New Report Scrutinizes PBM Spread Pricing Practice
Findings from the study conducted by 3 Axis Advisors confirm that PBM practices have an impact on pharmacies.
On the heels of The New York Times’ investigation of pharmacy benefit managers (PBMs),1 a new report finds that PBMs have erratic pricing practices. Findings from the new study,2 conducted by 3 Axis Advisors on behalf of the Washington State Pharmacy Association and the Washington Health Alliance, reveal that PBMs charge employers different amounts for the same prescription medications, which has driven an increase in employer health care costs over the past 4 years.
PBM practices have also had an impact on pharmacies, the study findings show. Pharmacies are receiving lower reimbursements for the same prescriptions when employers are paying higher prices.
This difference in costs and reimbursement, the report said, is occurring separately from drug manufacturer pricing. 3 Axis Advisors found that drugs with the same National Drug Code numbers can have different prices on the same day. The Pharmaceutical Care Management Association (PCMA), a PBM trade group, has long said that pharmaceuticals are causing high drug costs.
“As the public clamors for relief from rising prescription drug costs, it is important to understand that PBMs play a central role in determining the fates of pharmacies, plan sponsors, and patients,” Antonio Ciaccia, president of 3 Axis Advisors, said in a news release.3 “This report makes clear that PBMs have a knack for making drug pricing less clear, as the disparate nature of their price setting makes the end impact of prescription drug transactions predictably unpredictable.”
PBMs charge employers different amounts for the same prescription medications, which has driven an increase in employer health care costs over the past 4 years. | image credit: Mark Aplet / stock.adobe.com
Reviewing the Report
3 Axis Advisors investigated the experiences of commercial plan sponsors/employers and community pharmacies with PBMs in the state of Washington. Researchers analyzed both sides of the PBMs’ drug transactions: what pharmacies are paid and what employers are charged for the same drug. The analysis included more than 9 million prescription drug claims from both small retail pharmacies and commercial employers in the state of Washington from 2020 to 2023. The analysis found that for a subset of matched claims between the plan sponsors and the pharmacies, the average plan sponsor/employer costs were about $165,000 higher (roughly 80% more) than the reimbursement provided to pharmacies (about $8 more per prescription).
The report suggests that the reason for this is the PBM practice of spread pricing, in which PBMs charge clients a higher price but reimburse pharmacies at a lower price and keep the difference. In one example mentioned in the report, pharmacies were paid $18.77 below the acquisition cost for the addiction medication buprenorphine-naloxone sublingual (generic Suboxone). Plan sponsors, however, were charged $100.12 above the drug cost based on the National Average Drug Acquisition Cost (NADAC) model. NADAC is the approximate invoice price pharmacies pay for medications in the United States.
The Centers for Medicare & Medicaid Services (CMS) implemented this in 2016 for the Medicare and Medicaid pharmacy programs. NADAC randomly surveys 2500 pharmacies per month, and this represents the average price paid by pharmacies. It is updated weekly. This model was developed by the CMS in response to an Office of the Inspector General report in 2012 that found the average wholesale price benchmark was flawed.
The analysis found that plan sponsor/employer costs increased by 30%, whereas pharmacy reimbursement decreased by 3% between 2020 and 2023. At pharmacies, generic drugs represent 96% of the pharmacy’s margin, so reduced reimbursements for generic drugs can have a significant impact. Sponsors, on the other hand, are experiencing higher costs related to branded drugs.
PBM-affiliated mail order pharmacies had drug markups that were more than 3 times higher than the markups at retail pharmacies, according to the analysis. One example in the report is the multiple sclerosis medication teriflunomide (Aubagio). The analysis found that plan sponsors were charged an average of $4465 per teriflunomide prescription at PBM-affiliated mail order pharmacies. The same drug is available at Mark Cuban Cost Plus Drug Company for less than $20.
PBMs Respond
PCMA, however, questions whether 3 Axis Advisors understands pharmacy reimbursement in Washington state. Greg Lopes, vice president of public affairs and communications at PCMA, told Formulary Watch®, “The report, like all their others, is just more of the same cherry-picked data that 3 Axis attempts to portray as indicative of the entire prescription drug market. 3 Axis’ founders are affiliated pharmacy lobbyists with an agenda. The report should not be taken seriously.”
In a statement, PCMA said the NADAC is not an appropriate benchmark and doesn’t reflect pharmacies’ acquisition costs. “It is widely known that only independent and small chain pharmacies have historically participated in this survey, and at that, only if they want to. Because these smaller pharmacies buy in smaller volumes, they are not able to receive discounts on prescription drugs as deep as larger pharmacies with more buying power,” the statement said.
Ciaccia told Formulary Watch by email that 3 Axis Advisors’ report covers approximately 3 million claims from employers and approximately 6 million claims from pharmacies. “The only reason we didn’t have more employer data was the fact that PBMs withheld the claims data from a number of employers, thus not allowing for a broader analysis, which I think speaks for itself,” he said.
Ciaccia also noted that the analysis used NADAC as well as wholesale acquisition cost, Mark Cuban Cost Plus Drug Company prices, and Texas Medicaid prices for comparisons throughout the report. “My educated hunch is that PCMA doesn’t like the use of these benchmarks for the exact reason that they can be so demonstrative of their members’ pricing games,” Ciaccia said.
The 3 Axis report came out just days after the story in The New York Times,1 which found that PBMs often act in their own financial interest by overcharging employers and government programs, underpaying pharmacies, not disclosing fees and rebates, and delaying access to medication. “The main lobbying group for the PBMs says that in 2022, they saved their clients and patients $286 billion,” the article authors noted. “But those savings appear to be largely a mirage, a product of a system where prices have been artificially inflated so that major PBMs and drug companies can boost their profits while taking credit for reducing prices.”
This article originally appeared on formularywatch.com and has been lightly edited.
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