Expert Discusses Navigating Complexities of PBM Regulations

Brandon Newman, founder and CEO of Xevant, delves into the complex landscape of pharmacy benefits managers (PBMs) and the regulatory environment surrounding the industry. Newman highlights the outsized influence of the "big 3" PBMs, which control over 80% of pharmacy utilization, and how their practices impact the cost and access for both patients and pharmacies. He discusses the key legislative efforts at the state and federal levels, focusing on the push for greater transparency in reimbursement rates, business practices, and fees. He also emphasizes the role of innovative, smaller PBMs in offering unique value propositions, such as high-service models and a focus on overall therapy costs, as a counterbalance to the market dominance of the larger players.

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Q: In a recent House Oversight Committee meeting, the Committee said 3 PBMs control approximately 80% of the health care market. How do the 3 PBMs impact the business of pharmacy, especially when it comes to pharmacists?

Brandon Newman: Wow, big, big question out of the gates. Why not just start where it's really all begun? The big 3 aren't just sort of 3 out of 120 some odd PBMs that you want to count, they make up over 80% of the overall utilization. So any given pharmacy that's dispensing and a given hour, 80% of what they do is over, over 50 minutes, or whatever, the calculation you need to say, is spent, with with a big 3. So just in terms of volume, that's big, but it also does far reaching impacts. So when, for example, the purchasing of the medication that's being dispensed from pharmaceutical manufacturers as it's delivered through the pharmacy. Those PBMs really, really drive how that transpires. So the cost of the medication is impacted very heavily because they have so much of the utilization, they really do wield their their collective strength in getting what they really want, and although I'm not here to speak to any nefarious efforts, which I really have no interest or belief that that that exists, we can talk about the positive and or negative effects of that creates a positive is we can still point to great savings that they can produce for the end customer, whether it's the patient and or the payer. But how large chain or independent pharmacies are affected really do get impacted. So there are a lot of negatives that come by way of those big 3, and so looking at how how profitable pharmacies are, how difficult it may be to let a patient get what they really need to manage their condition is heavily impacted by these big 3. And really understanding the clarity and transparency of how all that happens has been, in the past, been really difficult for pharmacists to to operate within a framework of understanding what's really happening when they find out, "hey, I just dispensed 80 prescriptions" and and not knowing how profitable those are, they can be really challenging and daunting for pharmacists and pharmacies in general.

Q: What are the specific regulations that are being proposed, and how would they impact PBMs, pharmacies, and patients?

Brandon Newman: There are really 3 core categories. There's many other legislation and regulation that's being proposed, whether that's at the national level or state, and I would really encourage all readers and listeners of podcasts that follow your media channels to really look into the states and what the state's doing. What we're finding is that the states are having a far greater impact on regulation of pharmacy benefits. Some really good, and some I would go as far as say, super uninformed, and so, I don't want to get off the topic of the question is, what's happening with the regulation, but if I really look at 50 states, we're talking about dozens, if not hundreds, of different regulations that are happening right now, or have happened, or about to happen that without really good insight and education, the regulators don't necessarily always hit it right over the on top of the head. So from a national, federal level, 3 big ones that that have been contemplated largely, most agree to some degree or not.

First is transparency, understanding what's the reimbursement rate. Business practices, of whether it's called pass through, exactly what the payer pays and what the PBM pays the pharmacy being the exact same. That isn't necessarily right now in the bull's eye of what the legislation is looking for They're just simply looking for transparency and understand what is being done. It's really hard to operate a pharmacy when you really don't know the rules from within your operating big 3 PBMs they operate both pass from models, which is exactly as I described, and then the spread based model, where they charge more than what they're paying in some cases that absolutely can hurt pharmacies, especially independents, when the competitive nature of having 1 or 2 or 20 versus 1000s of pharmacies does impact your ability to deliver. But it isn't always a negative. In some cases, as long as there's transparency to know what is happening and what it looks like, that transparency is a big part of at least describing "here's what's under the covers, or here's the details of what's going on." I think that is welcomed everywhere. No one likes to operate within obscure business practices.

