RDAC Position
Utah should implement Pharmacy Benefit Manager (PBM) reforms to decrease drug costs for patients, ensure access to local pharmacies, and improve pharmacy reimbursement practices. A multi-pronged approach is necessary to address:
Higher drug costs driven by PBM rebate policies that don’t pass discounts on to patients.
PBM lack of transparency.
PBM discrimination against non-network and independent pharmacies.
Cost pressures that burden state-run insurance programs as a result of the PBM business model.
Individuals in the rare disease community tend to use multiple medications and relatively expensive medications to manage their health conditions. Thus, the abuses of PBMs weigh especially heavily on this population.
Issue
PBMs are middleman companies that interface with pharmaceutical manufacturers, health insurers, and pharmacies. Often, they are part of large conglomerates that own or are owned by insurers and/or pharmacy chains with vertically and horizontally integrated businesses. PBMs develop drug formularies with and for insurers. This process is informed by factors such as negotiated reimbursement rates with pharmacies and negotiated rebates with drug manufacturers. The process includes discounts and other fees paid by manufacturers as well as drug placement in formularies.
The largest PBMs are interconnected with other behind-the-scenes affiliates, such as pharmacy payment processors, group purchase organizations (rebate aggregators), specialty drug labelers (especially for biosimilars), and healthcare providers. These affiliates may be headquartered outside the U.S., removing transparency in their operations. Acquisitions and mergers during the last few years have resulted in three large PBMs controlling about 80% of the prescriptions filled in the U.S. Another three control an additional 10%.
The Federal Trade Commission issued a report in July, 2024, describing the detrimental effects of PBM structures and operations. The agency has since sued CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealth’s Optum Rx for anticompetitive supply chain practices, resulting in artificially inflated insulin prices for some patients. The U.S. House Oversight Committee also issued a report in July, 2024, about PBM practices increasing drug costs for payers and consumers.
Drug Formulary Design
Formularies may discourage or encourage the use of generic and biosimilar medications through placement in pricing tiers or excluding them from a formulary altogether. Drug formularies may be designed on the basis of contracts with drug manufacturers for rebates and often implement utilization management provisions such as prior authorizations, step therapy, and quantity limits. Utilization management may function in keeping drug costs lower, but it is being misused to create obstacles for timely patient access to medically necessary drugs.
Specialty Drugs
There is no uniform definition of “specialty drugs,” which are usually handled by specialty pharmacies. The designation may be based on price alone or on a need for special handling and administration. Specialty drugs account for 40-50% of pharmacy dispensing revenue, but about 2% of total Rx volume. PBMs sometimes classify drugs as “specialty” to limit patient access at pharmacies not owned by or associated with the PBM.
Patient Cost Sharing
PBM formularies and/or the associated health insurance plans are set up to share drug costs with patients. The cost used to calculate the patient’s share is generally the manufacturer’s list price, which may be significantly higher than the price negotiated with the drug manufacturer (see examples in Appendix A of the House Oversight Report), and patients typically don’t receive the benefit of the manufacturer’s price concessions to PBMs. In addition, third-party patient assistance programs for some expensive medications are intended to lessen the cost burden for patients, but PBMs and insurers are increasingly using practices such as copay accumulators and copay maximizers to pocket the financial assistance payments without applying them toward patients’ out of pocket expenses.
PBM Relationships with Pharmacies
PBMs have contractual relationships with pharmacies in their networks and may have common ownership with those pharmacies. Pharmacies may be retail, where patients pick up their prescriptions; mail order, where prescription medications are shipped to the patient’s designated address; or specialty, where drugs designated as specialty may be delivered to the patient or to a clinic or care provider.
Often, reimbursement rates for payments to pharmacies for dispensing drugs discriminate against out-of-network and independent pharmacies. Inflated reimbursement rates may be paid to affiliated pharmacies. The reimbursement rates may change frequently and be difficult for pharmacists to understand. Post-sale adjustments, or clawbacks, have been assessed to independent and out-of-network pharmacies, based on designated pharmacy performance criteria that are outside of the pharmacy’s control, such as patient compliance evidenced by repeat prescription refills. Reimbursement rates may be independent of reasonable costs for pharmacies to acquire the drugs. PBMs may set maximum allowable costs (MACs) for pharmacy reimbursement, which may be less than what the pharmacy pays. These practices may have serious adverse effects on the ability of non-network and independent pharmacies to operate profitably and may decrease market stability. Further, pharmacies have little bargaining power in setting contractual terms.
PBMs may engage in practices that steer patient specialty drug purchases to specialty pharmacies controlled by the PBM. Pharmacy purchases of generic and biosimilar drugs may be reimbursed only if they are obtained through PBM-affiliated labelers, with exclusivity requirements that prohibit pharmacies from obtaining specialty drugs from other sources. For example, a PBM may implement “white bagging” and designate a required pharmacy for purchase of a drug, or it may implement “brown bagging” and require a patient to purchase a drug at a designated pharmacy and bring it to their health care provider for administration.
Brown bagging is prohibited in Utah under SB 193, enacted in 2023.
Ways PBMs are Being Bypassed Currently
A limited number of pharmacies are offering mail order availability for some generic medications, which provides lower-cost access without insurance. These pharmacies may be in network for a few insurance plans. Mark Cuban’s Cost Plus offers selected medications at prices that include the pharmacy’s acquisition cost for the medication, a 15% fee to Cost Plus, a pharmacy fee for filling the Rx, and the shipping cost. CivicaRx is a nonprofit company that works to reduce hospital drug shortages and make lower-cost generic and biosimilar outpatient medications available, including by manufacturing medications.
