Big PBMs launch companies to negotiate better deals with drugmakers

  • Powerful intermediaries in the pharmaceutical industry have quietly reorganized the prescription drug supply chain.
  • They have set up group purchasing organizations to gain more leverage in negotiations with drug manufacturers.
  • Industry insiders say these new entities will drive up costs for employers and patients.

The Big Three Pharmacy Benefit Managers have developed a new way to generate profits.

PBMs are intermediaries that manage prescription drug benefits for health plans and companies that provide health coverage to their employees. One of their roles is to negotiate with drug companies for after-the-fact rebates – called rebates – on drugs so that coverage is cheaper for employers and patients. The $ 370 billion prescription drug industry faces scrutiny from three PBM giants: Caremark from CVS Health, Express Scripts from Cigna and OptumRx from UnitedHealth Group.

PBMs get discounts in exchange for agreeing to cover a drug, and one way to make money is to take a share before passing them on to employers and plans. They also charge drug manufacturers a bunch of fees.

Critics argue that this convoluted system drives up prices because, as PBMs ask for more money, drugmakers increase the prices they set. PBMs also tend to favor expensive drugs because they get higher discounts.

The ways in which PBMs make money have come under intense scrutiny in recent years. Lawmakers have considered eliminating the rebates as a way to reduce drug costs. Several states are investigating the business practices of PBMs to see if states have been overcharged. And employers are increasingly demanding that PBMs remit the bulk of the payments they receive from drug manufacturers.

Meanwhile, pharmaceutical companies have become increasingly reluctant to offer discounts, Tim Wentworth, head of the Cigna company that houses Express Scripts, said at a conference last November, according to a transcript from Sentieo.

So, the biggest PBMs have quietly set up group purchasing organizations to extract more money from drug manufacturers. Express Scripts was the first to launch one, called Ascent Health Services, in 2019.

About a year later, Express Scripts’ rival CVS formed its own buying group called Zinc Health Services. Not to be outdone, this year OptumRx launched an iteration called Emisar Pharma Services.

PBMs are betting their new buying groups will help them negotiate bigger discounts from drugmakers, which they say they use to lower the cost of drugs for the companies they work for and for patients. They are also using the groups to demand increasingly higher fees from drugmakers, which helps them increase their profits, according to a report by Nephron Research.

But industry insiders say the new buying groups will further muddle an already opaque system, helping PBMs hide from customers how much money they get from drugmakers. They are also concerned that the higher fees for drug makers will lead them to increase the price of their drugs, forcing some patients to pay more for their drugs.

“They continue to find ways to legitimately and legally take money for profit, which increases costs for employers and their employees,” said Greg Baker, CEO of EmsanaRx, a new and pushing back PBM. the giants of industry. “They are creating more and more entities, the black box continues to grow, transparency continues to decline, and costs rise with no additional value to Americans.”

Buying groups help PBMs get more leverage and higher fees from drugmakers

Cigna CEO David Cordani

Cigna CEO David Cordani.


Other members of Ascent, Express Scripts’ group purchasing organization, include Prime Therapeutics, a PBM belonging to the Blue Cross Blue Shield plans; the Kroger’s PBM grocery chain; the insurer Humana; and Navitus Health Solutions, a PBM partially owned by Costco.

OptumRx and CVS have not disclosed which companies they work with, although Dr Alan Lotvin, CVS’s PBM president, told analysts in November that CVS has another partner.

Although the companies in its purchasing group are located in the United States, Ascent is based in Switzerland to take advantage of lower corporate taxes and because several Express Scripts employees were already there, said the president of the company. ‘Express Scripts, Amy Bricker, to Insider in an interview. The OptumRx buying group is based in Ireland and the CVS group is in the United States.

Bricker said that Express Scripts set up Ascent to aggregate the volume of different companies so that it can gain more leverage in negotiations than it had on its own and use that leverage to create value. additional for consumers.

“It’s no deeper than that,” she said.

Still, she said she couldn’t quantify the added value Ascent’s additional leverage allowed Express Scripts to offer customers compared to when it negotiated directly with manufacturers.

It is clear, however, that PBMs are benefiting from this. A July 2021 report from Nephron Research said buying groups demanded higher fees from drug companies than PBMs normally charge.

They’ve also introduced fees, especially for smaller drug companies that can’t back down, said Eric Percher, analyst at Nephron Research. Some of these fees, which are typically structured as a percentage of a drug’s list price, include administration fees, formulary compliance fees, and PBM data vault access fees.

Nephron Research said in its report that one of the goals of buying groups may be to shift the payments they receive from drugmakers from discounts to what they define as fees. PBMs must pass discounts back to customers, but they can keep the fees, experts say.

New intermediaries could increase costs for employers and patients

Buying groups are alarming some experts, who claim they are introducing another middleman into the drug supply chain that will reduce any savings on the list price of a drug.

The more middlemen who take a stake, the less money is available to companies that hired PBMs in the first place. This then affects the workers of these companies.

“Patients are harmed by this,” said Jonathan Levitt, lawyer for the Frier Levitt law firm that helps employers negotiate and audit their PBM contracts.

If the money pocketed by buying groups and PBMs were returned to employers, patients would likely have lower premiums or co-payments, he argued.

Critics also say that buying groups will make it even more difficult for companies that hire PBMs to know if they are getting a good deal on the drugs. This is already extremely difficult, as contracts between PBMs and drug manufacturers are highly confidential. Some critics see these groups as just a new way for PBMs to hide money.

For example, a PBM might promise an employer that he will transfer most or all of the funds he receives from drug manufacturers without explaining that the funds he gets are what is left after a group buying. took a cut, said Antonio Ciaccia, CEO of drug pricing research firm 46Brooklyn and a former lobbyist for the Ohio Pharmacists Association.

It’s already the case. Levitt said contracts between PBMs and their customers often do not reveal the existence of a buying group. Whether this is legal depends on how the contract is drafted, he said.

Linda Cahn, a lawyer who audits PBM contracts, suggested another outcome: Drugmakers are likely to respond by putting new drugs on the market at higher prices or by raising the prices of existing drugs.

“Manufacturers now know that more money has to be paid to every PBM and all the middlemen,” she said.

The reimbursable costs for many patients are based on the list price of a drug. So, as these prices increase, so do the costs to patients.

PBMs say they’re not hiding anything

FILE PHOTO: A customer leans against the counter of a drugstore in a Sam's Club store in Bentonville, Arkansas, May 31, 2007. REUTERS / Jessica Rinaldi / File Photo

A customer leaning against the counter of a drugstore in a Sam’s Club store in Bentonville, Arkansas.


Bricker, president of Express Scripts, told Insider that customers had not raised any concerns about their ability to see how Ascent is making money.

She declined to answer questions about the new organization’s discounts and fees, including what she keeps and transmits, and she said what every Express Scripts customer can check is different.

There are firewalls between each Ascent member, so Express Scripts cannot see the offers that other partners are getting from drugmakers, she said, adding that Express Scripts does not tell partners how to operate.

A spokesperson for UnitedHealth said that Émisar would prioritize transparency, but did not answer questions about the discounts and fees from Emisar or OptumRx. A CVS spokesperson also did not answer questions about how Zinc makes money.

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