Let me tell you what PBMs do

Multibillion-dollar pharmacy benefit management companies are advertising aggressively to try to convince Congress and the Federal Trade Commission to approve a merger between Express Scripts and Medco Health Solutions (“PCMA launches advertising campaign,” Drug Store News, Jan. 17).


The Pharmaceutical Care Management Association ad campaign claims PBMs lower prescription drug costs for workers, employers and seniors, and reduce medication errors.  Laughably, it claims PBMs will save plan sponsors and consumers nearly $2 trillion over the next 10 years.


As proof of these claims, the ad campaign cites conclusions of a study by Visante that was prepared for the PCMA, the trade group for the PBMs, which is a bit like a defendant hiring his own expert witness.  

As a community pharmacist and elected official, I have a different take on the PBMs than the misleading “That’s What PBMs Do” campaign, and strongly oppose the merger between ESI and Medco.

So, let me tell you what PBMs do, from my perspective.
PBMs profit at the expense of consumers. These are for-profit companies that function as intermediaries between health plans, drug companies, retail pharmacies and patients. Their motive is profit, not patient care. 


The three largest PBMs, including ESI and Medco, have seen their profits nearly quadruple in the last three years — from $900 million to more than $3.5 billion — while most Americans have struggled through a tough recession. While profit is not necessarily a bad thing, it is legitimate to ask whether this tremendous escalation in profit has come at the expense of consumers, who have not seen a commensurate drop in the prices they pay for prescription drugs.

PBMs eliminate competition from smaller pharmacies. As PBMs exert increasing control over the prescription benefits of some 210 million Americans, they squeeze community pharmacists by under-reimbursing us for filling prescriptions. The larger the PBMs grow, the more negotiating power they have to eliminate any opportunity for community pharmacies to make a profit or simply break even.

The PBMs have a strong and unfair profit incentive to eliminate competition from retail pharmacies because they operate their own mail-order pharmacies. An ESI/Medco merger would give the combined company even more power to drive out the competition, forcing community pharmacies to lay off workers — or worse: close their doors altogether.
PBMs reduce prescription drug and pharmacy choices for consumers. The PBMs are empowered by health plans to decide which drugs are included on a particular formulary, so patients cannot always access their preferred brand-name or generic drug. PBMs also decide which pharmacies participate in their network. Sometimes they require that patients only buy from certain chain stores, cutting out other options completely. And increasingly, PBMs are requiring that patients order some drugs exclusively by mail, regardless of patient choice.


PBMs come between a person and his or her health provider of choice, if the provider is a pharmacist. By driving out competition from small pharmacies, restricting a patient’s choice of pharmacies and requiring people to use mail order, the PBMs are gradually making it impossible for people to benefit from the personalized attention of a pharmacist. PBM proponents characterize community pharmacists as unnecessary relics of the past. Medco CEO David Snow described his company’s pharmacy “robots” as more accurate than human pharmacists.


From the interactions I enjoy with my patients, I have drawn the opposite conclusion. Community pharmacists are more important now than ever, and still critical to the well-being of patients. By knowing our customers, we are able to anticipate and meet many of their needs, which is impossible for mail-order pharmacies. We counsel customers and work with them to ensure that they adhere to their doctors’ medication instructions and achieve maximum benefit from their medications.

Community pharmacists also provide additional health such services as vaccinations, health screenings and wellness programs that were once available only through a doctor’s office. This has enabled people who might not otherwise have access to these important preventive services to obtain them.


These factors were left out of the self-serving PCMA analysis, but should be considered by Congress and the FTC as they continue to evaluate the merger.


Evan J. Vickers is an independent pharmacist from Cedar City, Utah, and a member of the Utah House of Representatives.

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Comments

- 10:12 AM
hsfred says

The bottom line in all this is that it IS happening, it IS putting small drugstores out of business, and it IS further dictating to us ultimately about our own medical care. This needs to be totally unacceptable to the American people. It's coming along fast just as NAFTA came in fast and sent our jobs away. Look where that led us to in the economy so the Big Biz's could gain profits. And that's what this is all for- THEIR PROFITS- not our well-being.

