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This article criticizes the spread that Pharmacy Benefit Managers (PBMs) make - the difference between the price they charge a payer (state program, employer, o

by shimon 8y ago

This article criticizes the spread that Pharmacy Benefit Managers (PBMs) make - the difference between the price they charge a payer (state program, employer, or insurer) and what they pay a pharmacy for a drug. But this spread exists as a powerful incentive for PBMs to push down profits at pharmacies, which is exactly why payers work with PBMs rather than reimbursing pharmacies directly. It's also why the major PBMs mentioned in the article are all owned by huge insurers and pharmacies; when PBMs first started to grab margin away from those businesses, the companies bought or built their own PBMs. CVS' proposed acquisition of Aetna would create a PBM integrated at both ends. The existence of PBMs is most painful for independent pharmacies, which are forced to work with PBMs in order to get paid and will thus continue to get squeezed. As much as I'd like to support neighborhood pharmacies, the reality is they are probably incapable of the major efficiencies in procurement and distribution that the giant corps can do, and over time they'll be pushed into a model that is more like uber - small providers of a storefront and licensed pill-packing services, built on a network that captures most of the value. In theory, competition among PBMs for the business of payers like the jail mentioned in the article would drive lower costs for payers. Is there a failure of competition among PBMs? Are payers like this jail simply incapable of selecting a good PBM or are there barriers that could be solved, like monopolies or information asymmetries?

kevin_b_er 8y ago
Information asymmetries and maybe corruption aka "political donations"
apeace 8y ago
> In theory, competition among PBMs for the business of payers like the jail mentioned in the article would drive lower costs for payers. I noticed that all of the spread graphs in the article were going down and to the right. Even though the spread was increasing, it seemed that prices were going down over time.
- shimon 8y ago
  The key examples of massive spread chosen for this article are all in novel generics. These drugs are going to have massive price volatility because multiple generic vendors are entering the market at the same time, and they're flowing through various distributors to pharmacies that have varying inventory of the drugs. So of course the spread is significant, and it's likely that both pharmacies and PBMs are pocketing higher margins on these products between the time that generics initially become available and the time that suppliers and prices stabilize. Seems plausible that if you looked at non-PBM pricing for these drugs over the same period you might find that the PBMs do in fact reduce volatility and accelerate price stabilization, i.e. they are doing their jobs. Or maybe they're not. But the fact that underlying price volatility implies higher spread seems like something you'd just expect with a PBM model.

by shimon 8y ago

kevin_b_er 8y ago

Information asymmetries and maybe corruption aka "political donations"

apeace 8y ago

> In theory, competition among PBMs for the business of payers like the jail mentioned in the article would drive lower costs for payers. I noticed that all of the spread graphs in the article were going down and to the right. Even though the spread was increasing, it seemed that prices were going down over time.

shimon 8y ago
The key examples of massive spread chosen for this article are all in novel generics. These drugs are going to have massive price volatility because multiple generic vendors are entering the market at the same time, and they're flowing through various distributors to pharmacies that have varying inventory of the drugs. So of course the spread is significant, and it's likely that both pharmacies and PBMs are pocketing higher margins on these products between the time that generics initially become available and the time that suppliers and prices stabilize. Seems plausible that if you looked at non-PBM pricing for these drugs over the same period you might find that the PBMs do in fact reduce volatility and accelerate price stabilization, i.e. they are doing their jobs. Or maybe they're not. But the fact that underlying price volatility implies higher spread seems like something you'd just expect with a PBM model.