A World Without PBMs

I posted my thoughts about pharmacy / PBM communications with MDs on Kevin MD’s Blog and generally got comments from physicians that didn’t like PBMs. This is just a few of the physicians in the US, but let’s just play this out.

If there were no PBMs (and let’s assume that meant no pharmacy benefit) in the US, what would the pharmacy business look like?

  • A cash business (no copays) with high variance between stores on what consumer’s pay for their medications.
  • No centralized database for sharing prescription data across pharmacies and avoiding drug-drug interactions.
  • No 90-day prescriptions (retail or mail order) since retailers would certainly rather have foot traffic.
  • No formularies so patients would have no framework for making cost / clinical tradeoffs.
  • No utilization management programs (prior authorization, step therapy, quantity level limits) so people would unnecessarily use higher cost drugs.
  • A much higher mix of brand drugs than there is today since the primary source of information to patients and physicians about drugs would be from the manufacturers.
  • Independent pharmacies would still be losing business due to chain drug store strength.

I don’t disagree that there are issues and the system isn’t perfect, BUT the PBMs save money and play a critical role. Without them, we would have a pharmacy system with other issues, higher costs, more clinical issues, and less convenience. Isn’t that worth a few faxes from the PBM?

6 Responses to “A World Without PBMs”

  1. Thanks Wade. I appreciate the thought.

    I guess I would argue that from a physician’s perspective there isn’t much difference from a PBM who’s looking to manage the drug spend and a managed care company that does this themselves. Maybe I’m wrong.

  2. George,

    I think your conclusions are off base at least 50/50. Some of it may not have happended but much of it would have and did…at least in our market. As a 70+ year old Blues plan in Hawaii, we were providing drug benefits long before PBMs emerged on the scene. Our customers received pass thrus on rebates, we promoted generics as appropriate and we had an open formulary with tiers, fixed copays etc. We managed drug costs for our customers while also making sure our member had access to the drugs they needed…a delicate balancing act. We had a centralized db on drugs, interactions, etc. However, we found over time that we had to affiliate eventually with a PBM because their scope and scale nationally put us at a disadvantage, they could invest in systems and command rebates which we could not and they represented a market threat because they could unbundle the drug benefit. We elected to work with them in a fashion that behooved us and which fit with our approach to managed care as a non-profit in a state with mandated coverage. Our experience with the PBM,one of the biggest, has been overall positive though not without its challenges. I think assuming no drug benefit would exist is an assumption without merit at least in our market. PBMs are simply another tier added to the system who have specialized as large niche players and leveraged scale as specialists so that they are now able to “throw their weight around”. Since they have allied with large companies who are mostly cost focused and built significant presence over time, they bring numbers to the table in their discussions with pharma, retail, customers (retail or wholesale), government etc. The docs hate them because they have gotten in the way of the “sacrosanct” dr to patient relationship, which most doctors hate but many tolerate. The independent pharmacies hate them because of the commoditization of the pharmacist-customer relationship but also because they use scale and differentiation which small business dont or cant. Its a pretty simple dynamic. They have taken business, control and decision making away. In their dealings with the larger business entities in our area, like CVS, their leverage is probably beneficial…but its just moving the dollars around. If we are smart we get a piece of that pie so our costs and thus our customers costs decline. The PBMs add some benefit but there are also tradeoffs. I dont see them as net-net making the world a better place….just different. Again, only my POV for our market.

  3. Richard – PBM profit margins are very different from brand pharma profit margins.

    Pam – I don’t know the history, but how much pharmacy benefits happened before the PBMs. From a physician’s perspective, I wouldn’t see how pharmacy benefits could be effective in driving behavior without being intrusive. And, since it takes 16 years for best practices to be utilized across physicians, we need some 3rd party entity pushing these to drive better outcomes and reduce costs.

    I think the question regarding physicians and pharmacists is how they get recognized for their time spent on cognitive services.

  4. Why do you assume there would be no pharmacy benefits without PBMs? PBMs are nothing more than another middleman affecting the cost of healthcare and second guessing physicians.

  5. Even 2x the margin for cash customers does not even come close to the profits of PhRMA companies!

  6. George,

    Interesting thought experiment.

    BTW, an all cash business would be very good for pharmacy owners. According to NCPA data, an independent phamacy’s gross profit margins from uninsured, cash-pay consumers are 2X the margins from third-party scripts.


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