Employers and unions across the U.S. are voicing their frustrations due to continued cost increases from pharmacy benefit managers (PBMs) responsible for controlling prescription drug spending.
Major businesses such as Foot Locker and a Teamsters fund in Philadelphia are choosing to part ways with certain drug-benefit managers to gain relief from pressures to choose costlier drugs when there are more cost-effective options available.
Learn more about this move to push out drug benefit managers and how employee benefits consulting can help companies overcome these struggles.
Cost Concerns and Transparency Issues
There is a general lack of transparency in regard to revenue sources and fees that has created further tension between employers and PBMs. Many suspect that PBMs are advocating for costlier drugs to maximize the rebates they receive from pharmaceutical manufacturers.
According to a WSJ article, Phifer saw significant savings after replacing its drug benefit manager, Prime Therapeutics, including a major drop in a nerve pain medication with a list price of $1,532 compared to just $13 for its generic equivalent.
Companies Limited to Most Expensive Drugs
PBMs play a key role in determining total drug costs for insurers, deciding how much pharmacies are paid, and impacting patients’ access to medications. Many employers are concerned that they are being limited to the costliest drugs as PBMs attempt to pocket the largest rebates possible.
PBMs Seeing the Most Benefit Toward Their Revenue
When it comes to revenue, PBMs have the most to gain. According to The Commonwealth Fund, drug manufacturers state that the growing rebates they pay to PBMs force them to increase the list prices of their products. From 2012 to 2016, key findings showed that manufacturer rebates to PBMs rose from $39.7 billion to $89.5 billion.
Foot Locker and Teamsters Strategy for PBMs
Some companies, such as Foot Locker and Teamsters, have experienced success in reducing drug spending by making the switch to alternative PBMs that value transparency and prioritize cost-effectiveness.
Foot Locker moved to a smaller PBM, Navitus Health Solutions, which claims to transfer 100% of the drug rebates it negotiates to employers. In 2019, Teamsters replaced Caremark with Capital Rx, according to the WSJ article, resulting in savings of 17% in the first year.
Companies See Gains in Savings and Transparency Advantages
Companies who switched to alternative PBMs are enjoying greater transparency and higher savings. Prime neglected to offer cost-saving solutions when Phifer left Prime Therapeutics at the end of 2022 due to a 7% cost increase.
This forced Phifer to leave Prime in favor of MedOne Pharmacy Benefit Solutions, which claims to take a different approach to control increases. Due to the money Phifer saved by switching PBMs, they could maintain premiums in 2024.
Growth in Competition Against PBMs
While PBMs continue to face scrutiny from the Federal Trade Commission (FTC), state legislatures, and Congress, there is still strict competition in the industry.
According to Drug Channels, just six PBMs make up 96% of the market share, while three make up 80%. However, now there is new competition against PBMs. In 2022, Mark Cuban’s Cost Plus Drugs launched, offering over 800 generic drugs to treat common conditions.
Industry Response and Market Dynamics
While the primary purpose of PBMs is to keep prescription drugs affordable, there is an ongoing debate as to whether they make drugs more accessible and cost-efficient. Historically, PBMs have not been regulated, resulting in a widespread lack of transparency. Many states have taken steps to improve transparency and curb their influence to address complaints regarding PBM practices.
PBMs Pushed Toward More Cost Transparency in the Future
There have been ongoing calls for transparency in the pharmaceutical industry in recent years, and legislation has emerged as the key tool for fighting for cost transparency in the future. The federal government has recently passed multiple drug price transparency laws to increase transparency, many of which have succeeded.
Companies Will Have Lower Prescription Drug Spending
So far, 28 states have passed some PBM legislation. Most states have adopted regulations that require PBMs to obtain licensure and hire regulatory agencies to enforce regulations and rules.
Laws have also been implemented that require PBMs to disclose cost information, such as payments, rebates, and fees collected from insurers, manufacturers, and pharmacies. In turn, many companies are seeing lower prescription drug spending.
Consult with New City for a Lower-Cost Employee Benefits Package
Many businesses struggle with increasing healthcare costs while attempting to provide their employees with quality, affordable coverage. Working with an experienced employee benefits consultant can help these organizations find better benefits solutions.
Trust the advisors at New City Insurance to build and structure plans that cost half the national average without sacrificing benefits or network access. Get started by contacting New City today at 888.210.2765.