Some PBMs Benefit from Price Spread at Expense

Newswise — Results of a study by Creighton University pharmacy benefit management researchers Robert I. Garis, R.Ph., M.B.A, Ph.D, and Bartholomew E. Clark, R.Ph., Ph. D. appear today in the Jan/Feb. 2004, edition of the Journal of the American Pharmacists Association (JAPhA). The study, "The Spread: Pilot Study of an Undocumented Source of Pharmacy Benefit Manager Revenue," describes how some pharmacy benefit managers—the companies behind the cards most employed Americans use when they fill prescriptions—are making impressive profits on generic drugs.

These drugs are usually promoted as saving a company or employee money if one chooses a generic drug instead of a brand-name drug.

Prescription drugs remain the fastest-growing component of America's soaring $1.1 trillion health care bill. It's a bill with hidden costs. And it's a bill consumers pay, either out-of-pocket in direct payments or in co-pays and premiums, or out of the pool of wages and benefits set aside by one's employer.

The challenges to prescription benefit cost control occur at the level of pharmacy benefit managers (PBMs), according to Creighton University Medical Center researchers Garis and Clark. Their pilot study describes how some PBMs can actually increase a company's employee prescription drug expenditures as middlemen between the purchasers of pharmacy benefit plans (usually employers) and the pharmacies that supply prescription drugs to the eventual consumers, the corporation's employees. While some PBMs serve a valuable function and provide great value, other PBMs create a price spread that doesn't benefit corporations, their employees or America's overall health care bill.

For example, according to researchers Garis and Clark, for the generic stomach medication ranitidine one PBM billed an employer over $200 and paid the pharmacy $15 for the same prescription. Another example is the generic blood pressure medication atenolol—the PBM billed the corporation $80 and paid the pharmacy $7 for the same transaction.

"With our study, we want to raise awareness throughout corporate America that they should review their pharmacy benefit plans. They could save substantial dollars that can be passed onto employees if they knew how to better evaluate prescription drug plans," said Garis. "There needs to be more accountability among some PBMs who are out of line. This is an area of health care where we can generate some significant savings. Pharmacy can be part of the solution not the problem in controlling America's health care bill."

"In our continuing research since completion of this pilot study, we have seen numerous examples of prescriptions for "preferred brand" drugs that had a slightly lower co-pay amount for the employee while costing the employer one-and-a-half to two times as much even after rebate. The incentives are not aligned with economic reality; the less costly drug should have the lower co-pay. We recommend utilization of a PBM model that pays the PBM for capitation-based administration fees, rather than a transaction-based, rebate-driven model. PBMs should be paid to effectively manage therapy while respecting health plan assets," said Clark.

Creighton is an independent, comprehensive university operated by the Jesuits. Creighton has been ranked at or near the top of Midwestern universities in the U.S. News & World Report magazine's "America's Best Colleges" edition for more than a decade.