Denise Myshko 

Image Credit: Adobe Stock Images/Chunnapa

Pharmacy benefit manager (PBM) contracts with insurers play a significant role in the prices of prescription drugs at the pharmacy level, leading to prices that are highly inconsistent, according to a 

 from the data analytics company 3 Axis Advisors. The 88-page report was sponsored by American Pharmacy Cooperative, which represents independent pharmacies.

The Pharmaceutical Care Management Association (PCMA), which represents PBMs, has long said that drug manufacturers alone set prices of prescription drugs. “Drug companies have total autonomy over the list prices of their products,” a spokesperson for PCMA told 

. “The primary mission for pharmacy benefit companies is to reduce prescription drug costs for patients and health plan sponsors, like employers and unions. Any assertion that PBMs are in any way increasing costs is simply wrong.”

The analysis from 3 Axis, however, has found that PBMs control how much pharmacies are reimbursed. This can vary significantly depending on the PBM contracts with insurers and employers, creating a system with large inconsistencies in the prices that consumers pay for both generics and branded products. Pharmacies, through their trade associations, have been persistent critics of the PBM industry.

“Ultimately, the findings in this study underscore the complexity, inconsistency, and malleable nature of drug pricing in the United States, where public policy goals for reform are scattered but loosely centered on a quest for affordability and value,” 3 Axis researchers wrote. “With this in mind, this report demonstrates that the current system is full of inequity and misaligned incentives that would seem to run counter to these goals.”

For this analysis, 3 Axis assessed 32.6 million retail pharmacy claims in 2020 from independent, small chain, and midsized chain pharmacies. The analysis focused on the negotiated prices between the PBMs and the pharmacies, which are based on the average wholesale price (AWP) benchmark, which 3 Axis describes as being similar to a manufacturer's suggested retail price sticker price.

Some of the biggest variability in prices is for generic drugs, for which the PBMs set a maximum allowable cost (MAC) that determines their retail price. The MAC methodology sets an upper limit for products where are there are multiple manufacturers. It is meant to encourage pharmacies to purchase lowest cost products. But critics say the MAC benchmark doesn’t reflect actual market conditions. the MAC is considered proprietary, and there is little transparency about how PBMs arrive at them.

In their study, the 3 Axis analysts were unable to identify a single price for a given product on a single day at one pharmacy. For example, analysts described one case in which a single pharmacy on a single day was reimbursed five different prices by the same PBM for duloxetine, a serotonin-norepinephrine reuptake inhibitor used to treat patients with depression. The pharmacy was reimbursed between $9.30 and $96 per prescription for duloxetine that came from the same manufacturer.

Additionally, 3 Axis looked at the price of duloxetine across the pharmacies in its review and found that the same PBM reimbursed pharmacies 49 different prices across 232 claims filled by 172 pharmacies.

In an example of variability among branded products, 3 Axis reviewed the price of Eliquis (apixaban), which is used to treat patients with atrial fibrillation and decrease the risk of blood clots. In 2020, Medicare spent $9.9 billion for Eliquis. In the 3 Axis analysis, there were more than 107,000 claims for Eliquis in 2020 among the pharmacies it studied. Prices for Eliquis varied by almost $100, with Medicare patients often paying some of the highest prices.

Additionally, analysts at 3 Axis were unable to determine what would happen at the pharmacy level if drug manufacturers lowered their list prices because they were not able to tie manufacturers' wholesale acquisition cost (WAC) to pharmacy reimbursement. WAC is the price manufacturers charge drug wholesalers and doesn’t include discounts or rebates. The definition of WAC is defined by law.

The WAC price, 3 Axis notes, is a more reliable benchmark for branded drugs where discounts are between the PBM and the manufacturer. For generic drugs, the discounts occur within the manufacturer-wholesaler-pharmacy relationship.

“Beyond simply securing better contract language leading to lower drug costs, the incentives of the system encourage, rather than discourage, artificially inflated list prices. As a result, our system is inherently inequitable,” 3 Axis said.

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An analysis by 3 Axis Advisors has found that there is a large variability in pharmacy reimbursement of prescription drugs depending on PBM contracts with insurers. This creates a system with huge inconsistencies on the prices of both generics and branded products.

