As part of our continuing coverage on the Insulin Affordability Crisis, in the Fall we “followed the money trail” to Pharmacy Benefit Managers, and we’re now looking at them more closely. Special thanks to our correspondent Dan Fleshler for his help reporting this story.

If you’re looking for someone to yell at the next time you confront the skyrocketing price of insulin, think Pharmacy Benefit Managers, organizations that have finally come into the public limelight of late as middlemen who help determine how medicines are priced.

These big, powerful “PBMs” — including Express Scripts, Optum RX and CVS Caremark — negotiate drug prices on behalf of private corporations, health insurers, Medicare, private unions and other clients. Some are part of larger insurance companies, and most run mail-order pharmacies and have other functions as well.

A recent Wall Street Journal story explains that it’s the PBMs who are primarily responsible for establishing formularies, those all-important short lists of “preferred” drugs by insurance plans.

This takes place in a series of complex closed-door meetings, in which PBMs negotiate “rebates” and discounts from drugmakers, who are maneuvering to get an edge over the fierce competition to be included in those vital formularies that put their products at a huge advantage.

Now, PBMs have come under fire for pocketing the rebates to fatten their own bottom lines. The WSJ notes that “as U.S. drug prices rise, drugmakers are playing down their role, instead heaping blame on these middlemen who help determine how medicines are priced.” But the PBMs beg to differ, throwing the blame back on Big Pharma.

Clearly, there’s a lot that we don’t know about how these PBMs function, and just how much they manipulate the purse strings on drug pricing. We at DiabetesMine hope to dig into this more, and encourage the whole community to help “open the kimono” so we that patients and advocates can learn what we’re up against — maybe using the new hashtag #PBMsExposed?

We begin today with a brief exclusive Q&A with Mark Merritt, President of the PBM’s national trade association Pharmaceutical Care Managers Association (PCMA), and an analysis and Call to Action below.

DM) Insulin prices are skyrocketing and people with diabetes are very concerned. What is your message about PBMs’ role in the insulin pricing system?

MM) PBMs are putting pressure on drug companies to reduce insulin prices. If there are equally effective products and one PBM doesn’t feel like it’s getting a fair deal from a drug company, it puts pressure on that company to reduce the price.

DM) A lot of people are blaming PBMs for drug price increases, claiming that you pocket the rebates offered by drug manufacturers. So consumers don’t benefit from the rebates. What’s your response?

MM) We don’t have a direct relationship with consumers. A growing number of our clients prefer to have 100% of the rebates passed through to them. Then they decide how much gets passed on to consumers in health plans with point-of-sale discounts. It’s up to the clients. Any rebates that PBMs are able to keep are provided by clients as an incentive to encourage even bigger discounts.

DM) What should be done about insulin price inflation?

MM) It would be a lot easier if drug companies lowered the prices of their products. They’re responsible for more than 80%* of the costs.

(*Editor’s Note: that figure has not been substantiated)

DM) What’s your response to the American Diabetes Association’s call for greater transparency in the insulin pricing system?

MM) Transparency is a great thing if it helps the consumer. When people talk about transparency in the drug supply chain, it’s usually not about PBMs per se. The clients that hire PBMs need to be clear about what they want to be made public. The only kind of transparency that’s bad is one that inhibits the kind of confidential negotiations on rebates and discounts that each client needs to conduct with individual drug companies.

Not sure we agree at all with that last comment by Merritt…

But it’s important to note that the drug pricing chain in America is quite complicated, and PBMs essentially play the role that governments play in the rest of the civilized world: bargaining hard with drug manufacturers in order to drive down consumer prices.

According to a report commissioned by the PCMA itself, PBMs:

  • save payers and patients an average of $941 a year because of the price concessions they negotiate
  • reduce the average net cost of a brand prescription from $350 to $268, and of that net cost, PBMs get just 4% or $12 for their services, while manufacturers receive 88% or $235(emphasis added)

Who knows if they’re fudging those numbers? Critics like the National Community Pharmacists Association have excoriated the report for some of its methodology. But even they don’t dispute that PBMs work hard to use the formulary system and other means to bring prices down, and many believe that even if PBMs are pocketing closer to 7% of net costs, the drug manufacturers still bear the lion’s share of responsibility for the high prices.

We consumers at the bottom of the pharma food chain certainly aren’t benefiting much. And the drugmakers and PBMs continue to point fingers at each other.

A recent Barron’s story states that, “Undisclosed drug-price markups… supply much of the PBM industry’s profits.”

Yet PBMs claim just the opposite. CVS Health Corp. spokeswoman Christine Cramer said that CVS… “gives the vast majority of rebates back to… [its] clients,” while Express Scripts also says that it returns about 90% of rebates to its customers.

But if PBMs are so great at kicking rebates back to their clients, why are some of the country’s biggest employers not happy with how PBMs do business? A coalition of large corporations called the Health Transformation Alliance is looking into changing their pharmacy-benefit contracts to eliminate the markups and instead charge “administrative fees.”

To date, it’s been impossible to accurately assess who’s the biggest winner because all of the contracts between PBMs and their clients are confidential.

A brand new report just published by the industry group PhRMA states that middlemen, or “non-manufacturer stakeholders” currently rake in upwards of 30% of the total money spent on prescription drugs in the U.S (!) This report presents powerful new evidence that PBM-negotiated rebates and discounts in fact result in higher prices for the end consumer.

But with such a complicated ecosystem, the question remains: are PBMs really the evil demons who bear a major responsibility for what is becoming a public health emergency?

Big Pharma says so. In fact, they openly admit to jacking up the initial list prices of medications because they know they’ll be forced to absorb rebates and discounts down the line.

For example, Jacob Riis, CEO of Novo, explained the prices they charge, when he (admirably) pledged to limit price increases to no more than 10% a year:

“As the rebates, discounts and price concessions got steeper, we were losing considerable revenue… So, we would continue to increase the list in an attempt to offset the increased rebates, discounts and price concessions to maintain a profitable and sustainable business.”

Wait, are we supposed to believe it was PBMs and pricing concessions that prompted the nearly simultaneous, grotesquely high price hikes from the Big Three between 2010 to 2015, when Sanofi’s Lantus went up by 165%; Novo’s Levemir rose by 169%; and Lilly’s Humulin R U-500 soared by 325%?

Sorry, Dude, but it seems much more likely that all of you insulin manufacturers were trying to haul in as much profit as possible before cheaper generic insulin products (“biosimilars”) hit the market!

None of this means PBMs should be absolved of either responsibility or close scrutiny.

The American Diabetes Association and other advocates have wisely called for transparency in insulin pricing and for Congressional hearings on this matter.

Let’s face it, neither the insulin manufacturers nor the PBMs want the veil removed from their now-secret negotiations that set drug prices. Drug pricing is like a big black box… and transparency is EXACTLY what we all need. We need a better understanding of just how influential these PBMs really are, and how they can be swayed, if we ever want to affect change.

It may be the case that PBMs are saving us money, while Big Pharma is hiding behind them as scapegoats. But we can’t know that for sure until all the parties truly come out of the closet with the way this whole drug pricing racket works.

Dear Readers: please share any pertinent information you may have to help us out with #PBMsExposed?