Health panel wants to open ‘black box’ of drug brokers

Agency joins chorus seeking greater pricing transparency

A QUASI-INDEPENDENT state agency tasked with monitoring the health care marketplace has made a foray into the debate over pharmacy benefits managers, calling for more transparency about the role the companies play in setting the cost of drugs.

Pharmacy benefits managers act as a broker between insurers or government on the one side, and drug manufacturers on the other. The insurance industry sees them as a crucial check on the pharmaceutical industry, using their market clout and expertise to negotiate cheaper drug prices and facilitate their delivery. Independent pharmacists and the drug makers themselves contend that pharmacy benefits managers – or PBMs – add little value and a lot of cost, which is mostly borne by patients.

State officials have taken an interest in this esoteric corner of the health care marketplace. Gov. Charlie Baker proposed limitations on PBM margins and transparency measures projected to save millions of dollars. The Senate budget includes a measure directing Auditor Suzanne Bump to investigate PBMs.

On Wednesday, the Health Policy Commission unveiled research suggesting that one method of compensating PBMs – through something called spread pricing – tends to be costlier than another where the companies collect a fixed fee. The commission also joined calls for shedding light on the “black box” of PBMs.

“These findings reinforce the urgent need for policy action to enhance the transparency and accountability of the prescription drug market,” said Health Policy Commission Executive Director David Seltz in a statement. “Increased oversight on pharmacy benefit managers is necessary to ensure that their pricing strategies are not used to inflate profits at the expense of Massachusetts residents and employers. Private and public health plans – along with employers and patients – need more information to make better informed spending decisions that will hopefully lead to an overall reduction in spending on pharmaceuticals.”

The Health Policy Commission examined differences between two ways that PBMs are paid. With spread pricing, which is how Medicaid managed care organizations compensate PBMs, the PBM keeps the difference between what the company charges an insurer and what it reimburses a pharmacy. Under that model, the revenue is “opaque,” according to the commission. With “pass through” pricing, which is what Medicaid fee-for-service programs use, the PBMs are paid a set dispensing fee per prescription, which is $10.02 in Massachusetts, according to the commission.

The difference in price is particularly marked in the case of Buprenorphine-Naloxone, which is used to treat opioid addiction. Late last year, Medicaid managed care organizations paid an average of $159 per prescription of Buprenorphine while the average fee-for-service price was less than half that at $75, according to the commission.

“The fact that the pharmacy benefit managers have increased the prices charged for this drug in the MassHealth managed care program, at the same time that the acquisition cost of the drug has decreased significantly, raises particular concerns and questions regarding the appropriateness of these pricing practices,” said Martin Cohen, president and CEO of MetroWest Health Foundation, who is on the board of the Health Policy Commission.

There has been a wave of scrutiny around the nation into PBMs and criticism of the revenue that the companies keep for themselves, but their clients in the insurance industry appear satisfied with the arrangement.

“Our perspective is that health insurance providers and their PBM partners are fighting for lower prices, and we use the bargaining power that we have to negotiate savings for millions of patients every single day,” said Kristine Grow, senior vice president for communication at America’s Health Insurance Plans.

Grow is critical of the recent attention on PBMs. “We think this is a distraction from the real issue of drug prices, which – you want to talk about a black box? There is no insight into how big pharma companies land on the prices that they launch their drugs with, and what causes those prices to go up year after year.”

Zach Stanley, vice president of public affairs for the Massachusetts Biotechnology Council, which is already battling legislation on Beacon Hill that places restrictions on the prices set by drug manufacturers, sees PBMs as the bigger problem. Stanley says the savings that PBMs achieve through rebates accrue more for their clients the insurance companies than patients.

“The way PBMs operate – by passing along some of the savings they generate directly to insurers instead of patients – creates a perverse system where drug rebates are used to lower premiums instead of lowering out-of-pocket costs for patients who use the drugs,” Stanley said. “In this system, the sick are subsidizing the healthy.”

While their role is somewhat obscure to the general public, PBMs are run by some of the biggest players in the health care industry – Express Scripts, CVS Caremark, and Optum. Seltz and others want more visibility into PBM operations. But the Pharmaceutical Care Management Association, a PBM industry group, says secrecy is a key ingredient to lowering the cost of drugs.

“The goal here is to get the best possible price from manufacturers, and they’re not going to give you their best possible price if they know what their competitor is giving. They’re only going to give slightly below or somewhere very close to what their competitor is giving,” said April Alexander, assistant vice president of state affairs for the Pharmaceutical Care Management Association.

Todd Brown, who is on the faculty of Northeastern University College of Pharmacy and executive director of the Massachusetts Independent Pharmacists Association, sees things differently. To Brown, the secrecy is a way for PBMs to hide their “excessive profits.”

“They set themselves up so there’s a lack of transparency,” Brown said. “They’re the only ones that have this data and they keep it that way under the guise of, ‘Well if we don’t tell everyone, we can get a better deal.’ There’s no evidence to support that and every economist will tell you that transparency actually increases discounts.”

After this story was published, Tiffany Haverly, a spokesperson for the Pharmaceutical Research and Manufacturers of America, said the group welcomes transparency.

Meet the Author

Andy Metzger

Reporter, CommonWealth magazine

About Andy Metzger

Andy Metzger joined CommonWealth Magazine as a reporter in January 2019. He has covered news in Massachusetts since 2007. For more than six years starting in May 2012 he wrote about state politics and government for the State House News Service.  At the News Service, he followed three criminal trials from opening statements to verdicts, tracked bills through the flumes and eddies of the Legislature, and sounded out the governor’s point of view on a host of issues – from the proposed Olympics bid to federal politics.

Before that, Metzger worked at the Chelmsford Independent, The Arlington Advocate, the Somerville Journal and the Cambridge Chronicle, weekly community newspapers that cover an array of local topics. Metzger graduated from UMass Boston in 2006. In addition to his written journalism, Metzger produced a work of illustrated journalism about Gov. Charlie Baker’s record regarding the MBTA. He lives in Somerville and commutes mainly by bicycle.

About Andy Metzger

Andy Metzger joined CommonWealth Magazine as a reporter in January 2019. He has covered news in Massachusetts since 2007. For more than six years starting in May 2012 he wrote about state politics and government for the State House News Service.  At the News Service, he followed three criminal trials from opening statements to verdicts, tracked bills through the flumes and eddies of the Legislature, and sounded out the governor’s point of view on a host of issues – from the proposed Olympics bid to federal politics.

Before that, Metzger worked at the Chelmsford Independent, The Arlington Advocate, the Somerville Journal and the Cambridge Chronicle, weekly community newspapers that cover an array of local topics. Metzger graduated from UMass Boston in 2006. In addition to his written journalism, Metzger produced a work of illustrated journalism about Gov. Charlie Baker’s record regarding the MBTA. He lives in Somerville and commutes mainly by bicycle.

“We support efforts to bring meaningful transparency to the process that determines what patients pay at the pharmacy counter. There are a variety of stakeholders involved in determining what consumers ultimately pay for a medicine – including insurers, PBMs, wholesalers and government entities like Medicaid,” Haverly said. “On average, 40 percent of a medicine’s list price is given as rebates or discounts to supply chain stakeholders who often require large rebates for a medicine to be covered. These rebates exceeded $166 billion in 2018 alone. While we’re still reviewing the report, we commend the HPC for undertaking this important review.”