Study Highlights PBMs’ Role in Drug Prices

Any federal bill regulating the pharmacy benefit management (PBM) industry that makes Pres. Joe Biden’s desk will likely be focused on transparency issues and not on providing broad changes to the industry, according to speakers at the Pharmacy Benefit Management Institute’s annual conference in Orlando.

Over the last two legislative sessions, many bills have been introduced in the both the House and the Senate. But there are four bills that are important to watch, said Patrick Cooney, president, The Federal Group. “On the heels of the Inflation Reduction Act, PBM legislation has blossomed,” he said.

The bills come out of a four different committees, but have common themes: addressing transparency of drug and PBM pricing, pharmacy clawbacks, spread pricing and drug rebates.

In the Senate, one bill is the Pharmacy Benefit Reform Act (S.1339), which was adopted by the Senate Committee on Health, Education, Labor and Pensions. This bill prevents spread pricing, includes reporting requirements and requires 100% pass-through of rebates from drug manufacturers. A second bill in the Senate is the Pharmacy Benefit Manager Transparency Act of 2023 (S.127). It was submitted in Senate Committee on Commerce, Science and Transportation. The bill would eliminate spread pricing and pharmacy clawbacks. It also requires PBMs to pass 100% of the rebate to the plan or payer and to disclose the cost and reimbursement of drugs, as well as any fees or discounts the PBM charges.

In the Senate Committee on Finance, the Modernizing and Ensuring PBM Accountability Act, bill focuses on PBMs that provide coverage in Medicare Part D plans. It would separate PBM income from the price of the drug and set new requirements for reporting about drug costs and pricing, formulary placement of generic drugs and financial arrangements.

In the House, the PATIENT Act of 2023 (H.R.3561) would establish reporting requirements for prescription drugs and PBMs, as well as disclosure requirements for rebates, fees, alternative discounts or other payment from pharmaceutical companies.

Cooney said, however, this will likely change now that Congress has come back from its summer break. Congress now will likely come up with a single bill that packages many of the elements in these bills.

“House Republicans will craft their bill and the Senate Democrats will craft their bill,” he said. “They will be packaged into a much larger bill that will include pandemic related issues, Medicare, Medicaid and a wide range of other healthcare concerns.”

Panelists at the session, however, indicated that the PBM aspects of this single bill will not likely create a wholesale change to the industry but provide incremental change. The panelist agreed that the final bill will focus on providing increased transparency.

Transparency is what PBMs need to be thinking about, Brandon Newman, founder and CEO of Xevant, a data analytics company. “We have to show we’re not hiding behind something, we’re not trying to keep something from our clients or the market,” he said. “And that leads us to the conversation about value.”

Employers want transparency and access to their data, said Robyn Crosson, JD, vice president, government relations, Navitus Health Solutions.“They want to be able to assess what’s going and they want to be able to assess their data,” she said during the session. “This seems to have brought Congress together. But outside of government program, we won’t see anything on spread pricing. There is a hesitance to dictate contracts.”

Modern data platforms will be able to handle changes in data transparency and reporting, Josh Golden, senior vice president, strategy of Capital Rx, said during the session.

Transparency, however, is a precursor to something more significant. “Transparency gives you visibility into the supply chain and how money is being made,” Golden said. “But once people figure out how the money is made and understand whether those sources of profit are contributing to overall healthcare, then the next aim is the misalignment that exists.”

He said the discussions about other changes to the PBM industry — such as pass-through rebates, elimination of spread pricing and delinking drug price from PBM profit — would force significant changes in the industry.

But they are also an indication of where directionally the industry could be headed. “If we zoom out, what you see here is a massive tectonic shift in the industry similar to what the retirement industry saw in the early 2000s. That was radical and culminated in the Pension Protection Act and a full disclosure of fees and that these fees be reasonable and turned up the heat on fiduciaries. We are seeing a lot of parallels.”

Golden said the changes in that industry addressed misaligned incentives, helping people make smarter decisions about their retirement. “Potentially, there is a similar upside here,” he said.

PBM transparency and data reporting requirements are likely to be part of a larger healthcare bill that Congress will work on this fall.