Pharmacy Benefit Managers in Medicare Part D

By October 23, 2019 Commentary

Pharmacy Benefit Managers have taken a lot of heat over whether they actually serve their purported purpose of reducing costs.  The Government Accounting Office issues a report on the impact of PBMs who either sponsor or work with the Medicare Part D drug plans.   (GAO Report)   The GAO looked at the kinds of services PBMs provide to Part D plans, how they get paid for those services and the effect of rebates and other manufacturer discounts, using the period from 2014 to 2016.  Medicare spent over $100 billion for the Part D benefit in 2016.  Many of the Part D plans are actually offered by PBMs and in total 74% of the services needed to manage Part D plans came from PBMs.  Those services include claims processing, pharmacy network contracting, member services, utilization and quality management and negotiating with drug manufacturers.  The primary methods by which the PBMs got paid included a fee based on the volume of claims processed, a per member per month fee and sharing of rebates, but the PBMs received less than 1% of these rebates in 2016.  Gross expenditures on covered medications for Part D in 2016 would have been $145 billion, up 20% from the prior year.  Rebates and other discounts reduced that by $29 billion, which was a 66% increase from the prior year, so that net expenditures were only $116 billion or 13% higher.  PBMs made less than $100 million from sharing in discounts.  But they did earn over $500 million from providing other services to manufacturers, like running patient adherence programs.  I am more than a little suspicious that these payments are used to ensure that the PBM treats the manufacturers’ products favorably.  PBMs do almost no spread pricing according to GAO, that is, they generally charge the Part D plan exactly what the PBM paid for the drug.  Other interesting tidbits in the report are that, as expected, most of the rebates come from brand-name drugs, usually in categories with competing products.  Drugs sold in retail pharmacies got much higher discounts than those sold through the specialty pharmacy channel, which is revealing because that pharmacy channel has the really high-priced medications and accounts for an increasing share of all drug spending.  The most notable outcome of the report is that while PBMs undoubtedly make a lot of money servicing Part D plans, they don’t appear to be that conflicted in regard to rebates or spread pricing.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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