In case you missed it, Joe Grogan, visiting senior fellow at the USC Schaeffer Center and former domestic policy adviser under the previous administration, asked Members of Congress a critical question in a new op-ed published in Townhall: Congress wants a better value. So why are they eliminating performance based payment?

In the piece, Grogan explores proposals in Congress that consider prohibiting performance-based incentives for pharmacy benefit companies successfully securing savings for patients and taxpayers. He writes:

“The latest egregious policy proposal, known as “PBM delinking,” illustrates this point, regulating how an employer can reimburse its PBM for services and hampering freedom of contract. The fact is, Congress should be encouraging innovative arrangements between PBMs, employers, and drug companies. Only flexibility in the market can deliver the reimbursement innovation that patients need to make pharmaceutical innovations affordable.”

“When a PBM negotiates with drug manufacturers for discounts in exchange for favorable coverage, these discounts are passed along to health plan sponsors to fund a variety of benefits for plan enrollees, including lower out-of-pocket costs and lower premiums. To encourage utilization and adherence, manufacturer rebates may reach higher thresholds in exchange for hitting certain sales metrics. PBMs typically receive a very small cut of the rebates secured for their clients, which include Federal and commercial payers, as payment for their services in negotiating with the drug companies. Opponents of this practice argue that this drives up list prices and costs patients more.”

Grogan also explains the negative consequences of advancing ‘delinking’ policies:

“Policies that eliminate performance-based payment move the PBM market back towards a fee for service system, increasing costs across the healthcare system. Doctors, pharmacists, and even drug company sales reps are all paid based on performance because it incentivizes desired outcomes. Incentives matter as much in the PBM market as they do for any other industry, and rebate-based payment aligns PBM incentives with those of their payer-clients… 

“In a post-delinking world, the PBM would be paid the same amount for each dispensation of the same type of drug, or a single flat fee for all their services, decreasing incentives to negotiate deep discounts. Rebates could decline by as much as 31 percent, and research suggests flat fee payment could hurt standalone PBMs more than their vertically integrated counterparts, furthering industry consolidation. Worse, employers would have fewer tools to deal with underperforming PBMs without performance-based pricing, their only recourse to switch PBMs with the expiration of a contract.”

Grogan also highlights the hefty price tag banning performance-based incentives will mean for patients:

“Additionally, delinking will impose costs on patients. A decrease in the size of negotiated rebates caused by the removal of incentives means plan premiums would increase by as much as $10 billion a year for seniors, causing patients to purchase less coverage and limit use of other services, with knock-on health effects increasing spending by as much as $600 million. Contrary to popular belief, list prices would probably increase in a model that bans pay-for-performance. Research suggests the rebates that drug companies currently pay would not be replaced by lower prices, resulting in the destruction of as much as $10 billion per year in Medicare drug savings because the intensity of negotiation would be greatly reduced.” 

A recent analysis from University of Chicago Professor of Economics Casey Mulligan published in the National Bureau of Economic Research (NBER) analyzed the economic impact of “delinking” – a proposal to ban list price-based compensation for pharmacy benefit companies, ending pay for performance incentives in Medicare Part D. Takeaways include:

• Financial Windfall for Big Pharma: The “delinking” policy has the potential to significantly increase drug prices, reduce drug utilization, and redistribute billions of dollars annually from patients and taxpayers to pharmacy companies and drug manufacturers. The result would be up to an additional $10 billion of revenue every year for drug companies, while costing patients and payers up to $18 billion.
• Taxpayers Pay More for Medicare: Annual federal spending on Medicare Part D premiums would increase $3 billion to $10 billion.
• Higher Premiums for Seniors in Medicare Part D: Reducing the negotiated rebates and discounts PBMs pass to health plans to lower drug costs for patients and health plans could lead plans to raise premiums to finance drug benefits. Eliminating the pay for PBM performance incentives could also reduce insurance coverage and appropriate drug utilization as costs for patients rise.

Compensating pharmacy benefit companies for being able to successfully secure rebates leads to higher rebates which plan sponsors use to help patients, including by lowering premiums, reducing cost-sharing at the pharmacy counter or providing more comprehensive benefit offerings. Any policy aimed at ‘delinking’ will only increase costs for patients, employers and taxpayers, with the only winner being Big Pharma.

Read the full Townhall op-ed from Joe Grogan HERE.

See the full NBER analysis from Casey Mulligan HERE.

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Joe Grogan joins a chorus of economic and health care experts who are urging Congress to reject banning performance-based payments for pharmacy benefit companies. See more HERE.

See PCMA’s guide to understanding the role and value of pharmacy benefit companies HERE.

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PCMA is the national association representing America’s pharmacy benefit companies. Pharmacy benefit companies are working every day to secure savings, enable better health outcomes, and support access to quality prescription drug coverage for more than 275 million patients. Learn more at www.pcmanet.org