Understanding Pharmacy Benefit Managers and the Costs of Epinephrine

Four Epi Injectors From Various Manufacturers

EAIs vs. PBMs

If you are wondering why the cost of epinephrine and other drugs has been increasing lately, read about the role Pharmacy Benefit Managers (PBMs) play. While they are supposed to be acting as intermediaries between pharmacists and insurance companies, the way they are compensated can end up costing the consumer a lot more money. This article addresses gag clauses where the pharmacist is not allowed to suggest lower cost alternatives, rebates that give PBMs 40 to 50 percent of a medicine’s list price and spread pricing where the PBM charges an employer a higher price for a drug. Please read this important article here on how you can avoid gag clauses and save money when you go to fill your next prescription.

Understanding Pharmacy Benefit Managers and the Costs of Epinephrine

By Jon Terry
July 15th, 2018

Why has the excessive cost of epinephrine auto-injector (EAIs) devices become such a prominent public health issue? Along with the drug manufacturers and insurance companies, the news media has recently called attention to the role played by pharmacy benefit managers (PBMs) for increasing our medication expenses. According to the Council of Economic Advisors, “Pricing in the pharmaceutical drug market suffers from high market concentration in the pharmaceutical distribution system and a lack of transparency.” To help better understand this relationship, the Allergy Advocacy Association is sharing an overview of selected available information and opinions on this very complex subject.

What is a Pharmacy Benefit Manager (PBM)?

According to the American Pharmacists Association, "PBMs are primarily responsible for developing and maintaining the formulary, contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims. For the most part, they work with self-insured companies and government programs striving to maintain or reduce the pharmacy expenditures of the plan while concurrently trying to improve health care outcomes.”

A PBM is the intermediary between the insurance company and the pharmacist. Originally, they were formed to handle the insurance claims for patient medical benefits. The role of the PBM is to aggregate drug purchasing power from payers (insurance companies, small businesses, and consumers) and negotiate the lowest price from drug manufacturers and the lowest dispensing fee from pharmacies. Over the past decade, their role has greatly expanded. They determine covered medications, authorized pharmacies, and reimbursement amounts to pharmacies. Additionally, they operate the mail order component of pharmaceutical distribution. For compensation, PBMs use administrative fees, rebates and a pharmacy spread (see below).

As of 2016, PBMs managed pharmacy benefits for 266 million Americans. PBMs operate inside of integrated healthcare systems (e.g., Kaiser or the Veterans Administration), as part of retail pharmacies (e.g., CVS Pharmacy or Rite-Aid), and as part of insurance companies (e.g., UnitedHealth Group). In 2016 there were fewer than 30 major PBM companies in this category in the US and three major PBMs (Express Scripts, CVS Health, and OptumRx of UnitedHealth Group) that comprise 78% of the market and cover 180 million enrollees.

What are rebates?

Rebates are similar to coupons but are received after purchasing the product. The rebate amount is negotiated between the PBM and the drug manufacturer in exchange for the PBM covering the cost of the manufacturer’s product. It is unclear what percentage of the rebate is kept by the PBM.

Instead of lowering costs, the largest PBMs, Express Scripts, CVS Caremark and Optum Rx, are incentivized to inflate drug prices. The higher the price, the higher the rebate — and the PBMs walk away with a bigger slice of the pie. Large employers who have some negotiating power may claw back some of that money — that’s the idea of aggregating drug plans through a PBM — but small employers and consumers can’t.

What is a pharmacy spread?

A pharmacy spread is the difference between the amount of money paid to the pharmacist and the amount charged to the plan sponsor, the company or employer who designed the healthcare plan. It’s been found that many pharmacy benefit managers offset low administrative fees through other sources of revenue. These other revenue sources might not be apparent to employers. One such revenue stream is “spread pricing,” which occurs when the pharmacy benefit manager charges the employer a higher price for a drug. The PBM then reimburses the pharmacy for that drug for its actual cost and pockets the difference.

