Monday, November 27, 2017

Non-Fiduciary Pharmacy Benefit Managers: The Sopranos of the Pharmaceutical Industry

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It's true non-fiduciary pharmacy benefit managers can drive up the cost of prescription drugs. This isn't even up for debate any longer. However, there is another side to this story one which many plan sponsors, and their advisers, are reluctant to point out. PBMs will provide transparency and disclosure to a level demanded by the competitive market and generally rely on the demands of prospective clients for disclosure in negotiating their contracts.

In other words, PBMs have learned how to leverage the purchasing power of the unsophisticated plan sponsor to their financial advantage. The truth is most, if not all, of the excessive costs embedded in non-fiduciary PBM service agreements can be eliminated if stakeholders (HR execs, CFOs, benefits consultants, brokers etc...) concern themselves less with self-preservation and more with self-education.

How The PBM Mafia Works

Most PBM decision makers have absolutely no medical training and have no idea how or why a particular therapy works. They are simply there to manage cost, and to fatten their own wallets during the process. For every drug transaction, PBMs receive both a reimbursement fee as well as an administrative fee. In addition, when PBMs place a particular drug on formulary, they receive rebates and more fees from manufacturers which are not passed on to the consumer.

PBMs operate in a world with little oversight and even less transparency. In other words, PBMs are middlemen who are paid on both sides of the transaction—similar to the way in which Tony Soprano and his Captains ran their garbage business in New Jersey.

PBMs claim to drive down costs in healthcare by negotiating discounts, managing formularies to obtain rebates, encouraging generics and non-specialty medications, as well as increasing the use of their own mail-order pharmacies. In reality, however, PBMs actually drive costs up by using their “middleman” position to increase their own profits. They work to negotiate contracts with drug manufacturers, health plans and pharmacies that maximize their profits at expense of patients and physicians.

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