PBM Promotion of Generics Over Brands

At the macro level, everyone is pushing generics. This is the lowest cost option for the plan sponsor, the PBM, and the member (consumer, individual, patient).

But in reading a white paper by one of the big PBMs, they talked about this issue of promoting generics in a way that was slightly misleading so I figure I would tackle the point head-on.

Let’s start at the beginning.

PBMs take rebates from the manufacturers for drugs that are “on formulary”. This is not a bad thing and the majority of these dollars are passed on to the plan sponsors and the total amount is often transparent. (It was not always this way.) These rebates are essentially a discounting method to make expensive products more competitive. Typically, the PBM and/or an independent group of clinicians looks at the net cost (Average Wholesale Price less rebate) compared to the clinical value of the drug to determine whether it needs to be on the formulary. If there are two drugs with similar clinical indications, but one is a lot more expensive. Why would you cover both of them?

[On the flipside, as an individual paying cash, this is not a good thing because the average price or list price can stay artificially high since it’s never actually paid by any company or plan sponsor…but that is an issue much bigger than rebating.]

The manufacturers obviously want to gain market share by have a preferred status on the drug list (aka formulary). Since members have lower copays on these drugs, they have more market share. Historically, the manufacturers therefore limited what is called “counter-detailing”…if you wanted to get the rebates. (I.e., Pharma sales representatives detail physicians so counter detailing is telling them why they should use a different product.) What this meant was that you couldn’t do anything to disadvantage their product from a communication perspective. That has been loosened up a little over the past few years.

Now, the primary area of “counter-detailing” is through the Internet (i.e., showing alternative therapies and their prices) and through plan design tools like step therapy that require the use of generics before a brand drug can be used. BUT, I am still pretty sure that most manufacturers don’t allow the PBMs to target patients on a brand drug that is on formulary and encourage them to use a generic alternative (i.e., not the same chemical but a similar drug for their condition).

So, if you’re a buyer of PBM services, I agree that a good question to ask is “Is the PBM free to promote generics in lieu of brands, regardless of the brand’s formulary status?” but make sure you clarify whether they are talking before a patient starts on the drug or after they start on the drug or both.