5 Things to Know About Pharmacy Benefit Managers

Alicia Ault

February 18, 2022

Pharmacy benefit management has evolved from an obscure industry to an integral part of the American healthcare system.

Pharmacy benefit managers (PBMs) negotiate prescription drug benefits for health insurers, large employers, Medicare Part D plans, and other payers who currently cover more than 266 million Americans. The big three PBMs — Express Scripts (owned by Cigna), CVS Caremark (part of CVS Health), and OptumRX (owned by UnitedHealth Group) — now control 85% of prescription drug benefits in the US.

Along with their growing presence, PBMs have exercised increasingly aggressive control over how prescription drugs are written, dispensed, and reimbursed. PBMs' actions are felt perhaps most acutely in oncology, where formulary restrictions, delays in (or denials of) coverage, and steering doctors and patients to particular pharmacies can translate into life-or-death decisions.

JC Scott, CEO of the Pharmaceutical Care Management Association, the industry's trade group, said in a blog post that PBMs "are the only member of the prescription drug supply and payment chain working to reduce drug costs, improve patient access, and increase affordability."

But the industry has received heavy criticism for doing the opposite. Just this week, the Community Oncology Alliance (COA) published a report detailing the endless "dirty tricks and abusive practices of PBMs," that allow these entities to negatively impact cancer care and profit from cancer patients and clinicians, Ted Okon, MBA, executive director of COA, said in a press release.

In addition, a 2019 New York State Senate investigation concluded that vertical integration among PBMs, insurance companies, and pharmacies "has contributed to skyrocketing list prices and declining patient access."

To that point, total prescription drug revenues for pharmacies reached a record high of $465 billion in 2020, with the 15 largest pharmacies accounting for almost 80% of that ($365.5 billion) and those affiliated with the three biggest PBMs taking in 42.4% (about $200 billion), according to a report by Adam Fein, PhD, at the Drug Channels Institute. Specialty drugs — often used in oncology — represent nearly 40% of those revenues, Fein reports.

This consolidation has also led a growing number of independent pharmacies to close their doors. A 2018 report from the Rural Policy Research Institute found that 16% (1231 of 7624) of independent rural pharmacies in the US have shuttered over the past 15 years. According to the report, that has left 630 communities with no independent or chain drugstore.

Here are five things to know about how PBMs operate and how they affect cancer care.

1. Prescription steering

Because the big PBMs are now integrated into insurance companies, pharmacies, and specialty pharmacies, it is easier for them to dictate where a patient will go for a prescription.

That could mean being sent to an in-network pharmacy, a PBM-owned specialty pharmacy, or a PBM-owned mail-order pharmacy.

"There's a lot of insidious ways they go about doing this," said Jesse Dresser, Esq, an attorney with Frier Levitt, New York City, who called the practice "patient slamming" or "prescription hijacking."

Here's how it works: an oncologist sends the prescription to an independent pharmacy. As the claim is processed, the PBM rejects it, saying prior authorization is needed. The pharmacy then seeks prior authorization. In the meantime, the PBM has provided the claim information to its own specialty pharmacy, which then leans on the oncologist's office to transfer the prescription. The PBM-owned specialty pharmacy also contacts the patient to say it is processing the prescription, or in some cases, fills the prescription without even talking to the patient.

The independent pharmacy is circumvented, leaving the patient with no alternative.

Jonas Congelli, RPh, director of pharmacy services at Hematology-Oncology Associates of Central New York, a four-practice multispecialty group with offices in the Syracuse area, said that often a PBM-owned mail-order pharmacy sends a fax to the physician "stating that the patient would like to switch their prescription to that mail order pharmacy," whether that's true or not. Busy oncologists or nurse practitioners may just sign-off on the fax, not knowing whether the patient actually made such a request. Now, Congelli said, his in-house pharmacy receives and reviews all future faxes about any patient's prescriptions.

Steering is especially common with oral chemotherapies, according to Okon. PBMs won't cover the medications unless they are ordered through their wholly-owned specialty or mail order pharmacies. With all the bureaucracy, "you literally have patients waiting in some cases not just weeks, but months for their drugs," said Okon.

Care coordination also suffers when patients are steered outside the clinic, said Congelli, a member of the COA board of directors. On-site pharmacies have direct access to clinicians and electronic medical records, meaning they know when patients are due for a visit, when they require their next refill, and when they need a scan that could change their regimen, he said.

A PBM-owned specialty pharmacy might, for instance, send a medication to the patient a week or so before they need it. If the patient's dose or regimen has changed, they get a drug they can't use, said Congelli. In contrast, "there is very minimal waste that occurs with dispensing [drugs] from inside of the practice," he said.

2. Mandatory "white bagging"

Mid-way through 2020, many PBMs and insurers began requiring infusion medications be administered in clinics and then processed and reimbursed under the pharmacy benefit instead of the medical benefit, said Dresser.

Under that scenario, when an oncologist writes a prescription for an intravenous medication it goes to a PBM-owned or -affiliated pharmacy before being labeled and dispensed. The drug is then delivered back to the practice. "We call that mandatory white bagging," said Dresser.

In a January 2021 report, Dresser and colleague Martha Rumore, PharmD, noted that Cigna requires all prescriptions for nivolumab (Opdivo), ipilimumab (Yervoy), and trastuzumab deruxtecan (Enhertu) to be processed through Accredo, Express Scripts' wholly-owned specialty pharmacy. Aetna (owned by CVS Health) said that, as of July 2020, patients prescribed nivolumab, ipilimumab, pembrolizumab (Keytruda), and atezolizumab (Tecentriq) had to receive the medications at in-network infusion centers, in-network physician offices, or at home; if that was not possible, they had to be delivered through a specialty pharmacy that Aetna chooses.

