Tuesday, March 17, 2020

Intermediation in the wholesale pharmaceutical market, by Alex Chan and Kevin Schulman

Intermediaries called Pharmacy benefit managers (PBMs) play an important, but complicated role in the market for pharmaceutical drugs. Here's an article by Chan and Schulman, explaining why the role of PBM's is so opaque (quick summary: the industry is very concentrated, and is paid by both sides of the transactions that are being intermediated...)

Examining Pharmaceutical Benefits in the United States
Alex Chan,  Kevin Schulman

"...consolidation has resulted in a situation in which the 3 largest PBMs have approximately 80% market share.
"One of the largest criticisms of PBMs is the lack of transparency surrounding the structure and scale of payments from manufacturers to the PBM. The current PBM business model is shrouded in secrecy. Descriptions of PBM audits by payers and employers entail visits to PBM sites and examination of paper records under conditions of confidentiality, usually performed by a set of consultants that specialize in this role.5 Only the PBM knows the actual scope of payments from drug manufacturers to the PBM (for example, rebates and other payments, such as service fees). In 2016, for 13 pharmaceutical companies, payments to PBMs and other intermediaries were $100 billion, or 50% of gross sales.2 Without transparency, a PBM might develop formularies that maximize payments to the PBM rather than maximize value to patients. Anthem sued its PBM for $15 billion in 2016 for overpayments on drug pricing.6

"Finally, the issue of who is negotiating on whose behalf in drug markets remains contentious. In other words, the agency of PBMs is not clear. When PBMs depended on service fees from health plans and employers as their main source of revenue, it was clear that they served the payer (ie, the employer or the health plan). Under the rebate model, the role of the PBM has evolved to serving as an agent of both the payer and the manufacturer. In fact, as the prescription drug market has evolved, PBM profits appear to have grown with the growth of rebate dollars and manufacturer payments rather than with the growth of payer fees. It is increasingly hard to disentangle the multiple roles of the PBM and to clarify who PBMs serve as intermediaries."

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