Insurers and PBMs are Undermining Employee Health Benefits

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By: Robert Popovian, Pharm.D., MS and Louis Tharp

Employees in the U.S. have traditionally benefited from unprecedented access to innovative therapies through employer-subsidized insurance. Some would argue that employers have subsidized the cost of healthcare for the federal government in some cases. For instance, their willingness to provide coverage for preventative treatments such as medicines to lower cholesterol or smoking cessation drugs has possibly reduced poor patient outcomes when those individuals would be eligible for Medicare coverage.

However, because of the constant attack by certain policymakers that abhor employer-based health insurance and the policies championed by some insurers and pharmacy benefit management (PBM) companies that value profitability to the detriment of good healthcare, it is time to review important policies that impact employee access to biopharmaceuticals. 

First, health insurance is intended to cover expensive therapies that are not common. For example, consumers purchase auto insurance to pay for accidents, not oil changes. Unfortunately, today, pharmaceutical insurance designed by insurers and PBMs pays for everything inexpensive such as generics, while exposing patients to significant out-of-pocket costs if they need a specialty medicine therapy that only a minute percentage of patients use. Employers need to ensure that less common but expensive interventions are fully covered while patients are asked to pay for the less costly therapies. The benefit should mimic Medicare Part A, where seniors are fully insured for less common but expensive hospitalization costs.

Second, patients should always pay a lower price when utilizing insurance coverage than if they paid for the medicine in cash. A study published in the Journal of American Medical Association (JAMA) by the researchers at the Schaeffer Institute found that Costco cash prices for common generics would have saved both Medicare and seniors almost $4.5 billion over two years. Costco’s cash price for generics was below $20 (a common copayment for a generic medicine in the employer health plans) for over 80% of prescriptions filled. In another study again published in JAMA, the same researchers found that over one year, almost 25% of patients paid more through their copayment amount than they would have if they had just paid the cash price offered at a retail pharmacy. Employers should implement policies that educate, establish and encourage cash payments for medicines if such amount is less than what an employee would pay through the insurance coverage. They need to partner with an external organization such as Costco, Cost Plus Drug Company, or independent pharmacies and negotiate preferred cash-priced medicines for their employees.

Third, PBMs partner with third parties and encourage employers to eliminate coverage of specialty medicines through a copay maximizer program. Perhaps alluding to the maximization of PBM profits, these programs rely on biopharmaceutical company patient assistance programs to cover medications needed for employees. These middleman’s middlemen, which employers mandate the employee to be enrolled with if they want access to specialty medicines, profit handsomely by keeping a significant percentage of the patient assistance payments instead of allowing the patient to benefit from all of the assistance provided by the biopharmaceutical company. The employers rely on possibly illegal interpretation by PBMs that specialty drugs as not a protected class through the Affordable Care Act (ACA) and thus are not required to be covered. The ACA is very clear that prescription drugs are a protected benefit. For the minimum, employers should ensure that 100% of patient assistance benefits from biopharmaceutical companies are transferred to employees. They should also investigate the legality of such programs. Finally, they need to ensure that employees are not burdened by extraordinary out-of-pocket costs for their healthcare services since none of the patient assistance benefits fulfill the overall healthcare deductible obligations.

Fourth, PBMs have turned formularies once designed to prefer medicines that had superior safety and efficacy to rebate maximization machines. This year the three largest PBMs, which control over 80% of the retail prescription drug market, in some instances preferred a brand-name medicine over a generic drug. A study conducted by Global Healthy Living Foundation found that in 10 cases, a brand-name drug was preferred on the national formulary of Express Scripts (ESI), while a generic medicine was excluded. Most troubling is that in 5 cases, ESI covered a brand therapy than the authorized generic manufactured by the same biopharmaceutical company. This is despite the fact that authorized generic retail prices are at least 70% below the brand medicine drug. Such behavior results from misaligned incentives propagated by rebate contracting, enticing PBMs to cover higher-priced, higher rebated medicines. Such incentives are detrimental to employees whose co-insurance and deductibles are calculated based on the inflated retail price and not the significantly discounted price these middlemen pay. This practice is also harmful to employers who may not receive all the concessions as part of premium support since they have no audit rights, and the system lacks transparency. Employers should seek out PBMs that provide services based on flat fees and ensure that all of the concessions are transferred to their employees to reduce their out-of-pocket cost obligations. 

More than 150 million Americans receive their health insurance through their employers. There should be no reason for the individual patient to be a victim of unfair pricing or be responsible for seeking out the best pricing for their needed medications. Employers are responsible for ensuring that their employees’ health and economic welfare are protected. They have the power to do so by carefully reading the contracts they enter and negotiating for benefits that pass on cost savings directly to their employees. Corporations should also band together to push back against the powerful industry lobbies that keep pricing opaque and underregulated. Rational benefit design, led by patient-centric policies, is a step employers can take today to start supporting their employees and their long-term health, which in turn promotes better health outcomes and reduced healthcare utilization and cost. 

Robert Popovian, Pharm.D., MS is the Founder of the strategic consulting firm Conquest Advisors. He also serves as Chief Science Policy Officer at the Global Healthy Living Foundation, Senior Healthy Policy Fellow at the Progressive Policy Institute and Visiting Health Policy Fellow, Pioneer Institute. Dr. Popovian is also on the Board of Councilors of University of Southern California, School of Pharmacy.

One of the country’s foremost experts on every significant facet of biopharmaceuticals and the healthcare industry, he is a recognized authority on health economics, policy, government relations, medical affairs, and strategic planning.

Louis Tharp is the Executive Director of Global Healthy Living Foundation and an Employer. After a 20-year career as an international communications executive, journalist, author, and technology entrepreneur, Louis Tharp began his social welfare, nonprofit career in 1999 when he cofounded CreakyJoints®, the international digital community for millions of arthritis patients and caregivers worldwide who seek education, support, activism, and patient-centered research. In 2007, CreakyJoints became part of the Global Healthy Living Foundation (GHLF), which he also cofounded and where he now serves as Executive Director. 

In 2012, he accepted an appointment in the Obama administration as a member of the Army Education Advisory Committee after serving on staff at the U.S. Military Academy as triathlon swim coach.