Clear as mud

By Andrea Niermeier, Contributing Writer, April 1, 2024

When hearing “pay no attention to the man behind the curtain,” one might be reminded of a wizard in the Land of Oz. However, those in health care may imagine another entity working surreptitiously behind the scenes: pharmacy benefits managers (PBMs). Originating as a solution to claims administration in the United States in the late 1960s, PBMs helped insurance companies manage the high volume of relatively low dollar claims as prescription drug coverage increased in the private sector. However, their role soon evolved as insurance companies began utilizing them to design and manage formularies, reimburse pharmacies for patients’ prescriptions, as well as negotiate lower pharmaceutical prices on the behalf of insurers, Medicare, and employers — essentially determining which drugs patients have access to and how much they pay out of pocket.

While these negotiations are mostly out of the public’s scrutinizing eye, many in the medical field have expressed concern about the impact of PBM business contracts on drug pricing, drug availability, and patient care. Harrison Nguyen, MD, MBA, MPH, FAAD, clinical assistant professor of Dermatology and Health Policy at the University of Houston College of Medicine, commented, “This issue first came on my radar when a paper came out showing that dermatology drug prices had increased over 400% between 2010 and 2015, especially among medications that were not innovative or new to the market. There was no scientific basis for prices to be increasing at this rate.” While the public often blames pharmaceutical companies for drug price increases, many in the medical field and even the government are beginning to understand: PBMs have much of the power to control drug pricing, and perhaps more concerning, operate in the shadows of the health market, without transparency in their transactions with insurers, pharmaceutical companies, and pharmacies.

Rebates and formulary changes

One concern of many people in the health care field is the rebate that a PBM receives from a pharmaceutical company in exchange for placing the company’s drug on an insurer’s formulary. To compensate for this rebate, a premium is added to the ultimate cost of the drug. The 1987 Medicare Anti-Kickback Safe Harbor Act that was extended to PBMs in 2003 currently makes them exempt from penalties for taking these rebates from a supplier as well as protects them from having to release information regarding the rebate amount kept by the PBM and the amount given back to insurance companies.

Also raising alarm is the vertical integration of the largest PBMs with the largest insurance companies and mail-owned and specialty pharmacies. Optum has been a subsidiary of UnitedHealth since 2011 while Aetna merged with CVS Health and Cigna acquired Express Scripts in 2018. The effect of these mergers is clear in the 2023 Fortune 500 list of largest companies by revenue in the United States: UnitedHealth ranked 5th, CVS Health ranked 6th, and Cigna ranked 15th. Mark Kaufmann, MD, FAAD, past president of the AAD, elaborated, “These are no longer big companies. They are the biggest in the United States. If they put you on their formulary, you are golden, and if they do not, you are left in the cold. It no longer matters what you want to sell your drug for — it matters what the PBMs want to buy it for and how much profit they want to make on it.”

This power can be problematic for patients: if a patient’s drug is moved off of a formulary due to a rebate, patients suddenly could have to pay out of pocket or forgo their medications entirely. This is especially true for dermatology, with 151 dermatology medications excluded from one or more PBM formularies between 2014-2022. Bruce Brod, MD, FAAD, chair of the Academy’s Council on Government Affairs and Health Policy, observed, “The long and short of it is that PBMs are getting into the exam room by setting these policies. The vertical integration has blurred the lines of where the PBM stops, and the third-party payer begins.” Dr. Brod also pointed out the PBMs’ practice of nonmedical switching. At the end of a plan or calendar year, insurers may send out a policy to patients and practices, forcing patients to switch from their current, effective medication to another for non-medical reasons. These changes are oftentimes significant, requiring patients to visit their physicians to revise their treatment plans.

Step therapy

While much of how PBMs operate remains shrouded, dermatologists are keenly aware of their impact on dermatology practices and patient care. Step therapy, or step edits, often call for a patient to fail a drug that is fiscally superior for the PBM before receiving approval for the medically superior one often prescribed by a physician. Neal Bhatia, MD, FAAD, past vice president of the AAD, expressed, “Prescription pads have become suggestion pads. Think about the amount of time, labs, office visits, and toxicity that the patient must endure based on someone reading from a spreadsheet for those algorithms.” This can lead to delayed access to effective treatment, disease progression, and increased costs for the patient. Dr. Nguyen agreed, saying that for every 10 minutes he spends with a patient, he spends about three times as long going back and forth with insurance companies to get his patients the care they need. While Drs. Bhatia and Nguyen work to appeal the PBM decisions for the safety of their patients, they recognize that physicians do not have the time or energy to do this every time. “It’s probably one of the biggest drivers of burnout in physicians. We know what our patients need, and we are not allowed to let them have it. The physician must jump through hoops that are not only unnecessary but sometimes harmful to the patient,” Dr. Kaufmann added.

“Prescription pads have become suggestion pads. Think about the amount of time, labs, office visits, and toxicity that the patient must endure based on someone reading from a spreadsheet for those algorithms.”

In addition to rebates and step therapy, PBMs use other strategies to churn profits. Dr. Bhatia recalled that a pharmacy used to buy a bottle of medication, sell it with a markup, and pocket the profit. Now a pharmacy still buys the bottle of medication but has to charge the consumer more because the PBM acts as a middleman in the transaction. If a negotiated price with a pharmaceutical manufacturer is less than the copay, the difference is passed from the pharmacy to the PBM, otherwise known as a copay clawback. Also, spread pricing as well as copay accumulators from pharmaceutical companies have further deepened earnings for PBMs while burdening patients.

