Dr. Lawton Burns Says PBMs are Unfairly Blamed for High Drug Prices, Should Look At Big Drug Companies

In case you missed it, Lawton R. Burns, PhD, professor of health care management at the Wharton School of the University of Pennsylvania, was interviewed on the Wharton Business Daily where he defined the critical role of pharmacy benefit companies in the prescription drug supply chain.

During the podcast interview, Dr. Burns explained how pharmacy benefit companies negotiate with big drug companies to secure rebates that get passed onto health plans, which result in savings for patients and families. He said:

“Drug manufacturers have to sell their products through health plans. The health plans engage these intermediaries, the [pharmacy benefit managers] PBMs, to act as their agents to set up formularies where consumers, or health plan enrollees, can get those drugs on different tiers [of their health plans]…

The PBMs assist health plans in setting up formularies and ask for price discounts from drug manufacturers in exchange for selling their drugs to enrollees. They tell drug companies: “If you want more favored access on our formulary, which means lower copays and cost share [for enrollees], then we want an even bigger discount. You can sell more volume, but we want a lower list price, a lower net price.”

… PBMs get criticized endlessly for getting discounts — or rebates – from drug manufacturers to enable the latter to get on formularies. What does a PBM do with those rebates? Well, they pass almost all of them, sometimes all of them, to the health plans.”

Dr. Burns also noted that the main actors critical of pharmacy benefit companies are the ones who have to negotiate and contract with them, never the health plans or patients. He said:

“The biggest and most vocal critics of the PBM industry are the manufacturers that they contract with upstream and the pharmacies that they contract with downstream. But it’s interesting that the customers of the PBMs, or the health plans and the employers for whom the health plans work, don’t complain that much about the PBMs.

So you begin to wonder, well, just how much do we have to worry about here? The only people complaining are the ones who have to contract with the PBMs, not the ones who are their customers downstream. That should give everybody pause for thought.”

In an op-ed published in The Hill, Dr. Burns elaborates on pharmacy benefit companies’ negotiating powers against big drug companies that result in lower prescription drug costs for patients. He wrote:

“A core tactic in market competition is bargaining power. The historical narrative shows that PBMs amass purchasing volume to negotiate lower prices from drug manufacturers. [Health maintenance organizations] HMO-PBMs combined the prescription orders of scores (and then hundreds) of physicians on their medical staffs. Both routed these orders through a centralized negotiating hub to contract as “one” with manufacturers. The game has always been one of “leverage” over product suppliers and exchange of higher buyer volumes for lower unit price.

This game became more important for survival and customer service with intensification of input cost pressures and/or reimbursement pressures. When squeezed downstream, PBMs sought to squeeze manufacturers upstream. PBM consolidation has helped them to negotiate lower input prices and keep annual net sales price growth for drugs in the low single digits (~3 percent) for beneficiaries. If one really wants to start pointing fingers at the biggest culprits in consolidation and rising cost, one does not have to look very far: “Big Med.”

…In sum, PBMs promote competition in healthcare and help to reduce prices.

PBMs get drug makers to compete on price and get pharmacies to reduce their fees. PBMs also compete with one another in terms of claim processing fees and a host of client services to get contracts with insurers and employers. They are, thus, pro-competitive. This is not a blanket defense of PBMs and all their trading practices. However, history suggests they deserve a little more credit (and perhaps our thanks).”

Dr. Burns has also written and published a book titled, “The Healthcare Value Chain: Demystifying the Role of GPOs and PBMs,” which takes a deep look inside the prescription drug supply chain and the critical role pharmacy benefit companies play in securing savings for patients and families.

Listen to Lawton Burns’ full interview with the Wharton Business Daily HERE.

Read the full The Hill op-ed HERE.

Learn more about the role and value of pharmacy benefit companies HERE.

Dr. Burns is not affiliated with PCMA.