Tuesday, December 7, 2021

Tip of the Week: Think Twice Before Joining a PBM Drug Pricing Coalition

Documents provided to Axios reveal a new layer of secrecy within the maze of American drug pricing — one in which firms that manage drug coverage for hundreds of employers, representing millions of workers, obscure the details of their work and make it difficult to figure out whether they're actually providing a good deal. 
Figure 1: Explanation for coalitions withholding data

How it works: Employers hire pharmacy benefit managers to handle the drug coverage in their workers' health insurance plans. PBMs negotiate prices with drug manufacturers and decide which drugs get preferential treatment.

Big consulting firms work with PBMs to organize drug pricing coalitions, pulling Fortune 500 companies and other large employers into purchasing agreements that, in theory, maximize negotiating power. But it can be difficult for employers to determine the financial upside of these arrangements. So what are employers not seeing within coalitions? The data on prices, and understanding whether those prices are a good deal.

Tyrone's Commentary:

I'm not opposed to coalitions per se. I am, however, opposed to information asymmetry in health care. Information Asymmetry or "Information Failure" is a term that refers to when one party in a business transaction is in possession of more information or knowledge than the other (see figure 1). In certain transactions, sellers might take advantage of buyers because information asymmetry exists whereby the seller has more knowledge of the good or service being sold than the buyer. The best proponent of transparency is informed and sophisticated purchasers of PBM services. If a coalition is engaging in information asymmetry, employers in that coalition are leaving money on the table.

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