NCPA's Blog - The Dose

The Dose

PBM Arguments Don't Hold Up to Scrutiny

by Kevin Schweers | Apr 25, 2017

Recent Dose posts

The national trade group for pharmacy benefit manager (PBM) corporations has predictably come out in opposition to the prescription drug and PBM transparency legislation that NCPA and its allies will champion at the NCPA Congressional Pharmacy Fly-In and throughout the 115th Congress. Yet many of the anti-transparency PBM arguments unravel upon closer examination.

PBM MYTH: Legislation to ban retroactive pharmacy DIR fees is about "Raising Part D Premiums and Federal Government Costs by Hobbling the Use of Direct and Indirect Remuneration (DIR)"

FACT:Under the bipartisan transparency legislation, The Improving Transparency and Accuracy in Part D Spending Act (S. 413 / H.R. 1038), PBMs can use DIR, they just cannot employ DIR fees as retroactive clawbacks on community pharmacies that make it extremely difficult to forecast revenue and operate a small business. There's significant evidence from CMS, MedPAC and others that the increased utilization of DIR by PBMs has led to increased out of pocket drug costs for seniors and increased Part D liabilities and costs to the government. Moreover, there is no evidence to suggest banning retroactive pharmacy DIR fees would have any more than a very minor impact on Part D premiums and could, on balance, lower overall costs.

PBM MYTH: "DIR is NOT...a clawback of payments to pharmacies."

FACT: Increasingly the owners of independent community pharmacies that are forced out of business specifically cite pharmacy DIR fees as clawbacks "being taken back by insurance companies months afterward" ("Locally Owned Pharmacy Staple To Close",, Jan. 25, 2017)

PBM MYTH: "DIR does not affect beneficiary cost sharing"

FACT: In a January fact sheet Medicare expressed significant concern related to the impact of increased DIR on both catastrophic drug costs for the program and taxpayers as well as out-of-pocket costs for beneficiaries, including forcing seniors into the coverage gap or "donut hole."

PBM MYTH: "The noninterference provision prohibits the government from interfering in negotiations between insurers and drug manufacturers or pharmacies…this legislation [S. 413 / H.R. 1038] would upend the cornerstone of the Part D program, which relies on private market negotiations"

FACT: On several occasions policymakers have recognized and acted on the need to achieve greater balance regarding the interaction of plan sponsors (or their PBM intermediaries) and community pharmacies. Congressional enactment of the "prompt pay" provisions and Medicare's 2009 regulatory steps during the Bush Administration to address "lock in" versus "pass through" pricing that determines beneficiaries drug cost are just a couple of examples.

PBM MYTH: "This legislation [S. 413 / H.R. 1038] is a step backward to outdated payment methods" because DIR fees "reward high-performing pharmacies" and "these arrangements are agreed upon and acknowledged in advance by pharmacies in their network contracts."

FACT: Nothing in S. 413 / H.R. 1038 prohibits PBMs and Part D plan sponsors from operating pay-for-performance programs that offer bonus payments to incentivize pharmacies they deem high-quality pharmacies.

PBM MYTH: "This legislation [S. 413 / H.R. 1038] would open the Part D program to fraud" and "PBMs would also not be able to use standard audit tools to ferret out problematic claims."

FACT: This is a red herring. Under this legislation PBMs would retain sweeping authority to prevent or recoup payments suspected of waste, fraud or abuse.

PBM MYTH: H.R. 1316, The Prescription Drug Price Transparency Act, would be "Increasing generic medication costs by gutting the use of maximum allowable cost (MAC) lists."

FACT: There is no objective evidence or basis to support this statement. In fact, in its final rule implementing MAC transparency requirements in Medicare Part D, the Centers for Medicare & Medicaid Services (CMS) said the change would have no cost.

PBM MYTH: "The bill [H.R. 1316] would effectively end the use of these [MAC] lists."

FACT: The bipartisan transparency legislation merely increases disclosure of how PBMs employ MAC lists. Nothing in the legislation prohibits the use of MAC lists. More than 30 states have enacted bipartisan MAC legislation. We have yet to hear of a state where MAC lists are not used by PBMs in some fashion.

PBM MYTH: "H.R. 1316 would increase enrollee costs by eliminating preferred cost sharing for most mail pharmacies."

FACT: PBMs that own a mail or retail pharmacy while at the same time administering a health plan's prescription drug benefit are in a critically flawed conflict of interest that does not align with the interests of plan sponsors or patients. Under this legislation, a PBM is free to incentivize patients to use of a particular pharmacy via discounted copays, so long as the PBM does not have a vested financial interest in that pharmacy.

PBM MYTH: "H.R. 1316 contains provisions that violate Medicare Part D's noninterference statute."