Companies such as GoodRx and SingleCare offer coupons or discount cards to consumers for many medications at their participating pharmacies. RX Partner offers prescription discounts to PBMs and health insurance plans. RX Savings Solutions provides services to pharmacists and health plans to offer drugs at lower prices to consumers. These two programs appear to work outside of PBM/insurer formularies.
AbbVie, the manufacturer of Synthroid, name brand levothyroxine, has a program that provides medication by mail and outside of insurance coverage, for $25/month, considerably less expensive than what many insurers pass on to patients as copays or coinsurance, if their formularies even include Synthroid.
There are several problems with bypassing insurance in these ways for rare disease patients and others who take multiple medications and receive them from multiple pharmacies. These options are only available for the limited selection of drugs available from the entity that is offering alternative pricing. Although using these pharmacies can reduce costs significantly for patients, patient payments for drugs acquired outside of insurance coverage do not count toward the insurance out of pocket costs.
Dealing with multiple pharmacies can be complicated for patients and their caregivers. In addition, mail order purchase from pharmacies may not be appropriate when the medication is needed immediately, such as antibiotics. One often-provided pharmacy service when new prescriptions are filled is to check whether concurrent use of the new prescription is contraindicated with other medications the patient takes, either because one medication interferes with the efficacy of another, or because serious adverse events can occur with concurrent use. A pharmacy that provides only one medication to a patient may not have access to a list of other medications the patient uses, and a pharmacy that provides the patient’s other medications likely doesn’t have a record of the medication from the other supplier.
PBM Reforms Utah Can Implement
Utah has already implemented some measures to improve accountability and transparency of PBMs. The state can implement additional legislation and take other appropriate steps to address PBM-related issues listed below.
Transparency of PBM Operations
Reporting requirements for total drug spend, manufacturer rebates, and other discounts received.
Total pharmacy compensation (see SB 208, 2018).
Point-of-sale pharmacy price concessions.
Patient cost-sharing.
Establishing maximum allowable cost list requirements.
PBMs to report conflicts of interest.
Manufacturer reporting.
PBM Income
Prohibitions against spread pricing, where insurers are charged more than is reimbursed to pharmacies.
Requirements for PBMs to pass rebates to the health plan.
Requirements for PBMs to apply rebates at the point of sale or use rebates to lower insurance premiums to reduce enrollee costs.
Increasing Medicaid control over pharmacy reimbursement rates.
Prohibiting a PBM from reimbursing a pharmacy less than the national average drug acquisition cost (NADAC), a metric used by Medicare.
Prohibiting a PBM from reimbursing an unaffiliated pharmacy less than an affiliated pharmacy.
Setting standards for pharmacy audits and recoupments.
Drug Cost Sharing
Copay caps, already implemented for insulin and considered for albuterol inhalers and epinephrine injectors.
Requiring third party payments to be applied toward out-of-pocket costs (co-pay accumulator and copay maximizer bans).
Controlling State Costs (Medicaid and other State-Run Programs)
Utilization management, which can include lifestyle changes.
Limitations on step therapy.
Examples of Recently Passed Legislation in Other States
Idaho HB 96 (2024)
Strong focus on transparency and reporting, pass through pricing to consumers, prevents
steering, pharmacy adequacy standards, defines specialty drug.
Massachusetts Senate No. 2520
Passed both Houses and in conference committee (7/25/24). The bill includes PBM licensing with the Department of Insurance, periodic auditing of PBMs by health insurers, bans spread pricing, bans point of sale and retroactive fees with assessment to PBM for violation, requires at least 80% of rebates to be passed on to consumers at point of sale, requires pharmacies to charge customers the lesser of applicable cost-sharing or pharmacy retail price, requires copay assistance to be included in enrollee cost sharing, imposes duty of good faith and fair dealing on PBMs when dealing with all parties they interact with in performing PBM services, requires PBMs to provide an adequate and accessible network for prescription drugs, requires PBMs to maintain a Maximum Allowable Cost list for generic prescription drugs and must reimburse an independent pharmacy for drugs at the same amount that the PBM reimburses PBM affiliates for providing the same pharmaceutical services, makes permanent the ability of consumers to use drug manufacturer coupons to pay for prescription drugs, procedure for notice and hearing if planned closure of a pharmacy will create pharmacy desert.
Pennsylvania PA HB 1993 (2024)
Amounts of rebates and payments received from drug manufacturers and how those payments were distributed by the PBM.
About the Rare Disease Community
Rare diseases are rare individually, but as a group they are more common than many people think. Approximately 7,000 rare diseases affect more than 30 million people in the U.S. An estimated one in ten Utahns, or an estimated 350,000 women, men and children are suffering from a rare disease.
Whether it is an immune deficiency, a rare cancer or a genetic disorder, medical care for a rare disease is chronic and costly. Moreover, although the FDA has approved hundreds of drugs for rare diseases, most conditions do not have FDA-approved treatments. Drug, biologic and device development in rare diseases is challenging for many reasons, including the complex biology, the lack of understanding of many rare disorders and the absence of financial motivation due to small market sizes.
About the RDAC
The RDAC was formed under Utah Code Annotated Section 26-1-41, enacted during the 2020 Utah Legislative session to advise the state Legislature and state agencies on improving access to treatment and services provided to individuals with a rare disease; make recommendations to the Legislature and state agencies on improving access to treatment and services provided to individuals with a rare disease; and identify best practices to improve the care and treatment of individuals in the state with a rare disease.
The RDAC includes a representative from the Utah Department of Health and Human Services, researchers and physicians who specialize in rare diseases; rare disease patients and caregivers; and representatives from rare disease organizations.
For additional information, please contact Lorenzo Botto, M.D., RDAC Chair, at lorenzo.Botto@hsc.utah.edu.