- 3:30 PM
seedy1 says

Kurtwz, your response is hopelessly hypocritical and biased. I'd bet you work for PCMA or some PBM. 1) Express Scripts is a member of PCMA and PCMA would not print anything that was unfavorable to ESI. 2)PBM's are supposed to make a profit via the plan sponsors, since they're the ones paying the PBM. But a PBM that takes a rebate from a drug company is costing consumers. Especially consumers that are not aligned with that PBM. 3)When profits "nearly quadruple in the last three years — from $900 million to more than $3.5 billion" in a time frame where most of the economy is flat or declining is more than enough information. And shame on you for showing gross profit margins and trying to compare them across different industries. That's lesson one in the how to lie with statistics book - compare incomparable things. How about a real comparison: Operating Margin: WAG 6.05%, ESI: 5.01% (2011) 4) PBMs eliminate competition from smaller pharmacies. It's one thing to be eliminated competing against another pharmacy, that's the free market, quite another to eliminated by a third party. Like losing a game because of the referee. The small independents aren't being allowed to compete. They're being handed a contract and told take it or we'll take away all your customers. Sounds more like a mafia protection business than healthcare. 5) The PBMs have a strong and unfair profit incentive to eliminate competition from retail pharmacies. It is unfair. It's a conflict of interest anywhere else in business. Car companies can't say you have to get your oil changed at XYZ dealership or we'll void your warranty. Doctors can't own pharmacies. (At least in my state.) The payments that the PBM's make to their own mail order facilities aren't the same as what they pay a retail pharmacy. That's unfair. 6) PBMs reduce prescription drug and pharmacy choices. PBM's restrict a lot more than brand/generic substitution. And right now they aren't even doing that right. Now the PBM's are forcing people and plan sponsors to pay for Brand Name Lipitor instead of the cheaper generic. Why? Because of a rebate. They also pick the highest rebate in cases where products are similar, but not identical. A doctor should be deciding which product is better for the patient's case, not some PBM. 7) PBMs come between a person and his or her health provider of choice. What else would you call mandatory mail order? Or don't you consider a pharmacist a health care provider?

- 10:36 PM
rxpeesee says

Your comments about differences between mail and retail are quite interesting, It's nice to know that you run a non-profit pharmacy, i'm sure your day job brings in all of your personal income. I appreciate your observation about how retail pharmacies serve patients better, especially when I come into your pharmacy with regularity, and pick up 7 lipitor, and told to come back in 2 days to pick up the other 23. That is really helpful and convenient. As far as the PCMA, are you saying that the NACP doesn't provide stats and comments that support community pharmacies, as dated and incorrect as their data is. Your article was very entertaining, thank you.

