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Reduce Drug Prices by Cutting Out PBM Rebates

2017-02-08 | Robert Goldberg
The pharmacy benefit management lobbying organization and Express Scripts are running ads claiming that PBMs are reducing drug prices for consumers.

Express Scripts Fights Back Against Irresponsible Drug Pricing

"At Express Scripts, we put medicine within reach - making it more accessible and affordable for the employers and patients we serve. It's why we exist.

In a year where the high cost of prescription medications dominated headlines, Express Scripts delivered value beyond and practiced pharmacy smarter, protecting employers and patients by driving down costs and improving outcomes.

Our country needs affordable medicines, and Express Scripts is best positioned to deliver them. The proof is in the data."

That's false advertising.  Express Scripts didn't put medicines in reach.  Rather it manipulated prices and access to maximize rebates and out of pocket consumer costs. 

It's an incredibly rigged system.   Nearly $130 billion of drug spending goes to PBMs and insurers in the form of rebates.  And the spread between what PBMs get and what they pay for drug prices continues to soar:


Sources:  Berkley Research Group,  IMS-Quintiles

The industry says that amount reduces drug prices for consumers.

In fact,  the PBMs pocket the rebates and share them with insurers.  Very little, if any, of that money, goes to the patients whose prescriptions make the rebate revenue happen.


Even more,  the PBMs make the most rebate money on medicines for the sickest patients.   Of the $100 billion in brand rebates they get each year,  half are from medicines for cancer, MS, HIV, hepatitis C, etc. 

What's more, the spread between the net price increase of drugs and list price increase is growing.  



Source:  IMS, Express Scripts

In addition to pocketing these increasing margins, PBMs turn around and make the sickest patients pay up to 50 percent of the list price of a drug. 


Take diabetes for an example. Rebates for diabetes drugs average about 44 percent of list price. And they have been climbing as a share of list price since 2013.

The chart below shows how rigged the system is. The out of pocket cost of consumers is going up. Part of that increased is covered by drug companies. That means the drug companies give PBMs 44 percent of the list price of drugs in the form of rebates AND a percentage of the list price of the drug at the retail level.



The sickest one percent who use these specialty medicines pay about $10 billion a year.  That brings the total PMB revenue to $60 billion.  That's 60 percent of the price of the drug pocketed by PBMs.   
In essence, each patient (about 2.8 million) is being overcharged $23000.   That's delivering value to PBMs and their clients, not patients. 




Since cost sharing is associated with reduced use of medicines,  that means people are sicker than they should be and wind up costing more.

I estimate the medicines spent on the 1 percent are responsible for saving nearly 1 million life years since 2005.   We could have saved even more if drugs weren't put out of reach by rebate rigging. 

While PBMs should be criticized, it's important to note that they are playing with house money.  That is,  the rebates come from drug companies.  There is no reason why drug companies couldn't pass rebates directly to patients AND eliminate high-cost sharing.   

The proof is in the data.