The Role of Pharmacy Benefit ManagersIn The Pharmaceutical Value ChainHaig Kupelian, BA and Juan-Carlos Campos, MPH

The University of Texas at Austin, Health Informatics and Health IT Professional Education Program, 2018

ABSTRACT

ACKNOWLEDGMENTS

DISCUSSION

REFERENCES

CONTACTJuan-Carlos Campos, MPH Haig Kupelian, BAjc.campos.mph@gmail.com haigkupelian@utexas.edu

INTRODUCTION

RESULTS

PURPOSE

This poster focuses on issues along the pharmaceutical supply chain that drive up drug costs, as well as potential opportunities for improvement. We performed a review of industry data, along with peer reviewed articles, and governmental reports to identify stops in the supply chain and discover the share of the drug profits for which each stop accounts. We also reviewed the role of pharmacy benefit managers, how they make their profits, and their effect on the end user. Finally, we presented the current vertical integration tendency of the market, possibly leading to lower out-of-pocket costs for patients.

METHODS1. Aaron S. Kesselheim, M. J., Jerry Avorn, M., & Ameet Sarpatwari, J. P. (2016). The

High Cost of Prescription Drugs in the United States - Origins and Prospects for Reform. Journal of the American Medical Association, 316(8), 858-871. doi:10.1001/jama.2016.11237

2. Irene Papanicolas, P., Liana R.Woskie, M., & Ashish K. Jha, M. M. (2018, March 13). Health Care Spending in the United States. Journal of the American Medical Association, 319(10), 1024-1039. doi:10.1001/jama.2018.1150

3. Drug Industry: Profits, Research and Development Spending, and Merger and Acquisition Deals GAO-18-40: Published: Nov 17, 2017. Publicly Released: Dec 19, 2017.

4. Singhal, S., Latke, B. Martin, C.P. (2018). The future of healthcare: Finding the opportunities that lie beneath the uncertainty. [online] The McKinsey Company. Available at: https://healthcare.mckinsey.com/future-healthcare-finding-opportunities-lie-beneath-uncertainty [Accessed 30 June 2018].

5. Dabora MC, Turaga N, Schulman KA. Financing and Distribution of Pharmaceuticals in the United States. Journal of the American Medical Association. 2017;318(1):21–22. doi:10.1001/jama.2017.5607

6. Goldberg, R. (2015). Drug Costs Driven by Rebates. Center for Medicine in the Public Interest. Available at: http://bionj.org/wp-content/uploads/2015/11/drug-costs-driven-by-rebates.pdf

7. Health Strategies Consultancy. (2005). Follow the Pill: Understanding the US Commercial Pharmaceutical Supply Chain.

8. Schulman KA, Richman BD. The Evolving Pharmaceutical Benefits Market. Journal of the American Medical Association. 2018;319(22):2269–2270. doi:10.1001/jama.2018.4269

9. Barlas, S. (2018). Vertical Integration Heats Up in Drug Industry: Will Medication Price Hikes Cool Down as a Result? Pharmacy and Therapeutics, 43(1), 31–39.

Figure 1 shows the actors involved in the pharmaceutical supply chain, along with the percentage breakdown of the distribution in profits in each stop. Pharmacy benefit managers (PBMs) account for 9% of profits, growing 14% between 2012 and 2016.4

Figure 2 shows the complex current model of pharmaceutical distribution and payment. Multiple entities interact within the supply chain and derive profit from the manufacturer.7 Wholesalers buy drugs at the list price (WAC), then sell the drugs to pharmacies at a cost of WAC plus a percentage.7 PBMs, who generate profits from rebates they negotiate with pharmaceutical companies, administer outpatient drug benefits for insurers and employers. There is growing concern that these rebate negotiations drive up list prices.8

Figure 3 Rebates are a growing share of drug price growth6, which seems to align with the growth in profits that PBMs are experiencing. In 2017, the top pharmaceutical manufacturers earned less than the top PBMs.8

Figure 4 represents a supply chain in which PBMs and wholesalers whose functions are vertically integrated within related industries. Insurers have been acquiring PBMs recently, with Cigna’s purchase of Express Scripts in 2017, and rumors of CVS, Walgreens, UnitedHealth and Anthem also moving to integrate.9 With the mergers, changes in benefits structure could reduce out-of-pocket costs for consmers.8

In summary, PBMs have been growing in profits and proportion within the complex pharmaceutical value chain, as rebates drive a larger share of pharmaceutical price growth. The ongoing vertical integration has recently included PBMs and may lead to a reduction in consumer drugs costs.

Pharmaceutical prices unexpectedly beat forecasts in costs (20% vs. 11% forecasted) from 2013 to 20151, and now account for $1443 per capita spending.2 Each stop on the pharmaceutical supply chain affects the price of drugs. Drugs are developed by manufacturers, sold to warehouses, sold to pharmacies, and then sold to customers, with price negotiations and rebates made between product holders and product payers.3

The purpose of this research was to present issues and opportunities within the pharmaceutical supply chain that contribute to end user prices.

This project was completed with guidance from Mr. Bob Ligon. We used Google Scholar, UT Libraries, and PubMed to locate articles for this poster. We used keywords pharmaceutical, value, supply, chain, prices, drugs, rise, transparency, future, warehouse, and PBM. We reviewed articles from the Journal of the American Medical Association, reports from the Government Accountability Office, a report from the Center for Medicine in the Public Interest, and industry data from McKinsey. We used articles published between 2005 and 2018 that reported on supply chain management and drug prices.

Our sincerest gratitude to Mr. Bob Ligon for his mentorship and leadership during this project. We would also like to thank Dr. Field, Dr. Nauert, and Mark Durbin for their guidance. Finally, we thank all of our classmates for their support.

Figure 1: Actors in the pharmaceutical supply chain, distribution of profits, and growth4

Figure 2: Complex flow of services and money in the pharmaceutical supply chain5

Drugs are produced, purchased by the distributer/wholesaler, and shipped to retailers (left). PBMs administer benefits for payers, who finance the drug benefits (right). 5

The pharmaceutical value chain contains more actors than just manufacturers, distributors and retailers.

Figure 4: Vertical Integration

There is recent movement in the direction of vertical integration, which could lead to reductions in drug costs.

Figure 3: Rebates share of price growth6

Much of the increase in drug prices can be attributed to rebates that the PBMs receive, while patients share more of the costs.6