- 3:54 PM
kurtwz says

Response to seedy1, Mar 09, 2012 - 16:30 Seedy1: I'd bet you work for PCMA or some PBM. kurtwz: Would it matter if I do? Ultimately everything I say is true and if one brings forth arguments based on truths and solid reasoning, it makes no difference who is saying it. If you’re saying that I shouldn’t be listened to because I MIGHT work for the PCMA or a PBM, that’s an ad hominem fallacy. Seedy1: 1) Express Scripts is a member of PCMA and PCMA would not print anything that was unfavorable to ESI. Kurtwz: You’re kind of stating the obvious and I don’t really understand the point of saying it. For what it’s worth, though, I completely agree. Seedy1: 2)PBM's are supposed to make a profit via the plan sponsors, since they're the ones paying the PBM. But a PBM that takes a rebate from a drug company is costing consumers. Especially consumers that are not aligned with that PBM. Kurtwz: I agree that PBMs are supposed to make profit from the plan sponsors. ESI does not take rebates from drug companies, so I don’t know why you feel the need to point out that they shouldn’t. Seedy1: 3)When profits "nearly quadruple in the last three years — from $900 million to more than $3.5 billion" in a time frame where most of the economy is flat or declining is more than enough information. And shame on you for showing gross profit margins and trying to compare them across different industries. That's lesson one in the how to lie with statistics book - compare incomparable things. How about a real comparison: Operating Margin: WAG 6.05%, ESI: 5.01% (2011) Kurtwz: It’s not more than enough information because the figures brought forth by the author and again by you do not consider the base over which those profits are formed. If you only look at the profit of WAG against that of a mom and pop pharmacy, WAG would be thousands of times higher. Of course, the costs incurred in generating those profits would be several thousands of times higher too. If you look at the margins, you’ll know how each business is doing for their size. Indeed, the mom and pop might have a pretty high profit margin when compared to that of WAG. It would be an incomplete and invalid argument to say that WAG’s higher profit than the mom and pop’s in absolute terms means WAG is greedy. Indeed, you have to consider the size of the business. Shame on me? Seedy1, there is absolutely nothing shameful about that argument. It’s an apples-to-apples comparison. On the numerator profit, on the denominator revenue. Both in U.S. dollars. Both using the figures each respective company provided. They aren’t different industries. They’re the same industries. At least in the respect of the markets for which they compete they are. It would be an unfair comparison to take a metric too narrow to compare such as ESI’s real estate costs versus WAG’s real estate cost and say that ESI does a better job managing their real estate because their costs are much lower than WAG’s simply by virtue of the fact that WAG has thousands of retail stores and ESI does not. The comparison I drew isn’t unfair, however, because profit margins lump revenue and a whole bunch of costs together and report it evenly across the companies. This comparison is fair, accurate, and relevant and effectively refutes the author’s suggestion that PBM’s profits are inordinately high. I’m totally confused by your last statement of operating margins. If you’re saying that ESI’s profit is inordinately high, making the last statement that shows WAG’s operating margin HIGHER than ESI’s would HURT your argument, not help it. Seedy1: 4) PBMs eliminate competition from smaller pharmacies. It's one thing to be eliminated competing against another pharmacy, that's the free market, quite another to eliminated by a third party. Like losing a game because of the referee. The small independents aren't being allowed to compete. They're being handed a contract and told take it or we'll take away all your customers. Sounds more like a mafia protection business than healthcare. Kurtwz: Completely false. Small independent pharmacies ARE allowed to compete. With respect, they just aren’t doing it well. That’s why things aren’t going well for them and why some are having to close doors. PBMs don’t eliminate competition through any means other than trying to offer what the client wants. The clients effectively vote with their wallet and they’re voting for what the PBMs offer. Your analogy with the referee is false. So bad is that analogy that it doesn’t even fit well into the circumstances for which we are discussing. There HAS to be a third party involved in any example of commerce in a market-based economy that has competition otherwise either no commerce would take place (2 suppliers), or no competition would take place (one supplier and one consumer). Having a third party means that one consumer and 2 suppliers can exist. A better analogy is to say two men are competing for the attention of one woman. Seedy1: 5) The PBMs have a strong and unfair profit incentive to eliminate competition from retail pharmacies. It is unfair. It's a conflict of interest anywhere else in business. Car companies can't say you have to get your oil changed at XYZ dealership or we'll void your warranty. Doctors can't own pharmacies. (At least in my state.) The payments that the PBM's make to their own mail order facilities aren't the same as what they pay a retail pharmacy. That's unfair. Kurtwz: False. The profit incentive PBMs have is fair. Furthermore, the same profit incentive exists with their competitors. Seedy1, you don’t really understand what a conflict of interest is. A conflict of interest happens when the potential exists for corruption. Think a lawyer representing both the petitioner and the respondent or a broadcasting company doing stories on the company that owns them. This isn’t one of those cases. No conflict of interest exists. The mail order pharmacies that PBMs use are the same company as the PBM. Therefore, no payment is made and there is no potential for this to be unfair.