A call for transparency

With a need for accessible and affordable drugs that allow physicians to help their patients achieve optimal health, the Academy has made its stance on PBMs clear, identifying these companies as middlemen who contribute to a lack of transparency in how drug prices and policies are set while also adding cost and complexity to the pharmaceutical system. Lisa Albany, JD, director of AADA State Policy, commented, “Our position on PBMs is one of transparency, in both the structure and negotiation process of PBMs.” This includes disclosure of current financial arrangements as well as in the drug price negotiation process. “Pharmaceutical manufacturers should disclose discounts and rebates provided to the PBMs, and the PBMs should also disclose how much of those discounts and rebates are passed on to the patient. Also, we have concerns about the role PBMs have in creating formularies, tiers, and drug pricing.”

Federal legislation

For several years, Congress has introduced bills from both the House of Representatives and the Senate addressing PBM transparency, spread pricing, out-of-pocket costs, rebates, delinking, pharmacy payment, and disclosure. However, a comprehensive bill has yet to be passed into law despite several attempts. Dr. Kaufmann explained, “Every year there seems to be a push to get where we want to go, and every year bills in the House and Senate that call for PBM transparency, fairness, and regulation do not come to fruition because of the political influence of PBMs.”

That is not to say, however, that progress has not been made. In 2018, both the Patient Right to Know Drug Prices Act and the Know the Lowest Price Act prohibited insurers and PBMs from restricting a pharmacy’s ability to provide drug price information to a consumer when there is a difference between the cost of the drug under the plan and the cost of the drug when purchased without insurance. This legislation has opened doors, so consumers have options when purchasing drugs. Companies like Amazon, Mark Cuban Cost Plus Drug Company, and GoodRx are all online pharmacies where people can go to pay the cash price. Dr. Kaufmann noted, “Amazon allows the person to put in their insurance information and then gives the price under the insurance as well as the cash price, letting the person choose which one. This is important because a person may still choose to go through insurance, so the cost applies to their deductible. It is a real disruptor to insurance companies and PBMs.”

Despite PBMs’ past success to keep their business cloaked and to maneuver around restrictions placed on them, Drs. Nguyen and Kaufmann and Albany feel optimistic that legislation requiring more transparency is on the horizon. “In 2023, there became a much louder drumbeat coming out of Congress calling for PBM reform,” Dr. Kaufmann said. In 2023, at least seven bills from six different committees were introduced into Congress, the last one in December by the Senate Finance Committee. The Better Mental Health, Lower-Cost Drugs, and Extenders Act includes provisions from the Modernizing and Ensuring PBM Accountability (MEPA) Act from earlier in 2023 and would introduce more transparency and regulation surrounding PBMs.

Dr. Brod acknowledged the MEPA Act as one of two Senate bills and two House of Representatives bills currently supported by the AAD. The other Senate bill, the Pharmacy Benefit Manager Transparency Act of 2023, would prevent PBMs from engaging in certain practices when managing the prescription drug benefits under a health insurance plan, including charging the plan an amount different from what the PBM reimburses the pharmacy.

In the House of Representatives, the Pharmacy Benefit Manager Accountability Act would require more reporting and transparency from PBMs regarding cost, pharmacy plans, and drug prices. In addition, the Help Ensure Lower Patient (HELP) Copays Act would mandate health insurance plans to apply certain payments made by, or on behalf of, a plan enrollee toward a plan’s cost-sharing requirements. “The Academy has gone on record supporting transparency so that patients, physicians, pharmacists, and employers know the true cost of drugs,” said Dr. Brod. “While I think there is potential for some PBM legislation to be passed this year, I do not think that will happen until a broader appropriations package comes together.”

State legislation

Since 2017, 158 state bills addressing PBMs and representing all 50 states have been signed into law. Albany commented, “Years ago, we started working with the Alliance for Transparent and Affordable Prescriptions (ATAP) on gag order legislation and were pleased with the success we’ve had.” Currently, 44 states have gag order legislation, which prohibits provisions in contracts that prevent pharmacists from informing patients about less costly drug options.

In 2023 alone, 139 bills regarding PBMs were introduced in 43 different states, with 22 bills becoming law in 18 of those states. This year looks to also make headway in PBM legislation with 114 bills either introduced or carried over in 31 states. “I feel hopeful that policymakers want to regulate PBMs and show their constituents what they are doing to bring down prescription drug costs,” Albany stated. “We are focused on requiring PBM licensure and registration. We also want to get involved in legislation that requires PBMs to report rebate information to states. If states have access to how much of rebates are being passed down to consumers, even more attention and support would likely be given to the regulation of PBMs.”

Building momentum

As the new year brings new hope that the complex machinations driving up drug prices and hampering accessibility will become transparent, Dr. Kaufmann recognizes the importance of momentum. “Informing physicians as well as the public about PBMs creates a groundswell of support, and it is this grassroots support that is necessary to move Congress.” Albany agrees, adding that it is critical for dermatologists to collect stories that demonstrate the burdens on their practice and their patients and to share those stories with legislators.

Dr. Nguyen also highlighted the importance of physicians getting involved in professional organizations for their voice to be amplified. “I think the most effective way forward is to build collaborations with different stakeholders in the system — physicians, professional organizations, and even pharmaceutical companies — who are interested in regulating PBMs.” Dr. Brod noted that this type of collaboration may be more possible in the current fiscally challenging environment where government payers and policymakers are looking for ways to find savings within the system.

With a large focus on dollar amounts in the health care system, Dr. Bhatia gives a stark reminder about the biggest expense being paid. “Everyone is worried about the cost of treating patients. However, we should never forget the cost of not treating patients. Those living in a prison of their own skin disease should not be made to suffer for a profit.” Bringing the inner workings of PBMs into the light for both policymakers and the public may elucidate opportunities to improve drug affordability and access for all patients.

Additional DermWorld Resources