In the ongoing conversation around the role of pharmacy benefit managers (PBMs) in the supply chain, a new report further illuminates incentives that tie PBM revenue to higher list prices for medicines. The move by some PBMs to share discounts they receive with patients at the pharmacy counter is a step in the right direction, but it’s important to ensure PBMs aren’t just replacing revenue from retained rebates with hidden fees to protect their bottom line.
As the Department of Health and Human Services Office of the Inspector General observed in a recently proposed rule, the current system has resulted in misaligned incentives that can lead PBMs to favor medicines with high list prices and large rebates. But there is another aspect of how middlemen do business that deserves scrutiny: fees.
According to Pew Charitable Trust, PBMs nearly quadrupled the fees they charge biopharmaceutical companies – such as administrative and service fees – between 2014 and 2016. Total fees charged to biopharmaceutical companies by these middlemen increased from $1.5B in 2014 to $2.6B in 2015, and then doubled to nearly $5.6B in 2016. Along with rebates, these fees – which are typically based on the list price of a medicine – contribute to a system of misaligned incentives where middlemen make more money when the list price of medicines increase.
Despite an increase in the share of negotiated rebates shared with health plan and employer clients, total PBM revenue increased between 2014 and 2016. That’s in part due to the increasing administrative fees they charged biopharmaceutical companies. But PBMs aren’t just charging biopharmaceutical companies more than ever before – they also brought in a record total of $22.4B in revenue in 2016 by charging more to others in the supply chain, like health plans and pharmacies.
These findings come amid questions about why payers do not share the discounts they receive from manufacturers directly with patients.
To learn more about how we can fix misaligned incentives to improve patient affordability, visit LetsTalkAboutCost.org.
Andrew Powaleny
Andrew Powaleny is the Deputy Vice President of Public Affairs at PhRMA, where he leads communications on scientific, regulatory and intellectual property issues, highlighting the biopharmaceutical industry’s efforts in developing innovative medicines and vaccines while promoting an environment that encourages necessary risk-taking. For five years starting in 2019, he launched and led PhRMA’s grassroots initiative, Voters for Cures, bringing patients and caregivers together to advocate for access to medicine and biopharmaceutical innovation. He also co-founded and co-chaired PRIDE Umbrella, a resource group for LGBTQ+ individuals. Prior to joining PhRMA in 2015, Andrew worked as a communications consultant in Washington, D.C., and as Deputy Press Secretary for the U.S. House Committee on Energy and Commerce under Chairman Fred Upton. He holds a degree in public policy and government from Eastern Connecticut State University, with a minor in music. Outside of work, Andrew enjoys exercise, musical theater and mentoring college students through The Fund for American Studies alumni association.
Andrew Powaleny
Bayh-Dole: The fuel for America’s innovation engine
ICYMI: Biopharmaceutical companies in America hit new investment milestone
Mass compounding puts patients at risk
World Sickle Cell Day: Recognizing the promise of gene therapy
Putting 2018 medicine approvals in context
Research and Development
FDA
Rare Diseases
PDUFA
New Era of Medicine
Putting 2018 medicine approvals in context
Putting 2018 medicine approvals in context