PBM practices prevent consumers from saving on generics, says white paper

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Diving Brief:

  • Generic prescriptions don’t save U.S. consumers much money, according to a new white paper, largely because of the practices of drug benefit managers and industry intermediaries between drugmakers and health plans .
  • Consumers pay up to 20% for generic drug prescriptions, according to a study by the USC Leonard D. Schaeffer Center for Health Policy and Economics, citing an analysis of health insurance claims. According to the researchers, PBM strategies that increase the cost of generics may also contribute to quality issues and fragmentation of care.
  • Strategies include copayments, when copayments paid by commercially insured patients exceed the cost of a drug; and tiered pricing, where a PBM charges a health insurer a higher price for a drug than it reimburses a pharmacy. Either way, the PBMs pocket the difference. Also, formularies often favor brand name drugs over generics because the brand name drug comes with manufacturer discounts.

Overview of the dive:

PBMs say they save money by negotiating high pharmaceutical prices. But intermediaries are often singled out as a driver of rising health care spending and face increasing scrutiny of their practices from congressional lawmakers and Federal Trade Commission regulators.

The new report adds to a growing body of evidence showing consumers are paying too much for generics, as “pharmaceutical benefit managers play on opaque and murky pricing practices to boost profits,” the white paper says. .

Generics account for more than 90% of prescriptions in the United States, but only 18% of drug spending. By one estimate, using generic and biosimilar drugs in place of their branded equivalents saved the healthcare system $338 billion in 2020 alone.

However, although generics lower prices compared to branded drugs, consumers do not benefit from savings, the white paper states.

“Generics are overlooked when we talk about drug pricing issues in this country,” Erin Trish, co-director of the USC Schaeffer Center, said in a statement. “But the same lack of transparency that is causing outrage over high and growing brand name drug spending is also creating problems in the area of ​​generic drugs.”

The researchers pointed to consolidation as a key issue likely to drive the profit-driven practices described in the white paper.

The three largest PBMs – which handle nearly 80% of all retail prescription claims – are all owned by large insurers: CVS Caremark from CVS Health, owner of Aetna; Cigna Express Scripts; and OptumRx by UnitedHealth Group, which operates the largest private payer in the United States, UnitedHealthcare.

The white paper estimates that practices such as flat pricing and quota clawbacks amount to billions in overpayments. A recent study, also led by Trish, found that stand-alone Medicare Part D plans paid $2.6 billion more in 2018 for 184 common generics than cash prices paid by Costco members.

Researchers have suggested several policy solutions to deter such practices, including restricting rebate contracts that incentivize PBMs to prefer brands over generics, and using fixed fees per transaction, rather than fees determined as a share of the price of a drug.

The researchers also pointed to the need for increased competition and better price transparency in the generics industry.

There have been recent actions on the Hill to rein in PBM practices, as the FTC considers industry comment solicited earlier this year on how these strategies affect patients and payers.

Last week, a bipartisan duo of senators introduced legislation that would prevent PBMs from recouping fees or overcharging pharmacies and require PBMs to report more financial data, among other measures.


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