Most PBMs would describe their mission as “managing” the cost of drugs and making them more affordable for customers (benefit plans and their members). They like to position themselves as loyal negotiators working on behalf of plans in dealing with drug manufacturers.
This role has led to two key pricing components: discounts and rebates. Both are touted by the industry as important ingredients in the effort to lower drug benefits costs. But are they really?
Case in point: Novo Nordisk is ramping up its marketing machine to make Wegovy a blockbuster drug in the treatment of obesity (and anything closely related to it). Putting aside the real risks and potential harm of prescribing Wegovy and other GLP-1s to a huge portion of our population, the role of discounts and rebates in Novo Nordisk’s go-to-market strategy must be examined.
Discounts are the easiest part of the equation. Discounts simply inflate list prices (Average Wholesale Prices in this situation) to enable resellers (PBMs) to meet their discount guarantees. This is a never-ending game just like what we see with PPO networks and hospitals and professional services.
For example, a recent emergency room visit for my wife produced billed charges of $37,000 — an unquestionably ridiculous amount. Of course, the plan only paid $1,700 for it. Is this an amazing job of negotiation by the insurer, or is it still really more than someone should pay for six hours spent mostly waiting on lab results and the physician to come back?
Then there are rebates. Rebates from hospitals and medical professionals aren’t allowed by law. But they are allowed for drug manufacturers. There is a special anti-kickback exemption for drugs (thanks to PhRMA’s lobbying power and generous financial support inside the beltway). Are rebates just another type of discount, or do they work differently?
I contend that rebates are more like a commission. Drug manufacturers pay PBMs rebates as a reward for helping sell their drugs (i.e., via formulary status). This is akin to insurance companies paying brokers to sell their policies, support their renewals, and protect their profit margins.
One PBM recently disclosed that it had negotiated a very high rebate with Novo Nordisk, but said rebate only applies if a plan sponsor agrees to a wide-open, permissive approach to coverage of the weight-loss medications. If a plan sponsor wants to be more cautious or judicious about the coverage of the drug (i.e., eligible plan members, documentation of existing health status, use only as a supportive tool to improved diet and exercise, monitoring of therapy impact, etc.), no rebate is payable to the plan sponsor.
This kind of a rebate (commission) is a perverse incentive for a PBM to sell the drug and to ignore associated risks and potential harm. If asked, PBMs claim to have no choice because the manufacturer dictates the terms of the agreement. However, if you recall back at the beginning of this commentary, PBMs are supposed to be our representatives in the negotiation process. But reality is different. PBMs make money via rebates no matter how much they claim to keep or pass on to plan sponsors.
Over the years, I’ve also learned the more questionable a drug’s value, the higher the rebate a manufacturer is willing to pay PBMs for preferred distribution. Coincidence? While it may not improve the health of plan members, it definitely improves the profits of PBMs and drug manufacturers. And the profits manufacturers make on these new weight-loss meds are expected to easily dwarf those associated with Humira and its peers — the current standard bearers of drug profits.
Should we sit back helplessly and blame drug manufacturers and PBMs for these schemes, or do something about it? After all, we’re the ones paying for the drugs on behalf of our plan members.
Fortunately, there are steps you can take to secure clinically-focused, lowest-net-cost arrangements instead of continuing to support these types of rebate-driven PBM models. Are you ready to take the first step?