacy ecosystem. They provide valuable services to employer-sponsored health plans, including obtaining competitive prices from manufacturers, assembling a network of in-person and mail-order pharmacies, creating a formulary, issuing ID cards and confirming eligibility, and acting as an intermediary to pay for drugs. Many PBMs perform clinical utilization management, deliver valuable reporting, and create partnerships with third parties (point solutions) that manage various conditions.

Rebates represent a substantial portion of pharmacy prices, and PBMs state they have been moving toward more transparency and fully “passing through” rebates. However, they have created subsidiaries or related companies that perform a group purchasing organization function, and many believe that this represents a way of directing more concessions from pharmaceutical manufacturers to the PBM’s margin, rather than back to their clients.

The “big three” PBMs (CVS/Caremark, Express Scripts and OptumRX) represent over three-quarters of prescription fills, although there are a number of mid-tier PBMs gaining traction, as well as, smaller PBMs that are offering an acquisition using a new pricing model where they charge their cost plus a markup. Most of these small to mid-size PBMs still rely on the “big 3” GPOs for rebates and in some cases for mail, network and specialty pharmacy fulfillment. ESI and CVS have both recently announced acquisition cost pricing structures for employers to consider adopting.

Implications for employers

-        Employers should carefully monitor their PBM (and carrier) contracts to be sure that they are acting as a ‘responsible fiduciary’ in appropriately spending their employee health insurance funds.

-        This includes periodic rebidding, third party auditing, and market “checks” in between contracting cycles to determine if there is any savings opportunity.

-        Rigorous oversight of the PBM can save money and diminish the plan sponsor’s risk.

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Illustration by Dall-E