NCPA's Blog - The Dose

The Dose

MYTH/FACT on PBM Arguments Against Bipartisan MAC Legislation

by Kevin Schweers | Mar 13, 2017

Recent Dose posts

The lights are growing brighter and hotter on pharmacy benefit managers (PBMs) which prefer to operate in anonymity. Bloomberg, local TV stations and many other news outlets are examining the PBMs' contributions to rising prescription drug costs. Perhaps this growing pressure has reached a breaking point as evidenced by the recent and highly deceptive PBM reaction to bipartisan generic drug pricing legislation concerning MACs. (MACs, or maximum allowable costs, are proprietary PBM formula for reimbursing pharmacies for dispensing generic drugs.)

Specifically, on March 6, 2017, the trade group for PBMs unleashed an array of misleading and false statements to protest H.R. 1316, The Prescription Drug Price Transparency Act introduced by Reps. Doug Collins (R-Ga.) and Dave Loebsack (D-Iowa). Here is an examination and rebuttal to their critique.

PBM MYTH: H.R. 1316 would "increase the cost of prescription drugs in federal health programs, including TRICARE and the Federal Employee Health Benefits Plan."

FACT: There is no objective evidence or basis to support this statement. In fact, in their final rule implementing MAC transparency requirements in Medicare Part D, the Centers for Medicare & Medicaid Services (CMS) said the change would have no cost. Of course, this has not stopped PBMs from consistently bending the truth as examined further below.

PBM MYTH: H.R. 1316 would "gut the use of Maximum Allowable Cost (MAC) lists."

FACT: This is a bogus statement. 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: PBMs currently use MAC lists in a way that ensures health plan sponsors such as the government "don't overpay for generic drugs."

FACT: What an incredibly ironic statement. 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 76.4% at mail vs. 84.4% at retail.

PBM MYTH: "In contract negotiations, drugstores that agree to join a plan's network accept the drug plan's MAC lists (along with dispensing fees) as reimbursement for generics. ... Moreover, the Government Accountability Office (GAO) has reported that most independent drugstores already hire powerful Pharmacy Service Administrative Organizations (PSAOs) to collectively bargain on their behalf with pharmacy benefit managers (PBMs) and other payers. The contract provisions that PSAOs negotiate include reimbursement rates, payment terms, and audits of pharmacies."

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 Accounting 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."

PBM MYTH: H.R. 1316 would "also increase costs and risk patient safety by undermining the use of mail-service pharmacies."

FACT: This is PBM-speak for "We want to remove patient choice and force people to use PBM-owned mail order whether they like it or not."

Mail order is often unpopular with patients.

PBMs face conflict-of-interest questions with their mail order pharmacies when it comes to "specialty" medications, which tend to be the most costly. The New York Times noted that "many patients are limited to one specialty pharmacy—often one owned by their insurer or pharmacy benefit manager and requiring delivery of drugs by mail."

Additionally, savings are not guaranteed via mail order. A 2013 study by Norman V. Carroll, Ph.D., a Professor at Virginia Commonwealth University, found that the total costs for 90 day prescriptions filled at retail pharmacies were lower than those filled by mail order pharmacies.

Mail order also contributes to medication waste that creates unnecessary costs for patients and plan sponsors through "auto ship" of medications even if a patient no longer requires them.

PBM MYTH: "A Health and Human Services Office of Inspector General (OIG) report noted "the significant value MAC programs have in containing Medicaid drug costs." The OIG also recommended that states strengthen MAC programs, not weaken them."

FACT: Pharmacy reimbursement should account for both the pharmacy's cost of acquiring medication as well as its cost of dispensing, estimated to be approximately $12 per prescription and much higher in specialized settings like long-term care. The same OIG report the PBMs cite and oversimplify was not nearly clear enough about this nuanced reality.

In some ways this OIG report validates the concerns NCPA and others have repeatedly expressed regarding the inaccuracy of the draft FUL data that CMS has been publishing. Since the MAC prices identified in the OIG report largely reflect only a pharmacy's acquisition cost, and the FUL on reimbursement is supposed to account for pharmacy's acquisition cost + modest profit, then logic would suggest that the FULs should be higher than the MACs (to account for pharmacy overhead/salaries/etc.). By contrast, OIG's analysis largely found the opposite.

PBM MYTH: "A white paper, by a Federal Trade Commission expert, notes that "legislative or regulatory measures that limit, restrict, or interfere with MACs are likely to have several unintended adverse consequences," including higher prices and tacit collusion among pharmacies."

FACT: As stated above, H.R. 1316 contains no restriction on the use of MACs; it just increases transparency concerning their usage.

PBM MYTH: "A Visante analysis of more than 800 drugs likely to be impacted by legislation restricting the use of MACs found that MAC legislation could increase costs by 31% to 56% for affected generic prescriptions."

FACT: This useless analysis is consistent with a long record of past inaccurate statements, etc. by PBMs. Several examples of this trend are posted online.