FACT: As stated above, on several occasions policymakers have recognized and acted on the need to achieve greater balance regarding the interaction of plan sponsors (or their PBM intermediaries) and community pharmacies. Congressional enactment of the "prompt pay" provisions and Medicare's 2009 regulatory steps during the Bush Administration to address "lock in" versus "pass through" pricing that determines beneficiaries drug cost are just a couple of examples.

PBM MYTH: PBMs' use of maximum allowable costs (MAC) lists that are the subject of H.R. 1316 are simply, "Ensuring pharmacies are paid fairly but not overpaid for dispensing generics".

FACT: This is a misleading statement laced with irony. PBMs for years have been dogged with allegations of overcharging plan sponsors for generic drugs in a number of ways. First, spread pricing. This means charging a health plan potentially much more than the PBM pays the pharmacy for filling a prescription. Plan sponsors are often unaware that this is occurring due to a lack of transparency in contracts. Fortune examined this in a story called "Painful Prescription." Second, lagging in promoting generics because of addiction to brand manufacturer rebates. Community pharmacies continue to dispense generic drugs more frequently compared to PBM-owned mail order pharmacies. PBM Express Scripts reported generic drug fill rates of 85.9% at retail vs. 79.8% at mail. And PBM CVS Health reported a generic dispensing rate of 84.4% at retail vs. 76.4% at mail.

PBM MYTH: Enacting H.R. 1939, The Ensuring Seniors Access to Local Pharmacies Act, would be "eliminating popular preferred pharmacy plans in Medicare."

FACT: Nothing in the legislation eliminates preferred pharmacy drug plans in Medicare. The legislation simply allows the community pharmacy in medically underserved areas the opportunity to participate in these arrangements if it is willing to accept the drug plan's terms and conditions.

PBM MYTH: H.R. 1939 would "increase federal mandatory spending by more than $21 billion over the next 10 years."

FACT: Federal Medicare officials have concluded that the pharmacy choice policy is "the best way to encourage price competition and lower costs in the Part D program."

PBM MYTH: "Part D enrollees already have good pharmacy access" and "CMS recently announced that access to preferred cost sharing pharmacies had increased in the last two years, so that the agency sees no need to change any policy toward access standards."

FACT: The developments of the past several years cited here are a direct response in the market to the concerns that NCPA and its allies and members' pharmacies have raised about exclusive preferred pharmacy arrangements. Despite this progress, there are access and choice concerns that remain and illustrate the need for this pharmacy choice legislation.

PBM MYTH: "Preferred pharmacy networks lower prices for patients: According to a CMS analysis..." and PBM MYTH: "Eliminating preferred pharmacy cost sharing would raise beneficiaries' premiums and cost taxpayers billions"

FACT: Again, nothing in the legislation prohibits preferred pharmacy arrangements.

PBM MYTH: "Independent pharmacies are highly profitable" and "The number of independent pharmacies has held steady over the past four years" and "gross profits have held steady at around 23%"

FACT: independent pharmacy owners are trying to hold their own, but the increasing prevalence and volume of retroactive pharmacy DIR fees make it harder than ever. In fact the total number of U.S. independent pharmacies have actually slightly declined each of the past five years, which raises many concerns including the potential for loss of access to drugs and pharmacy care in underserved inner-city and rural areas where independent pharmacies are prevalent.

PBM MYTH: "Mail service pharmacies are not driving independent pharmacies out of business"

FACT: Some owners of independent pharmacies forced out of business specifically cite limitations on patient choice and requirements to use mail order as factors in their community pharmacy's closure. (Example: "O'Fallon Medicine Shoppe to close next week," Belleville News-Democrat, April 4, 2017, Belleville, Ill.)

PBM MYTH: "Independent pharmacies use large bargaining groups to gain market power" and "independent pharmacies are not just mom-and-pop neighborhood business—they have significant bargaining clout in negotiations with health plans and pharmacy benefit managers (PBMs) by hiring powerful pharmacy services administrative organizations (PSAOs)."

FACT: Although many independent community pharmacies rely on a Pharmacy Services Administrative Organization or a PSAO to contract on their behalf, these PSAOs are no match for the PBMs. In 2013, the Government Accountability Office (GAO) conducted a study on the role and ownership of PSAOs and stated that "over half of the PSAOs we spoke with reported having little success in modifying certain contract terms as a result of negotiations. This may be due to PBMs' use of standard contract terms and the dominant market share of the largest PBMs. Many PBM contracts contain standard terms and conditions that are largely non-negotiable."

A recent "ConsumerGram" by the American Consumer Institute stated, "Increased market concentration has allowed PBMs to become price-makers, and pharmacies as price-takers."