The drug pricing process, issues with transparency, and the relationship between payers, pharmacy benefit managers (PBMs), and pharmacies were explained in a session for pharmacy students at AMCP Nexus 2021.

Students should familiarize themselves with the business side of pharmacy practice to better understand drug pricing and its impact, according to Daniel Tomaszewski, PharmD, PhD, associate professor, University of Southern California School of Pharmacy, Healthcare Decision Analysis, Biopharmaceutical Marketing.

Dr Tomaszewski emphasized the role of PBMs, citing their use of contracting to set prices with pharmacy networks, rebates with manufacturers, and payment from managed care organizations.

He noted that payers and PBMs primarily rely on maximum allowable cost (MAC) pricing to encourage pharmacies to buy lowest cost drugs. Through MAC pricing, PBMs set the price they will pay for a generic, thereby placing cost risk predominantly with the pharmacy.

Generic pricing is dynamic, he said, and availability changes frequently, so a pharmacy’s ability to purchase lowest cost options may be restricted. In some cases, a pharmacy can make money by purchasing a generic at a lower cost than the MAC price and profit more from the reimbursement, but this is not usually how it plays out.

Multiple MAC lists can exist at a time because transparent reporting of these lists is not required, Dr Tomaszewski said. Different pharmacies are paid at different rates, and payers can also be billed using MAC prices that differ from what a pharmacy is reimbursed.

PBMs can also make money after point of sale using direct and indirect remuneration (DIR) fees and “claw-backs,” he said. PBMs each have different metrics and rules surrounding these fees. If a PBM determines that a pharmacy did not meet pay-for-performance standards, it can implement a fee after reimbursement.

“That creates distrust,” Dr Tomaszewski said. “It also creates a situation where there’s multiple different versions of requirements within the contract related to DIR fees and claw-backs, so pharmacies have a real tough time tracking what they’re supposed to be doing.”

Dr Tomaszewski also said that PBMs primarily use nontransparent payment models with payers, involving spread pricing between each organization, rebate withholds that may not be disclosed, and reduced administrative fees which often indicate that a PBM has found a source of revenue elsewhere.

Not only do transparency issues breed mistrust between stakeholders, but they also present challenges for auditing, he said. Without transparent rebate reporting, restrictions on changing administration fees, access to different rates across pharmacies, and information about what a PBM bills payers and reimburses pharmacies, it is challenging to track spread pricing or audit rebates and pharmacy networks.

Lack of transparency creates problems for patients and providers as well, according to Dr Tomaszewski.

The patient is blinded to most cost and reimbursement information—they do not know what a pharmacy paid for a drug, what the PBM reimbursed the pharmacy, or what the net price is. Patients only know what they have paid through cost sharing, such as copayments or coinsurance, so their ability to choose a cost-effective treatment within the formulary is limited.

“[Patients] oftentimes don’t have the broader perspective,” he said. “For a patient, it’s just, ‘what am I paying today for this?’ Next year’s premium may be on its way up if you keep taking a ten thousand dollar drug…but they don’t know that backend piece.”

Providers face other challenges. Nearly every patient will receive drugs covered by different formularies, and most drug classes have multiple options, further complicating decisions about cost-effectiveness.

Concern about transparency among stakeholders within the health care industry, the public, and government have prompted legislation to address the issue and “unmuddy the waters,” Dr Tomaszewski said. Federal legislation faces the most challenges due to conflicting political parties and the time it takes to pass policy changes.

“Legislation is oftentimes slow to react,” he said. “The businesses can pivot relatively quickly.”

On the state level, legislation has largely focused on manufacturers and PBMs. Some states have required that manufacturers report:

• advance notice of price increases;
• year over year price increases;
• standard, regularly provided pricing reports;
• wholesale acquisition cost rates to predefined providers or the state;
• new drug launches and planned prices; and
• newly acquired prescription drugs.

States have removed PBMs from managed Medicaid programs, opting for fee-for-service benefits instead. Additional legislation requires PBMs to:

• report reimbursements for owned vs nonowned pharmacies;
• use pass through rebates or reporting otherwise;
• meet set reporting requirements for the state or health plans; and
• become licensed under the state, thereby giving the state more oversight.

He noted that drug pricing processes are complex enough to make addressing one problem at a time ineffective or potentially catastrophic, relating the system to a house of cards.

“If we only target rebates, there are so many other pieces to the puzzle that are nontransparent,” he said, noting that businesses will lean more on things like administrative fees and spread pricing to make up the difference in profit.

“Unless we’re willing to work ground up on the full structure of what the pricing in the US looks like, you may remove one card…and it may stay up and stand just fine, or it may come tumbling down,” Dr Tomaszewski said. “Prices could skyrocket.”

He encouraged pharmacy students to seek internships at consulting firms or PBMs to gain insight into the system and understand the market.