At the U.S. Senate Committee on Health, Education, Labor, and Pensions hearing on September 24, Lars Fruergaard Jørgensen, CEO of Novo Nordisk, addressed the high cost of Ozempic and Wegovy, two of the company’s flagship drugs for diabetes and obesity. Pressed by several committee members, including Senator Bernie Sanders, Jørgensen acknowledged the complex pricing structures in the U.S. pharmaceutical market and agreed to collaborate with the Committee and Pharmacy Benefits Managers (PBMs) to find pricing solutions.
How PBM Pricing Structures Drive Up Costs
PBMs act as intermediaries between insurance companies, pharmacies, drug manufacturers, and patients. They decide which drugs will be included under specific health plans, negotiate rebates and discounts with pharmaceutical companies, and work with pharmacies to set pricing for dispensing medications. While these responsibilities may sound straightforward, PBMs’ profit-driven practices add layers of complexity and cost to the system.
Under the PBM rebate model, pharmaceutical companies provide rebates to PBMs as an incentive for formulary placement, or placement on a “preferred tier” that will be more likely to be prescribed and purchased, increasing the manufacturer’s sales. PBMs also negotiate with the drug manufacturer based on how many patients are likely to use the drug and its competition. These rebates are often structured as a percentage of the drug’s Wholesale Acquisition Cost (WAC) – with average rebates close to 30% of the drug’s WAC.1 The rebate is then paid to the PBM after the medication is dispensed and purchased by a patient. PBMs then either share the rebate with the health plan (employer or insurer), or retain a portion of the rebate for their own revenue. The exact split of the revenue depends on contractual agreements between the PBM and the employer.
Drug manufacturers also classify supply chain organizations under a system called “class of trade” (COT), which allows them to offer different pricing structures or discounts based on categorization, such as retail pharmacies, wholesalers, or hospitals. However, there is no set list or standardized procedure for how PBMs categorize.
The PBM’s mail order or specialty pharmacy typically sits under a different COT than the PBM itself because it’s a subsidiary. The catch? There is a COT purchasing contribution that the manufacturer also pays to this subsidiary, and this usually amounts to 30% – 40% of the WAC. Because it’s a subsidiary, this amount is reported separately and not included in the PBM report and investigations.
Not only is this lack of transparency problematic, but the higher the drug price, the more the PBM benefits. Sometimes PBMs will even require patients to take a drug with a higher sticker price when a cheaper alternative is available. These high drug prices are then passed on to employers in the form of higher insurance premiums for their employees’ coverage.
Furthermore, pharmaceutical companies have been found to pay some physicians 5% of the WAC to prescribe their medication instead of their competitor’s medication as a first-line agent, or the most effective and low-risk option, even in cases where it is a last-line agent, or the least effective and highest risk.2
Conflicts of Interest & Holding Employers Accountable
The Consolidated Appropriations Act (CAA) now holds employers responsible for ensuring that their benefits vendors comply with fiduciary standards. However, PBM brokers are often incentivized to prioritize PBMs’ interests over those of employers and employees, perpetuating a system that benefits the PBMs and drug manufacturers at everyone else’s expense.
With growing public awareness and heightened scrutiny from regulatory bodies like the FTC and Senate committees, employers who fail to address these conflicts risk reputational and financial consequences as well as having their senior officers face personal liability.
Employers Must Lead the Change
US-Rx Care operates as an independent third-party partner, bridging the gap between payers and drug manufacturers while emphasizing a fiduciary approach to drug utilization management. We put your employees’ health outcomes and cost savings first. Unlike non-fiduciary PBMs, we focus on lowering costs and delivering better care without hidden agendas.
In addition, Partner with a non-conflicted pharmacy consultant to ensure your PBM contracts reflect your goals and values. Learn more about controlling costs without sacrificing quality of care. Contact us today for a list of non-conflicted consultants or to discuss how we can address your PBM-related challenges. Take back control of your healthcare spending.
Sources:
- Milliman: “A primer on Medicare Part D prescription drug rebates: Insights into the possible impact of the Inflation Reduction Act.”
- OpenPaymentsData.CMS.gov. https://openpaymentsdata.cms.gov/