Tuesday, October 3, 2017

Hospital Impact—Pharmacy benefit managers are a lot like car dealers

Any time you try to buy a car, the same question is considered: Am I getting the best price? Sure, price tags are displayed on freshly waxed cars, but it’s always possible to talk the salesman down. The system for car purchases—where Americans buy cars from dealerships instead of directly from the companies making them—makes it hard to know how much it actually costs to make a car, so it’s hard to know you’re getting the best price.

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The same system applies to buying lifesaving prescriptions. Drug manufacturers set a list price, but consumers rarely pay that, and how much drugs should really cost is uncertain. That’s because of pharmacy benefit managers (PBMs), large corporations wielding enormous power over which drugs you get. Just three big PBMs control nearly 80% of the market, using their size and influence to negotiate drug prices with manufacturers. However, big PBMs have mixed incentives around containing drug costs and managing premium costs, while maximizing profits from their own in-house pharmacies.

Tyrone's comment: While I agree with the premise of this article's title, there is one small yet very important distinction that must be made. That distinction is "non-fiduciary" pharmacy benefit managers are a lot like car dealers. Moreover, how do we classify those trusted advisors who steer their clients to these car dealers or non-fiduciary pharmacy benefit managers without first having won radical transparency? PBMs are not created equally with some volunteering radical transparency and others much less so. Be sure to do your [plan sponsors] homework which requires going far beyond simple spreadsheet analysis and 25 page RFPs. Who is watching the watchers?

In the past few years, PBMs have ramped up their mail-order and specialty pharmacies to lock down profits and exclude independent pharmacies. Increasingly, they’re exploiting a Medicare provision allowing them to charge “direct and indirect remuneration fees” to pharmacies within their network. They're ratcheting up the use of these fees—ostensibly part of Medicare reimbursement—to price out competition: local independent pharmacies, where pharmacists have personal relationships with patients and partner with referring providers to support patient care.

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