PricewaterhouseCoopers Study Finds PBMs Generating Discounts Averaging 29 Percent

Public Disclosure of Negotiated Contract Terms would Increase Drugmakers’ Pricing Power; Cost Seniors, Plans & Medicare $67 Billion over Ten Years

(Washington, DC)—Pharmacy benefit management tools and techniques are projected to save Medicare and the commercial market more than $1.3 trillion dollars on prescription drug costs from 2008 to 2017, according to a new study conducted by PricewaterhouseCoopers (PwC) and released today by the Pharmaceutical Care Management Association (PCMA). PCMA is the national association representing America’s pharmacy benefit managers (PBMs), which lower the cost of prescription drugs for more than 210 million Americans with coverage provided through Fortune 500 employers, health insurers, labor unions, and Medicare Part D.

“This study confirms once again that pharmacy benefit management tools â?? including formularies, mail-service pharmacy, generic substitution and retail pharmacy networks â?? make prescription drugs more affordable and accessible for more than 210 million Americans,” said PCMA President Mark Merritt. “By pooling the purchasing ability of millions of consumers and using sophisticated tools to manage drug utilization while preserving broad access, PBMs will save public and private programs at least $1.3 trillion dollars by 2018. These savings help keep beneficiary premiums and out-of-pocket costs lower and rein in health spending over the long term.”

The new PricewaterhouseCoopers study, Pharmacy Benefit Management Savings in Medicare and the Commercial Market & the Cost of Proposed PBM Legislation 2008-2017, is a comprehensive look at the pharmacy benefit management marketplace. PBMs provide payors with a variety of tools and techniques that promote quality, improve outcomes, and drive down the cost of prescription drugs. These techniques include, but are not limited to, formulary development and management; negotiated price discounts; generic substitution; disease management; and mail-service pharmacy options. Among the key findings:

PBM Drug Discounts Average 29 Percent for Medicare, Commercial Market

PwC estimates, on average, pharmacy benefit management reduces prescription drug costs by 29 percent compared to retail purchases with no pharmacy benefit management support.

PwC estimates that total savings from pharmacy benefit management â?? for both Medicare and the commercial marketplace â?? will total $1.3 trillion dollars from 2008 to 2017.

In Medicare, PwC estimates that pharmacy benefit management will save beneficiaries and Part D $693 billion over the 2008 to 2017 period, including $43 billion in reduced prescription drug costs in 2008 alone.

Cost of Public Disclosure of Negotiated Contract Terms: $67 Billion over Ten Years

In the study, PricewaterhouseCoopers also examines the increased costs associated with PBM-related legislative proposals, including public disclosure of PBM contract terms with drugmakers and pharmacies. Public disclosure of drug-pricing contract terms would give the drugmakers the upper hand in negotiations and provide them more leverage to charge higher prices.

Some policymakers are looking to make these details of contract negotiations publicly available. Regrettably, these efforts would have the unintended consequence of driving prescription drug costs higher:

PwC estimates that public disclosure of contract terms would increase prescription drug costs by 4.1 percent, or about $127 billion from 2008 to 2017 for both Medicare and the commercial marketplace.

In Medicare alone, PwC estimates that public disclosure of contract terms would increase costs to beneficiaries, plans, and the federal government by $67 billion from 2008 to 2017.

“Public disclosure of private contract terms between PBMs and manufacturers would dilute the incentives for manufacturers to aggressively discount their products,” said Jack Rodgers, Ph.D., Managing Director of the Health Policy Economics Group at PricewaterhouseCoopers and a former CBO health analyst. “If required to make their private concessions public, manufacturers will reduce discounts for fear of having to extend the same terms to all purchasers.”

Recently, the Congressional Budget Office examined the cost to the federal government of public disclosure of drug-negotiation contract terms under Medicare and found it to be “less than $10 billion.” The PwC estimate provides a more comprehensive look at the cost impact in three key areas: 1) the federal government; 2) beneficiaries; and 3) Part D plans. PwC’s estimate of $67 billion over ten years in Medicare reflects the impact of spending by all three parties (including Medicare, plan costs, beneficiary costs, and out-of-pocket costs) and discounts in all forms (rebates and network discounts).

“While we believe CBO’s recent cost estimate on public disclosure comports with our findings, CBO only details the additional costs borne by the federal government,” added Dr. Rodgers. “PricewaterhouseCoopers has taken a more comprehensive look at the cost impact public disclosure would have on all parties â?? beneficiaries, Part D plans, and the federal government. When taken together, PwC estimates that public disclosure of contract terms would raise costs for Medicare and its beneficiaries by $67 billion over ten years.”

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PCMA is the national association representing America’s pharmacy benefit managers (PBMs), which lower the cost of prescription drugs for more than 200 million Americans with coverage provided through Fortune 500 employers, health insurers, labor unions, and Medicare Part D

Contact Information:
Phil Blando, 202-207-3614
Charles Coté 202-207-3605