PBMs were created by the pharmacy community to better connect the vast array of retail pharmacies to improve the patient experience, and to allow for near-instant electronic claims processing for prescriptions. They have since evolved, pushing employers and consumers to more expensive medications by marking up their price, using hidden fees to generate income, and inflating rebates to disincentivize competition and choice. If they were stand-alone companies, their revenue would place each among the largest 40 companies in the country. In 2022, PBMs (and their group purchasing organizations) earned $7.6 billion in fees, double the total from 2018. That’s a staggering amount, accumulated at an enormous cost to employers and consumers.
To lower the cost of prescription drugs, remove barriers to healthy competition, and provide transparency for patients, providers, and plans, the existing PBM model has to be dismantled and replaced. Getting there requires wholesale change; iterative adjustment will not go far enough to solve a problem this large. It can be done.
I say this as someone who has been a part of two successful challenger PBMs that uprooted the traditional market by leveraging transparency and fair pricing mechanisms centered on real value. And now, I’m helping to build this at a much larger scale, working toward a first-of-its-kind solution for health plans.
Transforming the drug supply chain would feature the following components:
Connecting preferred vendor solutions. Breaking the system apart doesn’t mean that the service providers operate separately or in silos. There are still critical information and processes that need to flow among the many stakeholders involved in order to maintain a functioning system. Creating a new and better way for providers to work together requires trust and transparency among these connected services. Health plans can retain certain functions that enable integration while also allowing decision-making regarding provider value to consumers.
Aligning payment incentives with all pharmacies to avoid perverse incentives. A new model allows for employers and plans to pay a fair price for drugs, delivering a modest margin that works for all parties and enables investment back into the system to continue to refine the process.
Managing IT connectivity in a modular design so any service provider may be included or excluded if market dynamics change. A new model cannot be a monolithic vertically integrated solution. It is likely that vendors may need to change as the model evolves, particularly in an industry with so many moving parts. When one vendor becomes a stronger and more appropriate choice to supply a need, there needs to be flexibility to make that change. This allows for market-based competition versus contractual strongholds with massive financial penalties. Creating a rigid system that only works in its original form would limit its function and require starting over each time a partner comes or goes. The model must be controlled and operationalized by the payer/health plan and not by the PBM.
Creating digital tools that are not designed to be self-serving and allow for honest and informed member and provider communication. Member point solutions are only as good as the information that feeds the platform. The availability of actual drug pricing, at the point of sale, or even before the drug is dispensed is somehow very difficult to obtain in the current drug supply chain quagmire. By allowing easier and mandated transparent communication between parties, you reduce the frustration on both sides and remove barriers to effectively managing health conditions. Efficient communication encourages shared decision-making between the patient and their care team, and also helps avoid wasted spend on drugs that aren’t the best option for the consumer.
Leveraging strategic partnerships and direct relationships with drug manufacturers to obtain low net cost point of sale drug pricing. Scale matters when it comes to purchasing. By connecting with strategic partners who are aligned in their approach, and a focus on affordability and transparency, organizations can achieve the scale needed to make this change financially viable.
Empowering consumers with the tools for visibility into the actual cost of a drug. In today’s world where everything is at our fingertips on our phone, there’s no excuse for consumers to be unclear about how much a drug will cost them. Delivering real-time information about cost of drugs and lower cost alternatives should be a baseline requirement.
Owning dispensing assets create perverse incentives. It is critical that when redesigning the drug supply chain of the future, we don’t fall into old habits. There have been countless examples where large vertically-integrated organizations begin to make strategic decisions that drive revenue into their own pharmacies (mail and specialty pharmacies) and it calls into question the fundamental tenet of PBM existence. PBMs were developed to help employers save money and address inappropriate drug utilization, but under the existing model, they make more money the more prescriptions payers fill. This profit motive cannot be the controlling dynamic in a PBM model.
An integrated service offering that’s made up of those pieces breaks down the vertical shield that has prevented employers from seeing exactly what they’re getting from their PBM, and it provides greater flexibility to make changes. After the model is broken apart, it needs to be reconceived and rebuilt with components that work for, rather than against, employers and consumers. A system that’s incentivized for value and efficacy instead of boosting profits. The reconfiguration will have a different shape: from vertical to horizontal; from a silo where you can’t see what’s inside to a level playing field where you can see everything.
