Regulators and Politicians Wanted Data. After Seeing Some of It, They Want More.
Pharmacy providers, employer groups, and patient advocates alike have been beating the drum on potential arbitrage occurring with pharmacy benefit managers (PBMs) while government administrators, legislators, and human resources managers have begun to question why drug expenditures continue to rise, even in the face of generic deflation and reduced reimbursement rates. “Just look at the data!” seems to be the refrain from the pharmacy world, where pharmacies can compare what they have paid and what they are reimbursed. Add in what the plan sponsor or taxpayer has paid the PBM, and any student in first-year accounting begins to scratch their head. Data that connect the dots have started to flow in an industry that wields its will through lack of transparency. The Columbus Dispatch had a multiyear series of Medicaid focused articles that described the fight for visibility into who pays whom how much. This series resulted in Ohio carving out the pharmacy benefit from the traditional managed care outsourcing.1
This lack of transparency is by design. It is purposeful to achieve price discrimination, wherein some third parties pay less (Medicaid) and others pay more (commercial). Price discrimination is not unique to health care and can be used legitimately to improve a marketplace or quasi-public utility. Notably, in order to pull off price discrimination successfully, a bit of “hide the cheese” is necessary. However, health care takes this strategy to another level across all lines of service, including pharmacy.
Before you blame the PBMs for this approach, whose primary business model is enabled by the rebate game, have a discussion with your legislators about the Medicaid Drug Rebate Program, wherein a deal was hatched to avoid direct government negotiations with manufacturers. To enable purposeful and government-imposed price discrimination, a system was devised to ensure that Medicaid paid the lowest price. The mechanism to pull that off? Rebates, of course. From there, the spreadsheet wars ensued across all payer types and payers, with spread pricing and other opacities to follow. The dearth of transparency in the pharmacy sector wasn’t invented by the PBMs, but rather manufacturers and politicians, and it has eventually and inevitably gotten out of control.
About the Author
Troy Trygstad, PharmD, PhD, MBA, is the executive director of CPESN USA, a clinically integrated network of more than 3500 participating pharmacies. He received his PharmD and MBA degrees from Drake University and a PhD in pharmaceutical outcomes and policy from the University of North Carolina. He has recently served on the board of directors for the Pharmacy Quality Alliance and the American Pharmacists Association Foundation. He also proudly practiced in community pharmacies across the state of North Carolina for 17 years.
Wait…What? Express Scripts Stops Filling GLP-1s for New Patients
In December, Express Scripts announced it would no longer fill glucagon-like peptide-1 receptor (GLP-1) agonist medications for new-to-therapy members.2 When I read this headline, I paused and thought to myself, “Wait…what?” We know that mail-order operations are profitable to PBMs. Aside from the sheer volume they provide these businesses in terms of prescription fills, they have incredible purchasing power on the buy side and access to data to ensure operations, sales, and channeling are in an optimal position in the marketplace. So why stop filling the fastest growing, most clinically significant class of medications in a generation (or 2)? Maybe it has to do with data?
Mississippi Publishes Some Interesting Findings
Mississippi recently released a short but eye-opening 2-page report that posited that affiliated pharmacies (essentially the wholly owned and operated mail-order outfits) were reimbursed quite a bit more than community-based pharmacies.3 It also claimed that there were 49 different maximum allowable cost lists used in the state and said that zero-balance claims, in which the insurer paid $0 to the pharmacy for the claim, were much higher with community based pharmacies than PBM-affiliated pharmacies. Of course, the ensuing press was less than kind to the PBMs, and the PBMs have a right to respond—as they should—and offer data countering those conclusions. But the state was able to see and report on the data, and it was empowering. This is likely to become a trend following Ohio’s fallout from carving out the pharmacy benefit from traditional managed care outsourcing.
So, If a Pharmacy Has a Purchasing, Selling (Reimbursement), and Channeling Advantage, Why Stop Filling GLP-1s for New Patients?
With all of these advantages, why not keep the strategy rolling? The answer may lie in the vertical integration strategy that enables the advantages in the first place. For a fully integrated health care enterprise, the PBM is just one of many tentacles to the margin-producing equation. In other words, maybe there isn’t a margin to be made in filling GLP-1s if all pharmacies are reimbursed at equally low or below-cost levels. Rather, the profitability for both PBMs and the plan sponsors lies in the rebates.
The list to net for GLP-1s, which describe the difference between the list price of the drug and the eventual amount retained by the manufacturer, is expected to continue to drop. Already below 40% for GLP-1s by some reports and predicted to slide to as little as less than 30% with many new market entrants and indications coming over the next couple of years, GLP-1s will likely comprise more than half a trillion dollars in top-line revenue by the end of the decade, with approximately $350 billion of that sloshing around in rebates to both plan sponsors and 340B-eligible entities. Perhaps, given transparent reimbursement across all types of pharmacies, the rebates are a far more important line of business than the dispensing of drugs.
Like a Zeitgeist, Legislative Proposals Emerge in the Senate From 2 Unlikely Sponsors
As of mid-December 2024, at the time of drafting this article, Elizabeth Warren, US senator from Massachusetts, and Josh Hawley, US senator from Missouri, have put forward a proposal to disallow PBMs from owning pharmacies. To the extent that either transparency or legislation prevents mail-order operations from remaining profitable, it would seem logical to begin to draw down operations (at least selectively for certain drugs that are more well known and growing in use, with little appetite among the public to curb their use). I hear regularly that community pharmacies are playing hot potato right now with GLP-1 prescriptions, having to choose between stocking the medication(s) and filling for all of their patients and losing money; not stocking the medication and denying everyone access; or stocking the medication and selectively offering it to patients, thus running the risk of potentially violating their agreements with insurers and losing their own public relations battles.
The threat from the US Senate, alongside increasing demand for transparency championed by pharmacy providers, consumer advocates, and Mark Cuban, buttressed by news of CVS Health potentially divesting its pharmacies, all point toward increasing tension in vertical integrations where the payer pays itself.4 It seems that even the Wall Street insiders realize that dispensing medications in 2024 at current acquisition and reimbursement rates without some structural buy-sell advantage is not economically sustainable.
Taken altogether, with Walgreens on a potential private equity acquisition pathway, the signal intelligence points to an inflection point—a new marketplace reality for community pharmacy over the next 2- to 5-year time horizon.5 What it will look like is anyone’s guess, but I’m confident in the ability of the community pharmacist; the workforce that enables them; and the unparalleled combination of foot traffic, trust, convenience, and ability to engage patients that they bring to the table. There is incredible value to the system and even more value untapped; much of it just needs to be unleashed and untethered.
The next few years (months?) are going to be an interesting ride. Stay tuned.
REFERENCES
3. Mississippi Board of Pharmacy completes audit of Optum for 2022 claims. News release. Mississippi Board of Pharmacy. October 14, 2024. Accessed December 16, 2024. https://www.mbp.ms.gov/sites/default/files/inline-images/Optum.Release.pdf
