(Hartford, CT ) - The Office of Health Strategy published a Report of Pharmacy Benefit Manager (PBM) Practices pursuant to Public Act 23-171 § 7. This study and report were conducted to help consumers and policymakers: (1) understand the impact of PBM practices on providers and consumers in the state, (2) compare these practices to those of PBMs operating in other states, and (3) provide state policy considerations and trends that may lower the cost of prescription drugs for consumers and increase transparency with PBM practices.
“Enhancing our understanding of the factors that influence the price consumers pay out of pocket for their medications gives us more opportunity to address affordability,” said Deidre Gifford, MD, MPH, Commissioner. “The challenges are complex. Research like this better equips us to develop effective public policy to protect patients.”
The report provides a detailed analysis of the complex pharmacy supply chain, which includes vertically integrated corporate structures. Pharmacy benefit managers play a role in processing prescription drug claims, negotiating drug prices and managing drug formularies. These companies also coordinate pharmacy networks, manage utilization through prior authorizations, step therapy and other strategies and even serve patients directly through mail-order and specialty pharmacies.
Connecticut’s “Big 3” PBMs, Express Scripts, CVS Caremark and Optum Rx, provide pharmacy benefit services for 84% of commercially-insured lives in the state. Cigna Group/Cigna (Express Scripts), CVS Health/Aetna (CVS Caremark) and United Health Group/United Healthcare (Optum Rx) operate these PBMs.
The Big 3 PBMs are vertically integrated, meaning they are part of larger parent organizations that often include a health insurer, PBM, rebate group purchasing organization (GPO), pharmacies (retail, mail, and / or specialty), provider services, and, most recently, drug distribution entities. These organizations control a large portion of the pharmacy supply chain – from partnering with drug manufacturers to produce medications, to filling prescriptions at their affiliate pharmacies.
Drug manufacturers negotiate with PBMs to secure favorable formulary placement for their products, often in exchange for rebates. These rebates are financial incentives given by manufacturers to ensure their drugs are more accessible to patients by being placed on lower, more preferred tiers of the formulary. In turn, PBMs use these rebates to manage plan costs, either by passing the savings to plan sponsors to help lower premiums or by directly reducing out-of-pocket costs for members at the point of sale.
Increasingly, PBMS have adopted high list price/high rebate strategies that benefit the PBM and plan sponsor but can increase patient cost at the pharmacy. Many participants in the pharmacy supply chain (which may be part of the same parent company as the PBM) have the potential to benefit from the higher cost of drugs.These strategies can create competitive disadvantages for biosimilars and generics that may have a lower cost for the patient.
“Retail pharmacy costs are growing rapidly in our state and our neighbors are struggling to pay for medications they require to live productive lives,” said Dr. Gifford.
The report, prepared in collaboration with consulting firm Milliman, provides concepts for consideration to lower the cost of prescription drugs and increase transparency with PBM practices.
- Improving PBM oversight through pharmacy reimbursement reporting and affiliate revenue reporting: These strategies would give the state more data to understand how PBM business practices impact pharmacies and patients, and where profits end up across affiliated companies.
- Reducing drug prices for Connecticut consumers by:
- Increasing biosimilar adoption – biosimilars offer a safe and effective alternative to an original biologic drug (medicines developed from cells, blood, plasma, proteins or other parts of a living organism) at a lower cost
- Assessing the potential impact of point-of-sale rebates – point-of-sale rebates give the benefit of a drug discount directly to the patient at the pharmacy counter
- Lowering patient cost share for brand-over-generic strategies – when a PBM chooses a brand name over a less expensive generic in order to gain deeper discounts, this strategy would ensure that the consumer pays the lower generic cost
- Promoting cost-plus pricing models and reducing cross-subsidization –current PBM business practices make drug pricing very inconsistent and difficult to predict for payers and patients, a shift to simplify these practices could result in lower, more predictable and transparent prices
- De-linking PBM revenue and drug cost – PBM profits are often linked to the price of a drug, they can earn higher profits on drugs with higher prices, shifting to a model that ties profits to flat fees could reduce this incentive
- Expanding the use of preventive drug lists – essential medications to support preventive care and manage chronic conditions can be provided to patients without requiring the patient to meet their deductible first – expanding the list of eligible drugs to include more treatments for asthma, diabetes, depression or other conditions could benefit consumers
“OHS staff briefed the Prescription Drug Taskforce on the findings of the report last month,” said Dr. Gifford. “We will continue to work with the Governor’s office and our legislative colleagues to explore the policy options that can have a positive impact on prescription drug affordability for Connecticut residents.”
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