Dear Colleague,
When we were teenagers, my best friend got a job at Sears. Despite being a National Merit Scholar, he was still a typical teenager, which is to say not always the most mature employee. I don't remember the details, but I do remember that his manager gave him several warnings before eventually inviting him to excel somewhere else. It took getting fired to finally get his attention.
The mega-PBMs are a different story. Their decades-long track record of questionable business practices has nothing to do with immaturity. But a recent employer survey suggests that some of their customers may finally be moving from warnings to consequences.
Last week, the National Alliance of Healthcare Purchaser Coalitions released a survey showing that "big three" PBM use fell from 63.4 percent to 54.3 percent, and more than half of employers are considering a similar switch to a smaller competitor. You can read the survey here.
A few findings stood out:
- What separates employers who take action is not what they pay, it's what they can see. Employers with full claim-level access are more likely to take action.
- Smaller employers of less than 1,000 people were the most open-minded to changing from one of the mega-PBMs.
- Despite losing some market share, the big three PBMs still have an oligopolistic market share of 80 percent of all prescriptions. According to PCMA there are more than 60 PBMs in the U.S. According to the FTC, just six PBMs manage nearly 95 percent of the nation's prescriptions. Not exactly a recipe for competition.
- A smaller PBM might win the business from a mega-PBM, but there's no guarantee that the new PBM will treat its pharmacy network as business partners rather than as indentured servants like the mega-PBMs currently do.
The survey is encouraging, though, because employers are increasingly recognizing what community pharmacies have known for years: mega-PBMs drive up costs while reducing transparency and choice.
Community pharmacies have spent years raising concerns with PBMs about their practices, only to be ignored or rebuffed. Because of their market dominance, they didn't care what their pharmacy networks had to say. Regulators have also taken action, with important reforms passing in several states and, finally, a breakthrough at the federal level earlier this year with the first Medicare Part D PBM reforms in the program's history.
Meanwhile, some PBMs continue to draw attention to themselves by spending millions of dollars to thwart the will of state legislatures such as those in Arkansas and Tennessee. Faced with mounting evidence, growing public scrutiny, and pressure from pharmacies and policymakers, some employers are finally beginning to look elsewhere.
Large employers have been slower to move, and most still remain with one of the big three. But the survey suggests they are becoming more willing to consider alternatives. That should send a message to the federal government as well.
The federal government is one of the biggest customers of the major PBMs through Medicare Part D, Medicaid managed care, FEHBP, and Tricare. When private-sector employers are increasingly questioning whether the big three are delivering value, taxpayers deserve the same consideration. Policymakers should take a hard look at why so many tax dollars continue to flow through a handful of dominant middlemen.
Interestingly, the Bureau of Labor Statistics reported last week that prices for medicinal drugs fell 2.7 percent during the year ending in July, with prescription drug prices dropping 3.1 percent. That's the largest decline in roughly 60 years.
Employers are rethinking their relationships with mega-PBMs. Drug prices are falling by the largest percentage in decades. Some academics may insist those two developments are just a coincidence. I see a direct connection. Others may too.
It's about time.
My high school friend learned his lesson from that first job at Sears — where it took getting canned to get his attention — and is now successful in business. Employers have an opportunity to finally get the attention of the big three PBMs. Looks like many are taking it.
Best,
Douglas Hoey, Pharmacist, MBA
NCPA CEO
P.S. NCPA's Annual Meeting, themed "We are Main Street," is earlier on the calendar this year — Oct. 3-6. You still have time to register, but ticktock! The hotel deadline is Sept. 11.
