30 Years of PBM Evolution: The Good, The Bad, The Revolutionary
From unexpected mergers to the onslaught of specialty drugs, the pharmaceutical industry has changed drastically over the last several decades. Is it for the better? Where is it heading?
Here, we interview industry expert, Mike Krause, who, with over 25 years of experience in the pharmaceutical sector has established himself as a leader in pharmaceutical manufacturing, managed care, and pharmacy benefits management.
Is there anything that’s happened in the industry that you didn’t expect? For example, a big shift in the market or changes that altered the industry as a whole?
There is quite a bit I didn’t expect, actually. What immediately comes to mind is the relatively unpredictable path this industry continually takes as it relates to mergers and acquisitions. A good example is the 2012 Express Scripts/Medco merger. Up until the time that Medco lost both United Health Care and CalPERS as clients, I don’t think many would have predicted that the industry’s largest rivals would become one.
The same can be said with respect to the mega-mergers we’ve now seen between carriers and PBMs. Ten years ago, very few would have predicted that Cigna would have acquired Express Scripts or CVS Health would have bought Aetna.
Also interesting is how Anthem has gone full circle from selling off NextRx, Wellpoint’s PBM in 2009, only to introduce their own PBM once again by way of IngenioRx entering the market this year.
What would you say has changed the most from the time you started to now?
Anyone who’s been in the business for a while will tell you that specialty drugs have completely reshaped the industry and the pharma supply chain. The days of a 60% generic dispensing rate and blockbuster primary care drugs like Crestor and Lipitor driving PBM and pharma profits are long gone. We’ve now transitioned to treating specialty and rare diseases where smaller patient and prescriber populations are almost entirely the focus.
PBMs, of course, have heavily invested in specialty pharmacies to capitalize on this shift. Instead of mandatory mail driving PBM profits, it’s mandatory specialty programs driving profits – at least when PBMs are in a position to mandate such a program.
Specialty drug rebate dollars, largely driven by the practice of drug exclusions, is another avenue that PBMs are driving tremendous revenue. With an average price of more than $5,000 per month and many specialty drugs with annual costs exceeding six figures, this class of drugs is fast approaching fifty percent of total pharmacy spend. Despite the warnings plan sponsors were given regarding the impending “specialty wave” many were still caught off guard, particularly smaller self-funded clients whose health care budget was thrown off by just a few unexpected specialty claims.
How has the consulting community evolved? For example, has the working relationship between consultants and PBMs improved? Or stayed the same?
I think that very few industry experts will argue against the premise that decades of little to no federal regulation has caused tremendous misalignment between payers and PBMs. That being said, the art of identifying and carefully navigating the ever-increasing number of self-serving PBM business practices has launched an entire consulting industry subset.
Today, pharmacy consultants are expected to incorporate a financial monitoring component in addition to the many services they provide. Whether this service is outsourced to an entity behind the scenes or if performed by a consultant’s internal staff, the “trust but verify” approach to ensuring a PBM is meeting contractual discount and rebate guarantees has evolved into what’s largely viewed as being a core capability of any consultant.
Additionally, an increasing number of consultants are attempting to evaluate the cost of a PBM’s formulary net of rebates and are paying attention to whether a PBM is supporting access to inefficient or wasteful products.
Manufacturers of “rebate chasing” products like Duexis and Vimovo that arguably provide little or no value when compared to non-combination lower-cost generics are finding it increasingly difficult to secure formulary coverage.
What are your thoughts on the many new players that have entered the PBM Market?
It’s great for the industry. When you consider that roughly 75% of prescriptions are filled through either Express Scripts, CVS Health, or OptumRx – market competition is extremely healthy.
The fact that new market entrants are drawing additional attention to the lack of transparency and, more importantly, in many instances these entities are substantially reducing costs, only further reinforces the premise that bigger isn’t always better in the world of PBMs.
What is the best thing that’s happened to the market?
I feel that what smart, automated analytics is doing to move the needle towards large cost savings is one of the best things that’s happened in recent years. The ability for any payor, consultant, or PBM to perform daily, autonomous data analyses for hundreds of clients, in coordination with electronic alerts going out to the appropriate stakeholders, is significantly lowering costs and impacting health outcomes.
