Some PBMs Able To Make Profit on Generic Drugs
The Wall Street Journal on March 31 looks at the "impressive profits" that some pharmacy benefit managers are earning through the "unlikely" channel of generic drugs. In the last 10 years, nearly every major U.S. employer has contracted with one of the four major PBMs -- AdvancePCS, Express Scripts, Merck's Medco unit and Caremark RX -- which manage the drug benefits of 210 million people in the United States, or 70% of the population, the Journal reports. PBMs use their "mass buying power" to obtain prescription drug discounts for employers and health plans and also help lower clients' drug costs by encouraging use of generic medications. At the same time, PBMs are "enjoying robust financial results" by discovering ways to "collect fat margins on some generic prescriptions," the Journal reports. Because generic drug manufacturers have "little leverage" on price, generic drugs can "seem inexpensive" to PBM clients, "even after huge markups," the Journal reports. Further, many employers and health plans are unaware what profit margins their PBMs are earning and often believe they are saving more than they actually are because of PBMs' focus on average wholesale prices. PBMs often market themselves by touting the large discounts they offer off AWPs, but the Journal reports that "it's an open secret in the industry" that AWPs are often "severely inflated." In the generic market, manufacturers "routinely undercut the published AWPs," the Journal reports. For instance, the AWP for the antidepressant fluorextine, the generic version of Prozac, is about $2.66 per pill, and with a 60% discount offered by PBMs, health plans and employers pay about $1.06 per pill. However, pharmacies can purchase the medicine for about five cents per pill, and PBMs, allowing for a "standard markup," pay them about 30 cents per pill, "much less than the $1.06 per pill" the PBM is collecting from health plans and employers, the Journal reports. Express Scripts officials said focusing on the company's profits from generic drugs is "unfair" because such profits are "balanced out by losses" on brand-name drugs, adding that it saves clients "huge sums" on prescription drugs. While patients are not immediately affected by PBM price margins because most pay a flat copayment at the pharmacy, employer and health plan costs will eventually "trickle down" and affect premiums, benefit levels and copays, the Journal reports (Martinez, Wall Street Journal, 3/31).
Not-For-Profit PBMs
In related news, NPR's "Morning Edition" on March 31 reported on the National Legislative Association on Prescription Drug Prices, a new not-for-profit organization seeking to create preferred drug lists and manage prescription drug benefits for state employees and Medicaid beneficiaries (Bever, "Morning Edition," NPR, 3/31). To combat rising budget costs, the organization's members -- Connecticut, Hawaii, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont and the District of Columbia -- plan to consult medical experts to help determine the most cost-effective and appropriate medications to place on their preferred lists, often displacing drugs heavily promoted by pharmaceutical companies. The states also will ask their attorneys general to examine prescription drug contracts to ensure that low-income and uninsured residents are receiving agreed-upon discounts and benefits. In most of these states, drug benefits for state employees and Medicaid recipients currently are administered by private pharmacy benefit managers (Kaiser Daily Health Policy Report, 1/14). NPR reports that for-profit PBMs, which handle 70% of all prescriptions in the United States, have come under scrutiny recently for some practices, such as secretly keeping rebates paid by pharmaceutical companies to promote their drugs instead of passing savings to health plans and consumers. According to NLAPD Chair Peter Shumlin, a not-for-profit organization could negotiate similar discounts with manufacturers, but then return the resulting savings to consumers. However, Judith Wagner, a researcher at the Institute of Medicine, said the not-for-profit PBMs would face "big start-up costs," which for-profit PBMs have already paid. The segment also includes comments from Maine Department of Human Services spokesperson Newell Augur and Pharmaceutical Care Management Association President LaVarne Burton ("Morning Edition," NPR, 3/31). The full segment is available online in RealPlayer.