- 4:15 PM
kurtwz says

This article is hopelessly hypocritical, biased and unfair. It’s not supported by facts in most cases. In cases where accusations are supported by facts, they are half-truths. There are many clever implications that the author does not actually explicitly state. Here’s a point-by-point of the accusations. Accusation: As proof of these claims, the ad campaign cites conclusions of a study by Visante that was prepared for the PCMA, the trade group for the PBMs, which is a bit like a defendant hiring his own expert witness. Comment: The author implicitly accused Express Scripts (ESI) of paying Visante, but offered no attempt whatsoever to support that accusation. Even if he had, though, that would support the claim that Visante had a POTENTIAL reason to say nice things about ESI they wouldn’t otherwise say—not that they actually DID say things favorable to the business. Accusation: PBMs profit at the expense of consumers. Comment: So what? Doesn’t the author like capitalism? By definition, profit comes at the expense of customers. Why wouldn’t ESI just give away any transactional surplus they’ve carved out for themselves in the market? Answer: because we have a capitalist economy. It seems there’s another implicit message in this accusation—that PBMs profit at the expense of consumers and that amount of profit is unfair and greedy. That’s false. PBMs are aligned in their interest with the interest of plan sponsors. In ESI’s case, the only way they make money is to first save plan sponsors money. Besides, this accusation of profiting at the consumers’ expense is hypocritical because independent pharmacies are also driven by profit. The difference is that ESI makes those Rxes cheaper than the independent pharmacies. Accusation: Their motive is profit, not patient care. Comment: It’s true that ESI is driven by profit, but again, so are independent pharmacies. This is another hypocritical argument. I don’t accept that motives for profit of themselves are a bad thing. It seems the author is implying that ESI does not put a high priority on patient care, but he doesn’t explicitly accuse ESI of that. That’s a shame because I would love to refute that accusation. Accusation: The three largest PBMs, including ESI and Medco, have seen their profits nearly quadruple in the last three years — from $900 million to more than $3.5 billion. Comment: It’s not enough to report the amount of profit if you want to support that it presents a greedy company or a trust. You also have to show it against revenue, of course. Additionally, you have to compare it to other companies and other industries if you really want to make a thorough case. No effort was made to do that. I’ll do that now. ESI’s revenue and gross profit for last year was 45.3B and 3.0 bill, respectively. Here are the same numbers for several other companies: Medco 68 bill and 4.3 bill; Walgreen’s 73 bill, 20.5 bill; CVS 107.1 bill, 20.3 bill; Rite Aid 25.4 bill, 6.7 bill. That gives us profit margins of 6.5% for ESI, 6.4% for Medco, 28.1% for Walgreen’s, 18.9% for CVS, and 26.3% for Rite Aid. NOW the reader is prepared to make an assessment on ESI’s and Medco’s profitability against some retail pharmacies. The reader can clearly see that ESI’s and Medco’s profit margins are MUCH LOWER than those retail pharmacies. Accusation: PBMs eliminate competition from smaller pharmacies. Comment: Ummm, I’m pretty much flummoxed. To criticize a for-profit business in a free market economy for doing what for-profit businesses in free market economies do is kind of silly. A market-based economy means there will be winners and loser, unfortunately. Accusation: The PBMs have a strong and unfair profit incentive to eliminate competition from retail pharmacies because they operate their own mail-order pharmacies. Comment: The profit incentive of PBMs is no different from the profit incentive of retail pharmacies. Therefore, it’s completely invalid to claim that PBMs have an unfair profit incentive while implying retail pharmacys’ profit incentive is fair. Accusation: PBMs reduce prescription drug and pharmacy choices for consumers. Comment: That’s true, but the author failed to describe the manner in which PBMs reduce those choices. One of the manners in which PBMs do that is by not offering higher priced drugs if they are the exact same chemical compound as a cheaper drug. Doing so means plan sponsors pay less and the healthcare system, as a whole, is not as costly. Accusation: PBMs come between a person and his or her health provider of choice. Comment: That’s completely false. That person may still go to their provider of choice.

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