White bagging means a loss of income for oncology practices because they can "no longer bill for the drug itself," and can present chain-of-custody issues that lead to prescribing errors and waste, according to Dresser and Rumore. Hospitals and oncologists may also face liability issues "with regard to product integrity, product labeling, and accuracy," they write.

The recent COA report further details the chain of custody issues associated with white bagging. The typical path for an oncology drug allows an oncologist to vet every step that medication takes. However, when oncologists receive a drug via white bagging, they have "no control or insight into how the specialty pharmacy is handling that product, or how it ensured stability and integrity during the delivery process."

The American Society of Clinical Oncology (ASCO) raises similar concerns about white bagging and "brown bagging" — when a PBM-owned specialty pharmacy ships the infused drug directly to the patient who then takes it to the physician's office for administration.

White bagging is prohibited in Massachusetts, where it is identified as illegal re-dispensing, according to Dresser and Rumore. Legislators in Wisconsin have introduced a bipartisan bill to ban the practice, according to a recent report.

3.  DIR fees

The Centers for Medicare & Medicaid Services (CMS) created direct and indirect remuneration (DIR) fees as a way to track rebates and other concessions after the point-of-sale for drugs in the Medicare Part D program.

PBMs and Part D plans say DIR fees reduce premium costs for Medicare beneficiaries.

But in recent years, DIR fees have grown precipitously in scope and cost, increasing how much beneficiaries pay for their medications. According to Fein, for instance, pharmacies paid $9.1 billion in DIR fees in 2019, up from $229 million in 2013.

In addition, these fees can now be based on a range of quality measures — such as a patient's statin adherence — that are "not pertinent to oncology," said ASCO President Howard A. "Skip" Burris III, MD, in 2020. 

DIR fees now often include items such as flat fees, when pharmacies pay to be in a "preferred" PBM network, and "claw backs," when pharmacies pay PBMs months after a claim has been paid for failure to meet certain performance measures.

Congelli said claw back fees can be as high as 13% of the reimbursement for a medication. If the oncology pharmacy is paid $10,000 for the therapy, it may then have to give $1200 back to the PBM later. "You have no say in the matter and you have no way to control what that DIR fee is going to be," said Congelli.

ASCO, COA, and pharmacy organizations have asked CMS to put a stop to claw backs. In response, CMS has proposed that, starting in January 2023, all rebates, price concessions, and DIR fees be accounted for at the point of sale — a move that has yet to be made final but could help lower drug costs for enrollees.

4. Co-Pay accumulators and maximizers

When a patient can't afford a medication, oncology practices usually direct them to a drugmaker's patient assistance program. PBMs identify when a patient is using a coupon or co-pay card and then disallow the dollar value of that assistance from being applied to the deductible or the patient's maximum out-of-pocket limits. This is done through co-pay accumulators and co-pay maximizers.

In February 2021, Avalere Health estimated that 83% of commercially insured enrollees were in a plan with a co-pay accumulator and 73% were in a plan with a maximizer. But patients usually are unaware of these programs until they pick up a medication.

Before the advent of such programs, the manufacturer's assistance would count toward a deductible or out-of-pocket maximum. Once the deductible and maximum were met, the patient's drug plan would pay the entire cost of the prescription for the remainder of the year.

With a co-pay accumulator, none of that assistance counts. When the patient reaches the maximum dollar amount of assistance, which might take months, he or she must then meet the deductible and out-of-pocket maximum. That could be hundreds to thousands of dollars a month, for the remainder of the year. The drugmaker and the patient are left paying a greater percentage of the cost of the drug than the payer.

"The financial toxicity may be such that the patients can no longer afford their medication," said Congelli, who noted that many patients may simply stop taking their medication.

With the maximizer, the PBM stretches out the manufacturer's assistance over as many months as possible. In this case, the patient might never meet the deductible or out-of-pocket maximum but could have relatively low monthly payments. However, to get that benefit, the patient often must receive the medication from the PBM's designated pharmacy, said Dresser.

The co-pay programs are "taking money directly out of the patient's pocket," said Okon.

Some states, including Arizona, Illinois, Virginia, and West Virginia, have implemented laws that limit the scope of these co-pay programs, such as mandating that any payments or other discounts count toward a patient's cost-sharing liability.

5.  Spread pricing

At its simplest, spread pricing is when a PBM reimburses a pharmacy one price for a drug but charges the health plan or self-insured another, usually higher price.

Often the health plan tacitly agrees to this or is implicit in allowing the PBM to keep the spread. 

"It's no secret that spread pricing is one way for a plan sponsor to compensate its PBMs," Fein writes in Drug Channels in 2019.

For pharmacies, the spread can mean losing money when dispensing a drug. Pharmacies have been lobbying for more disclosure and an end to spread pricing. The National Community Pharmacists Association (NCPA) supports a bill that would ban spread pricing in certain Medicaid programs and require PBMs to "reimburse pharmacies at a rate consistent with their acquisition plus a professional dispensing fee."

The NCPA alleges that spread pricing equates to a taxpayer rip-off because PBMs are pocketing the difference. It cites data showing that spread pricing allowed PBMs to pocket $72 million a year from Maryland's Medicaid program, $29 million a year from Virginia's Medicaid program, and at least $64 million from Michigan's program.  

In 2021, the PBM Centene agreed to pay the state of Ohio $88.3 million to settle allegations that it overbilled the state's Medicaid program, largely through spread pricing. A 2018 state investigation found that Centene and other PBMs collected more from Ohio Medicaid for drugs than they paid pharmacies to dispense them, amounting to a $224 million overcharge.

Alicia Ault is a Lutherville, Maryland-based freelance journalist whose work has appeared in publications including JAMA, Smithsonian.com, the New York Times, and the Washington Post. You can find her on Twitter @aliciaault.

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