The sky-high cost of prescription meds was back in the spotlight this week. First, President Trump said drug prices “are out of control” and drug companies are “getting away with murder.”
Then came news that the country’s second-largest health insurer, Anthem, will partner with CVS to launch its own pharmacy-benefit management business, or PBM — a move that Anthem said could save as much as $4 billion a year, which may be reflected in lower costs for patients.
A PBM runs the prescription-drug plans for insurers, employers and government agencies.
There’s also speculation, as yet unconfirmed, that e-commerce behemoth Amazon plans to start offering prescription meds through its own online pharmacy, almost certainly at prices below established drugstores.
Stir all this together and you get, well, confused.
The United States already is by far the world’s biggest spender on pharmaceutical products. Americans shell out more than $1,026 annually per person, according to the Organization for Economic Cooperation and Development.
That’s double the OECD average of $515 and considerably more than economic peers such as Germany ($678), France ($596) and Australia ($590).
Total U.S. spending on prescription drugs reached $450 billion last year, according to the research firm QuintilesIMS. It could be as high as $610 billion by 2021.
“The issue isn’t the drug companies,” said William Comanor, director of UCLA’s Research Program on Pharmaceutical Economics and Policy. “The issue is the PBMs. They have their tentacles into everything.”
That’s why eyebrows were raised in healthcare circles after Anthem said it was cutting ties with Express Scripts and establishing, with CVS’ help, its own pharmacy-benefit manager called IngenioRX.
PBMs use the clout of their combined clients to haggle lower prices with drug companies. However, they also get a cut of the action, which means not all savings are passed along to patients.
It’s estimated that as much as 30% of rebates and discounts negotiated by PBMs end up in the companies’ pockets.
A recent study in JAMA Internal Medicine found that to accommodate the discounts demanded by PBMs, drug companies routinely jack up list prices, which can raise co-pays and other out-of-pocket costs.
So is it a good thing that Anthem will operate its own PBM? Most experts I spoke with said it’s too soon to say.
“My sense is that it can be good for patients, but it all depends on how it’s structured,” said Paul Ginsburg, a professor of health policy at USC. “You definitely need someone to do the negotiating, and it’s a very, very complex process.”
Anthem has had a difficult (and litigious) relationship with Express Scripts, which the Indianapolis insurer says failed to produce competitive drug prices. Having its own in-house PBM theoretically means Anthem will have more control over negotiations.
“Anthem claims that they’ll pass on 80% in savings to consumers, so that’s good,” noted Anna Chorniy, a postdoctoral research associate at Princeton University’s Center for Health and Wellbeing.
Still unclear is whether Anthem’s PBM also will represent other clients, including other health insurers. This seems likely. PBMs get their deal-making strength from representing as many patients as possible.
It’s also unclear how extensive a role CVS will play in the new PBM. CVS said in a statement that its own PBM operation, CVS Caremark, “will manage certain services for IngenioRx, including claims processing and prescription fulfillment.”
Does that mean Anthem policyholders will be required to buy their meds from CVS? Apparently not.
Leslie Porras, an Anthem spokeswoman, said the insurer’s agreement with CVS “does not contain any provisions that require use of a CVS-only network.”
Experts I spoke with said it’s likely other large insurers will establish their own PBMs to remain competitive. UnitedHealth already has one, called OptumRx. Aetna, Humana and other leading insurers probably will feel some pressure to follow suit.
Then there’s the Amazon wild card. A spokeswoman said the company has “a long-standing practice of not commenting on rumors and speculation.” Even so, Wall Street analysts say it’s possible Amazon will acquire its own PBM as a way to break into the prescription-drug industry.
If so, it’s likely Jeff Bezos, Amazon’s hard-charging chief executive, would run his usual playbook of slashing prices to grab market share, and then rely on technological advantages to lock in customers.
A 10% drug discount for Amazon Prime members? Yeah, I could see that.
“It’s easy to imagine that Amazon could offer advantages to online customers,” said Michael Dickstein, an assistant professor of economics at New York University.
My own preference would be to allow Medicare to negotiate prices with drug companies, which it’s currently forbidden by law from even thinking about. That could have a profound effect on driving down drug costs across the board.
Trump seems to agree that a government role would be helpful. “They're setting prices in other countries and we're not,” he said in remarks before a Cabinet meeting.
Then again, as is often the case, Trump seemed to be making up policy on the fly.
“We want to bring our prices down to what other countries are paying, or at least close and let the other countries pay more,” he said.
Barring that, perhaps it is a good thing for health insurers to run their own PBMs. It helps eliminate a layer from the price equation and, in theory, allows for more savings to be passed on to patients.
But I’ll believe it when I see it.