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“Costs would run an estimated 58 percent higher without PBM management tools and the pharmacy pricing and manufacturer discounts negotiated by the PBM”.
Curbing Prescription Drug Prices Through the PBM Model
Meghan Scott | August 24, 2017
Congress and the White House continue to focus on addressing challenges to the U.S. health care system, one of which is the impact of rising prescription drug prices on the financial health of working Americans, state budgets and our economy. Many policymakers are looking for answers, and one such solution is the use of pharmacy benefit managers. This is confirmed by a recent study from the Coalition for Affordable Prescription Drugs and the actuarial firm Oliver Wyman, based on actual Medicare Part D bid information, which finds the current PBM model is already working — and is expected to produce significant cost savings for the Part D program over the next decade.
According to research from the study, titled “Savings Generated by Pharmacy Benefit Managers in the Medicare Part D Program,” Part D costs would run an estimated 58 percent higher without PBM management tools and the pharmacy pricing and manufacturer discounts negotiated by the PBM. In aggregate, this research estimates that PBMs saved the Part D program $47 billion in 2014. And the cost savings expected to be realized over the next decade are even more dramatic. PBMs are projected to save Part D $896 billion between 2016 and 2025. That’s $308 billion more than the net amount the U.S. government spent on Medicare in 2016 and nearly the entire amount paid out to American citizens in Social Security the same year.
Two-thirds of that Part D savings figure, or $604 billion, will come from PBMs leveraging their scale and clinical expertise to negotiate discounts and price concessions from pharmacies and drug manufacturers. More than $240 billion in savings will stem from PBMs’ effective clinical management of the Part D benefit, including their ability to encourage utilization of lower cost, clinically equivalent treatments, such as generic drugs. The final $49 billion in savings will come from PBM-developed and administered programs and tools that help patients get and take their medicines as prescribed.
The value that the PBM model offers is needed now more than ever before, given the explosive growth projected in the number of Americans enrolled in Part D — and the related projected growth in costs. According to the Centers for Medicare & Medicaid Services, more than 39 million seniors receive coverage for prescription drugs through the Medicare Part D program and the aggregate Part D costs reached $80.5 billion in 2014. By 2025, that price tag is expected to balloon to $215.1 billion, as the number of seniors enrolled climbs to 55 million.
Against this backdrop, PBMs can play a critical role in keeping costs in check and ensuring affordable access for all beneficiaries. The Oliver Wyman study estimates that without PBMs, beneficiary premiums would be 66 percent higher. Because of PBMs, the Part D program will save more than $1,800 per year per beneficiary – benefiting taxpayers and plan enrollees. For context, that figure is roughly what older households spend on food for more than three months.
The savings that PBMs generate for Part D are also highly encouraging for the employers, unions, health plans and others in the private sector working to keep prescription drug costs in check for their employees and members. This new Part D analysis demonstrates how PBMs work in a large public program and the value they can continue to drive for their partners in the private sector.
There is clear consensus that the prescription drug marketplace has to evolve and, in particular, has to focus on increasing competition and tackling anti-competitive practices. However, it is in the best interest of America’s seniors, taxpayers and all stakeholders to take note of what is working today, as they explore the solutions of tomorrow. As this new study shows, the proof of the PBM model’s power lies in the numbers: nearly $900 billion in expected savings for the Part D program over the next 10 years. That’s savings that will directly benefit Americans and the U.S. economy – savings we can’t and shouldn’t leave on the table.
Meghan Scott is the executive director of the Coalition for Affordable Prescription Drugs, a broad-based group of employers, pharmacy benefit managers, unions, health plans, and public sector employees and retirees who are working together to be part of the prescription for affordable health.