The mortaring of middle America

Aug 10, 2019
In The News

The mortaring of middle America

Written by: Rep. Rick Crawford
Published by: Talk Business & Politics

Another day and another news story about how pharmacy benefits managers (PBMs), the middlemen sitting between you, your employer and your local pharmacist, are driving up the cost of healthcare.

The most recent report comes directly from the non-partisan Congressional Budget Office, which directly identifies that eliminating the hidden spread pricing that PBMs take without the knowledge of patients, providers, and employers will save billions of taxpayer dollars. “Spread” is where the PBM charges the plan sponsor one amount for the prescription drug and pays the pharmacist who fills the prescription a much smaller amount.

In Arkansas, we have seen spread examples where the PBM keeps over $600 on a single prescription just for processing an electronic claim.

The largest three PBMs – CVS Health, Express Scripts, and Optum Rx (owned by United Healthcare) – collectively control over 80 percent of the prescription drug marketplace in the United States. This includes administering plans for private businesses, health insurance companies, state Medicaid programs, and many federal health plans, including Medicare Part D.

These three companies have grown so large and monopolistic and are governed by very few rules. With few rules and the absence of a healthy market, the PBMs have secretly been the driving force behind the rise in prescription drug pricing.

They do this is three major ways: spread pricing, keeping rebate dollars, and pushing mail order medications.

As I mentioned, spread pricing is an insidious practice where the PBM overcharges the employer and underpays the pharmacist for the same medication. Such a practice has led to many states’ managed Medicaid plans driving local pharmacist providers out of business while padding the pockets of the PBMs.

Rebates are another very important place where PBMs hide money. The PBMs leverage the large pharmaceutical companies to pay them in exchange for their products being placed on the PBM’s formularies. If the pharmaceutical company doesn’t pay a sufficient amount, the PBM simply excludes their drugs from coverage altogether.

If the pharmaceutical manufacturer does pay these rebates, these dollars then go into a black hole at the PBM, where the patient and the health plan rarely, if ever, see those dollars. It is estimated that manufacturers pay as much as 50 cents on the dollar in rebates to the PBMs. But if you are on a high-dollar deductible plan and have to pay 100 percent for your medication, you never see a penny of those rebate dollars. The manufacturers are paying these rebates to help bring your costs down, but the PBMs are catching them and keeping them in the middle.

Lastly, the PBMs also add unnecessary cost to the system by forcing patients to use wasteful mail order pharmacies. These pharmacies are also owned by the PBMs themselves. Therefore, they control what drug your doctor can prescribe, how much you – the patient – pay for it, and now they’re telling you that you can only buy it from them. And they ship them to patients many times without the patient’s consent, creating massive waste.

The PBMs literally control every facet of the prescription drug system and have unmatched leverage in the healthcare system, which they are using for the benefit of their companies, not for the patients.

Particularly concerning is the recent move of PBMs and insurers to merge and become behemoth companies that function as middleman and reimbursor. Am I the only one concerned about the huge potential for conflict of interest in that situation? Left unchecked, the vertical integration of PBMs could destroy competition in community pharmacies, leaving patients with broken provider-patient relationships, higher costs, and less access to patient-centered care.

Some PBMs have already appeared to exercise monopolistic power in the marketplace by offering “take it or leave it” contracts to pharmacists, who are forced to agree if they want to continue serving patients. Therefore, providers are forced to accept the PBMs’ severely undercut reimbursements. According to data collected by the Arkansas Pharmacists Association from small chain pharmacies and community pharmacies, in 2017, within the taxpayer-funded Arkansas Works (Medicaid expansion under the Affordable Care Act) and Exchange population, PBMs operating in the state paid community pharmacies on average between negative $2 to negative $4 per prescription across the entire market basket of services.

If you need proof of how lucrative it is to treat patients, pharmacists, and pharmaceutical companies unfairly, just take a look at the Fortune Top 25 list. You’ll find all of the largest PBMs there. You have to go all the way down to the 37th spot on the list to find the first pharmaceutical manufacturer.

This type of leverage might sound trivial, but health plans, health providers (large and small alike), and even the large pharmaceutical companies are all having their business models controlled by the PBMs, who are driving up costs from the shadows.

Arkansas has provided significant national leadership toward getting PBMs under control. But it is time for Congress to take note and stop the bleeding of taxpayer dollars and stop the damage that is being done to our local communities.

Community pharmacies in rural America – like those in my district – stand to lose the most, if not all, of their customers when market consolidations occur. Prescription drug costs are a perpetual challenge for rural Americans, and they rely on community pharmacies to provide affordable prescriptions to keep them healthy and maintain their quality of life.

We have an obligation to control the costs of healthcare, and for us to get our arms around it, we’ve got to tackle the hidden cost driver in the middle of prescription drugs, the PBMs.

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