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The Dose

Another Pro-PBM Study Makes Outlandish Claims Based on Dubious Data

by Michael Rule | Jul 18, 2017

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While consumers and health plan sponsors continue to pay higher costs for prescription medications, the PBM lobby recently released another study predicting huge savings in Medicare Part D over the next 10 years thanks to PBMs. However, upon closer scrutiny, these claims appear dubious at best. The Dose addressed a similar PBM-funded study in December. As with that study, the most recent example, conducted by Oliver Wyman and commissioned by the Glover Park Group on behalf of the Coalition for Affordable Prescription Drugs (which appears to be closely aligned with the PBMs), similarly relies on questionable assumptions to draw its conclusions.

The study makes an outlandish claim that PBMs will save the Medicare program $896 billion over 10 years, of which $604 billion will come from PBMs negotiating discounts. Yet this assumption is based on results from a 2003 report from the U.S. Government Accountability Office (GAO). This 2003 report (completed before the Medicare Modernization Act, which created Medicare Part D, passed either chamber of Congress) asserted that the cash price for generics was 47% higher than for those with insurance, and the Oliver Wyman report applies that 14-year-old finding to estimate negotiated PBM discounts associated with generics for the 10-year period of 2016-2025. However, this report was conducted prior to the 2006 change in the cash market for generic drugs, when Wal-Mart began offering most generic medications for $4 and other retailers followed suit to compete. Given these market changes, it seems unlikely that the price delta for generic medications between those with insurance and those paying cash has not significantly narrowed. In some cases, the cash price may even be less than purchasing the medication with insurance.

Moreover, the 2003 report suggested brand name medications were also more costly for the uninsured both at retail and through the mail, and this conclusion is also used in the Oliver Wyman calculations in PBM savings in the Medicare program over the next decade. But these savings are illusory. Since 2003, list prices for medications have continued to increase and so have the PBM rebate arrangements with manufacturers. In fact, recent data from IMS demonstrates that the list price of medications is growing at a far faster rate than the net price (list price-rebates), which has led some to conclude that most of the increase in drug spending has been from rebates pocketed by PBMs and insurers. Or, in other words, manufacturers are setting higher list prices to pay higher rebates, which in turn make it appear the PBM is obtaining steep discounts for insurers. However, the higher list price is used to determine a Medicare beneficiary's status in the program and could push them into and through the coverage gap prematurely where they and the Medicare program incur higher costs. The list price also determines the cost for cash-paying customers.

While the Oliver Wyman report seems to overestimate the negotiated savings associated with PBMs, it also gives the PBMs undue credit in savings associated with generic medications as well as "evidence-based management" that improves adherence and reduces inappropriate uses of medication—the implication being that outside PBMs, these cost savings would not materialize.

However, on generic utilization, independent pharmacy has outperformed PBM-owned mail order pharmacies, which patients and plan sponsors are incentivized to utilize, for several years. According to 2010 data reported in the 2011 NCPA Digest sponsored by Cardinal Health and in Express Scripts 10K filing with the SEC for fiscal year ending Dec. 31, 2010, 72% of prescriptions dispensed at independent pharmacies were generic medications compared to 60.2% by Express Scripts' mail order service. While the generic dispensing rates for both have increased (for 2015, independent pharmacies had an 82% generic dispense rate vs. 78.8% through Express Scripts mail order), and the delta has narrowed, the PBM mail order pharmacies have had to catch up to independent pharmacies in this regard. Thus, it appears likely that savings associated with generic utilization would be realized absent PBMs.

Similarly, it would seem safe to assume that the savings associated with medication adherence would be realized without PBMs. As former Surgeon General C. Everett Koop noted, medications only work in those who take them. As such, it is insufficient to measure adherence on whether a patient merely received their medication; it must be based on whether it is properly taken. In fact, a 2013 report by public opinion firm Langer Research Associates, "Medication Adherence in America: a National Report Card," found that Americans only received a grade of C+ using this metric. However, the leading indicator of adherence was the patient's personal relationship with the pharmacist or pharmacy staff. Yet, PBM plan designs often interfere with the patient's ability to choose the pharmacy that best suits his or her needs. This is especially important for seniors, who often take multiple prescriptions. Instead of giving PBMs undue credit for adherence savings, researchers ought to be looking at whether PBM practices are inhibiting greater savings in this regard.

While PBMs do play an oversized role in the prescription drug marketplace, they don't necessarily bring down costs, and in some instances they may even contribute to increasing them. There are other market forces at play that help reduce spending and would continue to achieve savings outside of PBMs. The real question should be, is the current Medicare prescription drug system maximizing savings for taxpayers and beneficiaries, or are there alternatives that can better lower costs through enhanced transparency, increased pharmacy competition and patient choice, and personalized pharmacist interactions with patients?