PBM practices are keeping consumers from generics savings, white paper finds

Dive Brief:

Generic prescriptions aren't saving U.S. consumers much money, largely due to the practices of pharmacy benefit managers and industry middlemen between drug manufacturers and health plans, according to a new white paper.
Consumers are overpaying for generic drug prescriptions by as much as 20%, research from the USC Leonard D. Schaeffer Center for Health Policy and Economics found, citing an analysis of Medicare claims. PBM strategies increasing the cost of generics may also be contributing to quality issues and care fragmentation, according to researchers.
Strategies include copay clawbacks, when copayments paid by commercially insured patients exceed a drug's cost; and spread pricing, when a PBM charges a health insurer a higher price for a drug than what it reimburses a pharmacy. In both cases, PBMs pocket the difference. In addition, formularies often advantage branded drugs over generics, as the branded medicine comes with manufacturer rebates.

Dive Insight:

PBMs say they save money by negotiating down steep pharmaceutical prices. But the middlemen are often fingered as a driver of increasing healthcare spending and are facing increasing scrutiny for their practices from both legislators in Congress and regulators in the Federal Trade Commission.

The new report adds to a growing body of evidence showing that consumers overpay for generics, as "pharmacy benefit managers game opaque and arcane pricing practices to pad profits," the white paper said.

Generics make up more than 90% of prescriptions in the U.S. but just 18% of drug spending. By one estimate, the use of generic and biosimilar drugs in place of their branded equivalents saved the healthcare system $338 billion in 2020 alone.

However, despite generics driving down prices relative to branded drugs, consumers are not benefiting from savings, the white paper said.

“Generics are overlooked when we talk about drug pricing issues in this country,” said Erin Trish, co-director of the USC Schaeffer Center, in a statement. “But the same lack of transparency that is causing outrage over high and rising spending on branded drugs is also creating issues in the generic drug space."

Researchers highlighted consolidation as a key issue likely driving the profit-focused practices outlined in the white paper.

The three largest PBMs — which process almost 80% of all retail prescription claims — are all owned by large insurers: CVS Caremark by CVS Health, which owns Aetna; Express Scripts by Cigna; and OptumRx by UnitedHealth Group, which operates the largest private payer in the U.S., UnitedHealthcare.

The white paper estimates that practices like spread pricing and copay clawbacks add up to billions in overpayment. One recent study, also conducted by Trish, found Medicare Part D standalone plans paid $2.6 billion more in 2018 for 184 common generics compared to the cash prices paid by Costco members.

Researchers suggested several policy solutions to deter the practices, including restricting rebate contracting which incentivizes PBMs to prefer brands over generics, and using fixed fees per transaction, rather than fees determined as a share of a drug's price.

Researchers also highlighted the need for increased competition and improved price transparency in the generics industry.

There has been some recent action on the Hill to curb PBM practices, as the FTC reviews industry comments solicited earlier this year on how such strategies effect patients and payers.

Last week, a bipartisan duo of senators introduced legislation that would stop PBMs from clawing back fees or overcharging pharmacies and require PBMs to report more financial data, among other measures.