To understand prescription drug rebates and the use of PBMs, we must ask a basic question.
Within the debate about drug rebates, deductibles, etc. here is the question.
What portion of health care spending and savings should be shared equally by the entire covered group (via premiums) and what portion by the greatest users of health care?
As far as prescriptions go, virtually no one pays the retail price. Even workers with high deductible plans pay the PBM negotiated drug price out of pocket until their deductible is met.
Most employers of any size are self-insured. When they hire a PBM to manage their drug benefits, they negotiate a fee arrangement. It may be a portion of the rebates being retained by the PBM or it may be 100% of rebates going to the employer and a fixed administrative fee paid to the PBM. In addition, most often the PBM offers a mail order and specialty drug component which lowers costs for the plan and patients … and is income for the PBM.
Whatever the employer/plan sponsor retains is reflected in the worker’s premiums benefiting high users, low users and non-users of the benefits.
We tend to overlook that and instead only focus on the cost to the patient using a drug.
This question is not unique to employers. Let’s say Medicare gains authority to negotiate directly with pharma (prices are already negotiated by Part D providers). And let’s say there is an additional 3% savings over current discounts. To do that means there must be a more limited formula (perhaps one drug in a class for a medical condition instead of several), but once that is achieved how are the savings passed to Medicare beneficiaries? Does government retain all or a portion of savings. Are they reflected in lower Part D premiums benefiting all on Medicare or are they reflected in the Rx Co-pay thereby benefiting a limited number of patients?
As I mentioned, the same is true for health plans. Implement a high deductible and overall plan costs decline. This means premiums/payroll deductions are lower, but nobody notices that. Rather, they reflect on the higher deductible which adversely affects only those with high claims in the year they have them.
Lowers premiums are a constant each pay period for all participants. Even those who do pay more out of pocket have a portion of that offset by lower premiums.