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Lawmakers in Washington, D.C., are focused on reforms to address the high cost of prescription drugs. They have advanced policy proposals to empower the Secretary of Health and Human Services to negotiate prices for certain drugs, require drugmakers to provide rebates when the price of medicines exceeds inflation, and redesign the Medicare prescription drug benefit to include an out-of-pocket spending cap for beneficiaries.
Some policymakers are considering increased oversight and regulation of pharmacy benefit managers (PBMs) as the next area for reform. PBMs are third-party administrators that handle prescription drug benefit programs for health plans and employers. They were originally designed to process claims for health plans but also serve as fiscal intermediaries arbitrating prescription drug claims and perform other related tasks.
Because of their expansion of scope, PBMs have received significant scrutiny over the years for the role they play in drug spending. Congress, regulators, and market disrupters are interested in pursuing solutions to address PBM practices that have led to consolidation, lack of transparency, and spread pricing, as well as the impact rebates (i.e., the return of part of the purchase price of a prescription drug in exchange for favorable formulary placement) may play in driving up overall drug prices.
The PBM industry has seen dramatic consolidation over the years. Caremark (CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealth) are the three largest PBMs, controlling almost 80 percent of the market. While there is increasing concern about consolidation, new entrants are disrupting the marketplace and hoping to increase market share by addressing common criticisms lodged at PBMs.
Many of these newcomers share common characteristics — namely increased transparency and a fixed-fee business model. Navitus and EmsanaRx pass through to employers 100 percent of the drug discounts negotiated with manufacturers. Employers who use their services pay a set fee for the administration of their pharmacy benefits, as opposed to a percentage of the discounts negotiated.
Other new entrants are shedding the role of middlemen, which PBMs typically play. Rather than act as the intermediary between drug manufacturers, health plan sponsors, and pharmacies, some companies are launching direct-to-consumer pharmacy initiatives.
Entrepreneur and investor Mark Cuban recently established the Mark Cuban Cost Plus Drug Company, an online pharmacy that offers more than 100 generic medications directly to patients. In marketing itself to health care providers and prescribers, the company claims that its “pharmacy cuts out the middlemen to offer hundreds of common generic medications at wholesale prices.” Amazon Pharmacy and Civica Script similarly market pharmacy services directly to consumers.