How do PBMs get away with pharmacy spreads?

The contracts that employers sign with PBMs are often confusing, full of industry jargon, and provide ample opportunities for the PBM to hide their costs. Employers may assume they’re paying pharmacy costs and administrative fees but are unaware of the mark-up that happens in the middle — the spread. Meridian’s contract with Express Scripts contained no restrictions on PBM spreads.

What are “gag clauses”?

Gag clauses affect the pharmacist/customer relationship, preventing pharmacists from sharing information about lower cost options. Pharmacists are not able to advise customers when they could get a better price by buying without their insurance, or by buying a generic, or an alternative brand.

The "gag" is inserted in contracts between a pharmacy and a PBM.

Can they be avoided?

Yes, but only if you specifically ask about savings information at the pharmacy counter. If you do, then they must respond.

  1. Always ask the pharmacist for the cash price of the drug.
  2. Always ask if there is a cheaper, generic alternative.
  3. Shop around. Some pharmacies offer lower cash prices than others for numerous generic drugs. You can use PharmacyChecker.com to research cash prices at U.S. pharmacies. Just scroll to the bottom of your needed drug's price page and enter your zip code to find the discounts available in your area. When you choose a pharmacy, click "Print Card for This Pharmacy" and you are all set to obtain your discount at the pharmacy of your choice.
  4. Compare prices at verified international online pharmacies.

Does NYS have “gag clauses”?

Between 2016 and May of 2018, over 22 states have passed laws prohibiting gag clauses. NYS’s senate and assembly has passed such legislation and is waiting for the governor’s review.

Regulation of PBMs

The government does not currently regulate PBMs. According to a June 2017 report by the USC Schaeffer Center, Express Scripts, CVS Health and Optimum Rx control sixty-six percent of the PBM market. With little market competition, and no requirements for transparency, as PBMs are becoming ever more profitable, they are also subject to increasing scrutiny.

How have PBMs influenced the pricing of Epinephrine?

According to David Balto an anti-trust lawyer, Mylan Pharmaceuticals Inc, the patent owner and manufacturer of Epi-Pen, receives less than half the list price for a regular EpiPen 2-Pak (Mylan now also makes a less expensive generic EAI device). PBMs, who do not research, develop, create or manufacture any new treatments or drugs, generally claim 40 to 50 percent of a medicine’s list price via an obscure and complex system of mandatory rebates. On a $600 EpiPen, the PBM is likely receiving close to $300 on each prescription.

What are the key issues that need to be addressed about PBMs?

When pharmacy benefit managers were first initiated in 1968, they were intended to help reduce the costs to consumers and patients of all medications; they would improve healthcare in America by acting as a negotiator and facilitator between all interested parties. That role has now been called into question by federal officials at the highest levels of our government.

In 2018, Health and Human Services Secretary Alex Azar unveiled his administration's blueprint to lower drug prices. It includes rethinking rebates, or discounts that firms called pharmacy benefit managers negotiate with manufacturers. "We may need to move toward a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts," he said. "Such a system's incentives, detached from these artificial list prices, would likely serve patients far better, as would a system where PBMs receive no compensation from the very pharma companies they're supposed to be negotiating against," Azar said.

Removing rebates within the Medicare Part D prescription drug program "is something that is and should be on the table," he said. The administration believes it has the regulatory authority to modify the statute that allows rebates. They're currently exempt under the anti-kickback statute. Food and Drug Administration Commissioner Scott Gottlieb last month suggested the federal government should re-examine this.

The Allergy Advocacy Association supports all efforts to improve access to life-saving epinephrine at the lowest cost possible to every patient and consumer. Our association believes that saving and protecting lives of individuals with life-threatening allergies must not be compromised by inaction or indifference. The welfare of individuals at risk for anaphylaxis must take precedence over corporate interests and national politics.

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