Undocumented Source of Pharmacy Benefit Manager Revenue

Mark V. Siracuse; Bartholomew E. Clark; Robert I. Garis

Disclosures

Am J Health Syst Pharm. 2008;65(6):552-557. 

In This Article

Abstract and Introduction

Abstract

Purpose: The difference between what pharmacy benefit management companies (PBMs) charge prescription benefit plan sponsors and what dispensing pharmacies are paid ("spread") was studied.
Methods: Data from prescription transaction invoices from two large employer groups, each using a different PBM, and 84 community pharmacies (which differed for each employer group due to clear geographic separation) participating in these plans between October 1, 2002, and December 31, 2004, were studied. Detailed community pharmacy payment transaction records were compared with PBM claim records from two employers. One employer provided 49,633 prescription claim records, and the other employer provided 120,684 prescription claim records. Spread between amount due billed to the employer by the PBM and amount due paid to the dispensing pharmacy by the PBM for all prescriptions, for brand-name prescriptions, and for generic prescriptions was analyzed.
Results: For the two PBMs combined, the mean ± S.D. spread for 20,376 paid transactions was $1.82 ± $8.26 per prescription. The mean ± S.D. spread for brand-name prescriptions was $0.07 ± $5.18 and for generic medications was $4.20 ± $10.69 per prescription. The two PBMs differed significantly in their spread for all drugs ($2.30 ± $6.17 and $1.78 ± $8.40) and for brand-name drugs ($0.47 ± $3.21 and $0.04 ± $5.30). The difference between PBMs for spreads on generic medications did not achieve statistical significance.
Conclusion: Wide variations in spread pricing existed between two PBMs and between brand-name and generic medications. Pharmacists and prescription benefit plan sponsors should be aware of this discrepancy and seek a more transparent contract with PBMs.

Introduction

Over a 15-year period, expenditures on prescription drugs in noninstitutional settings grew almost fivefold, from $40.3 billion in 1990 to $200.7 billion in 2005.[1] The three main factors that drove the increase in prescription drug spending were increased use, changes in the types of drugs used (i.e., newer, higher priced drugs replaced older less expensive drugs partially due to aggressive promotion to both patients and physicians), and manufacturer-imposed price increases for existing drug products.[2,3]

The predominant infrastructure for administration of employee prescription benefits in the United States is through a pharmacy benefit management company (PBM). Cost- saving strategies used by PBMs include discount pharmacy networks, incentives to use therapeutic alternatives, formulary management (including manufacturer rebates), mail-service pharmacies, drug-use review, and disease management.[4,5] Often embedded in these cost-saving strategies are additional revenue streams for the PBM. Additional revenue streams include rebate contracts with the pharmaceutical industry, owning a mail-service pharmacy, drug repackaging, selling data to the pharmaceutical industry, and spread pricing.[4,6]

As defined by Garis and Clark,[7] spread is "the difference between the amount billed to the employer by the PBM, and the amount paid to the dispensing pharmacy for that line item." Spread is the margin created when PBMs contract with pharmacies at a lower price than was negotiated with the drug plan's sponsors (e.g., employers). Data from a pilot study revealed the possibility of a substantial and widely varying spread.[7] In that pilot study, the mean spread reported for all 129 line-item prescription transactions was $12.29 per prescription. The spread varied widely, depending on whether a brand-name drug or generic drug was dispensed. The mean spread was $4.65 per prescription for brand-name drugs and $23.45 per prescription for generic medications.

The objective of our study was to determine the spread for all matched transactions. We also compared the spread for significant differences between (1) brand-name and generic medications and (2) PBMs.

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