Big changes are rocking healthcare. As regulators seek to address rising costs and affordability challenges across the $5 trillion U.S. healthcare system, the Federal Trade Commission’s recent actions against pharmacy benefit managers (PBMs) signal that longstanding commercial-channel business models will undergo a monumental shift.
The healthcare cost conversation is changing, and it’s a perfect time for the industry to ask what we can accomplish together moving forward. The transformations now underway will reshape practices and incentives for PBMs, manufacturers, employers, payers, pharmacies, and patients alike.
How can we navigate these shifts successfully? Let’s first look at three North Stars of PBM reform.
North Star #1: Lower Patient Out-of-Pocket Costs
The use of high-deductible and coinsurance-based benefits by plan sponsors to manage pharmacy benefit costs has made drug prices far more visible to patients, who bear increasing costs at the pharmacy counter.
Rebates from drug manufacturers haven’t directly helped lessen patients’ pain, but that is about to change. Until now, rebates have been used primarily to reduce plan sponsors’ overall cost of providing benefits, rather than being applied to a patient’s point-of-sale cost. The FTC settlement will require a new model that applies rebates directly to the cost used to calculate the patient’s purchase price.
While lower prescription costs sound good in theory, it’s important to recognize these changes will not benefit everyone equally. Pharmacies will be required to submit their acquisition cost, and patients will benefit to varying degrees. Not all brands are currently rebated, and some may not be contracted under new models, meaning these changes are unlikely to notably reduce out-of-pocket (OOP) costs for many prescriptions, such as high-cost specialty drugs. And while patients who take rebated prescription drugs may benefit at the pharmacy counter, shifting rebates directly to patients could affect the entire employee population if employers need to raise premiums to offset the added cost to their healthcare budget.
The challenge, then, will be to lower patients’ prescription costs without simply shifting those costs elsewhere in the system. Employers and health plans will likely need to find new ways to manage benefit spending to mitigate the impact on premiums.
North Star #2: Align Incentives with Value, Not Price
The FTC’s focus on rebate-driven pricing reflects a larger concern: Are incentives across the healthcare ecosystem aligned to deliver affordable, effective care?
Historically, some PBM compensation has been tied to the list price of the drug, creating potential adverse incentives for higher-priced medicines. Reform aims to better align financial incentives with value and patient outcomes.
Express Scripts has already announced plans to move toward a “rebate-free” model that not only lowers OOP costs for members but also decouples reimbursements from drug costs for both PBMs and community pharmacies. “We’re going to reimburse [pharmacies] more closely to what they can purchase the drug at, and provide them with quality bonus payments based on the health of the patients they’re serving,” explained Adam Kautzner, president of Express Scripts and Evernorth Care Management, which is part of Cigna, in a recent podcast.
It is important to understand that “rebate-free” does not mean rebates will vanish completely. Rebates will instead shift to upfront discounts applied directly to pharmacy acquisition costs and factored into patients’ OOP expenses under coinsurance and deductible benefit designs. And PBMs will likely continue to press manufacturers for significant—and potentially greater—discounts to help convince clients to move to these new models.
North Star #3: Increase Transparency—Thoughtfully
Transparency is a central theme in PBM reform. Behind-the-scenes negotiations have been the norm, and regulators now want to make those dealings less opaque and more visible to all stakeholders. Sounds like something we can all agree on, right?
It’s not as simple as it sounds. Greater transparency can improve accountability, but it also needs to be designed carefully so that it truly leads to better patient outcomes. The goal should be actionable transparency: information that helps stakeholders make better decisions and understand where value is created or lost.
Everyone supports transparency in theory; the real question for healthcare stakeholders is what kind of transparency effectively improves the system and does not inhibit competitive pricing dynamics.
A Partner for the Journey: VS Health Group
PBM reform is changing the landscape around rebates, formulary access, pricing, and patient affordability. Organizations that anticipate these shifts, rather than simply react to them, will be best positioned for success.
VS Health Group brings experience from across the healthcare ecosystem, from the payer and PBM side to the manufacturer’s point of view. That cross-functional perspective helps clients evaluate strategic implications, adapt to evolving market dynamics, and navigate a rapidly changing environment.
The healthcare system is too interconnected for any one stakeholder to solve these challenges alone. The organizations that succeed will be the ones that understand how the pieces fit together—and are willing to adapt as the landscape changes.
Contact us to see how we can help.