Gone are the days of sifting through endless reports in an effort to find the three of five things that a plan sponsor can do immediately to make an impact. Waiting three or twelve months to address problems and discuss opportunities outlined in quarterly or annual reviews is far from efficient and no longer makes sense.
Possibly the worst thing that’s happened to the market is the ever-increasing difference between a brand drug’s list price and the actual cost realized by a payor after rebates. This is concerning for patients because a drug’s cost at the pharmacy counter is usually calculated prior to the application of rebates.
Consider the individual who has not yet reached her combined pharmacy and medical deductible who is paying the full cost at the counter - or those whose copayments are calculated as a percentage of the drug’s pre-rebate cost. In both cases, the patient pays more because of inflated list prices designed to accommodate multiple stakeholders’ appetite for rebates.
Another perverse incentive, as it relates to high list prices and rebates, can be found in what we’ve seen play out in the Part D world. For years, Part D plans have benefited from pre-rebate/high list prices by pushing beneficiaries into the catastrophic phase sooner, at which point a federal reinsurance subsidy kicks in and substantially lowers a plan’s liability. CMS is attempting to address this situation through a voluntary 5-year effort that began in 2020 called the “Part D Payment Modernization Model.” Unfortunately, 5 years is a long time to continue as usual while costs keep rising.
How is the progression of technology altering the PBM market?
Technology available through organizations, like Xevant, continues to reshape our industry. Cost-effective, near real-time engagement with physicians, pharmacists, and consumers is empowering payors with the ability to influence member behavior and reduce costs in new ways.
When combined with daily, automated monitoring of contractual guarantees, both PBMs and payors are realizing efficiencies and cost savings that historically required tremendous resources to achieve. As I mentioned earlier, the same can be said for efficiencies around managing the multiple PBM relationships required of consulting practices and TPAs.
Established connectivity and wide-spread adoption of Xevant’s and others’ technology allows for unprecedented automation and efficiencies related to virtually every business process impacting PBM oversight and analytics in general, including financial monitoring, reporting, and RFP analysis, to name just a few.
What are some tools that you’ve adopted (as a consumer)?
It’s hard not to acknowledge the value consumers can realize through the likes of prescription discount cards such as GoodRx and BlinkHealth. Like so many people, I’ve saved a decent chunk of change through their use. However, consumers should also understand that the sheer number of pharmacy discount cards on the market - and the profits that these entities often realize – are the result of a system with lots of room for improvement.
Much like inflated list prices perpetuate our supply chain’s need for rebates, pharmacy “usual and customary” prices enable discount card suppliers to realize a very healthy profit. It’s also important to recognize that PBMs don’t participate in discount card networks for free - they also see profits from fees for participating in these programs.
What are your thoughts on the future of the industry? Where is it going?
It’s been disappointing to see that despite intense public criticism and many attempts at federal legislation to improve the way PBMs and big Pharma interact, cost continue to escalate.
I’m optimistic that progress will be made as we continue to see transparency legislation at the state level improve. I’m also encouraged by the increased market share being secured by the small and mid-tier PBMs, as well as the sheer number of new PBMs entering the market. Also inspiring is the number of options available to payors and plan sponsors as it relates to carving out the many aspects of pharmacy benefit administration to various best-in-class entities, including those specializing in claims processing, analytics, clinical oversight, and rebate contracting. It’s hard to argue that doing so removes at least a portion of the many inherent conflicts of interest when these services are bundled with a single entity.
Mike Krause is a healthcare sales leader with over 25 years of experience in the pharmaceutical manufacturer, managed care, and PBM industries. He currently oversees sales for Xevant, an automated PBM analytics and performance optimization platform currently used by leading consultants, health plans, and PBMs throughout the country.
Prior to Xevant, he held the position of Senior Market VP, Health Plan Sales at Navitus Health Solutions where he worked for over eight years. Mike’s tenured passion to create long-lasting, aligned partnerships has delivered tremendous value for TPAs, health plans, large purchasing groups, and fortune 500 organizations throughout the country.