That's be the first, the second are DIR fees and sort of the lack thereof. The number of times I've talked to pharmacists and pharmacies about prescribing medication, dispensing it, having it leave, thinking that they've made money on it, they just spent, let's say, $5,000 to stock it. They believe that it's being dispensed at a specific, a modest profit, and then to come find out, literally, 3 to 6 months after the fact, "oh, I got hit with a fee, or I wasn't able to recoup a fee associated with that," not knowing what that is, and then finding out they lost money on it, you're playing behind from from day 1, and so the legislation is really forcing the market to, say, transparency of those fees and/or completely eliminating them, and using that as a way to normalize the playing field.

The last one is around rebates and how drugs are actually truly net priced. Most brands have a rebate associated with them, and not knowing exactly how much that rebate is being forced to move from one brand to another, when and if it's the right thing for the patient, can be really difficult. So legislation, just for disclosure and understanding at the claim level, what is the rebate that's going with it goes along with this whole notion of transparency?

Q: What role to smaller, independent PBMs play in the pharmacy? Are there differences between them and the 3 biggest PBMs?

Brandon Newman: Free markets, a capitalistic environment, means that anyone, any company, can come up with a better mousetrap to do this better, and I think, given the PBM market, the big 3 have created a model that works for them, but it's sort of said that is their model, and they're going to operate within that model that creates an opportunity within our capitalistic environment to innovate and improve on those models. So usually, what comes out of it? When you've got smaller, up-and-coming PBMs, we find out that they've solved for things that the big 3 haven't or haven't done a good job of, or don't want to solve for, because it's part of their profitability and signature, if you will. So these smaller PBMs aren't necessarily need to call them smaller. They're just different. How they come at it is a little bit different. It can be, "hey, I'm going to be fully transparent on every single claim that goes through, so that everybody understand what's going on" all the way through very high service model scenarios where we engage the pharmacist, the provider, the patient, into a very successful pathway to not just look at the cost of the drug, but look at the cost of overall therapy and looking at big, big picture stuff. So I've been really encouraged as I've watched this for 30 years or more, seeing the nuance, innovative PBMs come forward and really deliver on it. Some big winners in that space have come forward, and they're winning very well. Some really try to hit home on one of those three key legislative sort of efforts and drive home value as it relates to those. But ultimately, I believe in free markets, which, if I do, I also believe that the big 3 should also have a chance to do what's right. I believe, at the end of the day, the only thing that matters is lowest net cost, and the very best care we absolutely shouldn't be avoiding. "Did I get the care to the patient or not?" It's, it should be a battle about what's the cost of care., and so if you look at all the models out there, the big 3 still continue to deliver a very competitive, low cost, but they can't do it at the expense of the pharmacist, and so I think the if I'm looking at all PBMs and the new, newer, small PBMs. It's helping to govern a market, to stay in balance in ways that doesn't just sort of let one run away with the other. Last thing I want to do is have an up and come from PBM go, "Hey, I got a better model, and it runs away with the market." And maybe that's not the best thing either. So, it's keeping it all in balance. It's the best way to describe it.

Q: How do the effects of the 3 biggest PBMs have on smaller PBMs, and what does that mean for independent PBMS?

Brandon Newman: Smaller, independent PBMs have their work cut out for them. When you control 50, 60, 70, million Americans, all in one fell swoop, and you've got an environment where big chains really govern size within the space in terms of where patients go. Tthe recipe is already there to really wreak, it's probably bad word, but I would say wreak havoc potentially, on the free enterprise in reality, they work hard to get those lives, and they still have to deliver on it, but when you've got 80 million lives versus, let's just use an example, one that a PBM we work with, has 80,000 lives. When you're competing in the same space, and you go to a large chain pharmacy, and say, "Hey, I'd like to negotiate a deal," even if it's really beneficial to the pharmacist, it makes it really tough to negotiate up against the big 3 when they have that buying power that comes, and it's not just from pharmacies, it's also from Pharma being able to do both sides of it, and also payers. So size really does matter. In the flip side, outcomes and service and results matter too, and, I think that's where independent or smaller PBMs can really flex their muscle, and where they can't compete on size. They compete on outcomes, that to me, is sort of getting the balance that we're coming out to sort of duplicating the response, but that dubious requirement to face market size and buying power as the big sort of stick that's sort of you have to manage around is the very thing that you've got to innovate around, come up with another way besides just volume, to do this. And that's where I've been really encouraged.