Medicare Part D Pharmacy Benefit Managers Get 0.4% of Rebates

August 14, 2019 - After facing over $100 billion in Medicare Part D expenditures in 2016, Congress called on the Government Accountability Office to discern the pharmacy benefits manager’s (PBM’s) role in the healthcare industry and evaluate utilization management’s effects on expenditures.

Part D PBMs’ earnings are primarily paid by sponsors, not through price spreading, which distinguishes their revenue stream from commercial PBMs’.

PBMs retained 0.4 percent of their Part D plan rebates in 2016, passing the rest to plan sponsors. By studying 20 PBM-Part D plan service agreements and PBM revenues, GAO found that PBMs secured $18 billion worth of rebates. The rest of their salary came from a volume-based fee, a per-member, per-month fee, or both, covered by the plan sponsors.

In contrast, previous studies have found that some PBMs working with commercial plans use less impressive methods to increase their revenue.

A 2017 Pacific Research Institute (PRI) report, published during the GAO study’s timeframe, painted a negative picture of commercial PBM practices. The report found that commercial PBMs did not share rebate information with plans, enabling them to retain a significant portion of the savings without the pressure to pass it on to plans or consumers. While not every commercial PBMs’ transactions resulted in higher drug prices, a 2017 CMS report stated that rebates grew but the money was going primarily to commercial PBMs.

GAO’s report suggests that Part D PBMs acted differently, passing 99.6 percent of rebates to plan sponsors and retaining $74.3 million.

Although Medicare PBM seem to have a better track record, a bill recently passed in the Senate Finance Committee seeks to further restrict the role of price spreading in Medicare by making Part D plan sponsors audit their PBM contracts.

The study explored PBMs’ engagement with Part D plans to determine how many Part D plan sponsors work with PBMs, the rebates and concessions that PBMs and Part D plans are able to secure, and PBMs compensation earned from Part D plans.

Medicare Part D plans sponsors rely heavily on PBMs for drug benefit management services, with Part D plan sponsors hiring PBMs to handle 74 percent of the services in 2016. The sponsors handled the remaining 26 percent of these services without a PBM.

For context, between 2014 and 2016 overall gross expenditures grew 20 percent from $116.1 billion to $145.1 billion, outpacing Part D healthcare spending. Rebates and price concessions increased by 66 percent and contributed to 20 percent of the gross expenditures, which are the payments made by plans or the plans’ PBMs to pharmacies.

In addition to analyzing the effectiveness of PBMs, Congress is scrutinizing utilization management, formerly considered a brake on escalating gross expenditures.

According to GAO’s report, utilization management measures such as prior authorizations and generic substitutions correlated with financial savings and better health.

Seventy-five percent of the studies demonstrated savings for Part D plans, the Medicare program, or beneficiaries. Of the remaining studies, five found no significant impact, three saw decreased savings, and two saw varied results based on the kind of utilization management service.

Furthermore, three-fifths of the studies which addressed beneficiary health indicators found that utilization management resulted in better beneficiary health. Most of the studies that saw improvements were observing the effectiveness of medication therapy management or comprehensive medication reviews. The remainder studied drug utilization reviews, which review patients’ medications for potential adverse drug interactions and clinical guideline compliance.

One study out of twenty saw a negative health indicator in which beneficiaries’ health declined due to utilization management.

The stakeholders whom GAO interviewed agreed on utilization management’s power to control financial savings and improve health.

However, drug manufacturer stakeholders disagreed with the study’s PBMs and plan sponsors regarding whether utilization management increased medication adherence and patient access to care.

When studying medication adherence and medication access, the researchers focused on medication therapy management programs or comprehensive medication reviews, encompassing ten of the fifteen studies. Seven out of ten saw improvement in medication adherence.

However, the remaining third of the studies which covered prior authorization and step therapy saw negative, mixed, or zero results.

The drug manufacturers whom GAO interviewed stated that utilization management delayed access to needed medications.

GAO’s findings will be influential as Congress and the healthcare industry seek to rein in expenditures, a motive that payers, PBMs, and drug manufacturers can all agree on.