As you will see, clients remain slightly more satisfied with the perceived transparency of smaller PBMs compared with the Big Three PBMs—CVS Caremark, Express Scripts, and Optum Rx.
However, plan sponsors are dissatisfied with transparency about how both large and small PBMs make money. Smaller PBMs have an edge, but it’s narrower than you might think.
Perhaps PBMs’ clients are unable or unwilling to negotiate better deals, write more effective contracts, and switch to more satisfying relationships. Or maybe they don’t mind the current system, despite the challenges for patients. Some argue that transparency could swoop down to solve this problem. Riddle me this: Should we watch what plan sponsors say, or what they do?
Read on to see what you think of my arguments below. Then, click here to share your thoughts with the Drug Channels community.
HOLY BENEFIT MANAGEMENT, BATMAN!
The Pharmaceutical Strategies Group (PSG) just released its 2024 Pharmacy Benefit Manager Customer Satisfaction Report. (Free download with registration.) The survey responses come from benefits personnel at 248 plan sponsors representing at least 138 million covered lives. Employers accounted for 55% of the respondents, followed by health plans (30%), health systems (8%), and union groups (7%).
PSG measured plan sponsors’ satisfaction with their PBM on a scale of 1 to 10, in which 1 equaled “not at all satisfied” and 10 equaled “extremely satisfied.” Respondents also answered a wide array of additional questions about satisfaction with various PBM services and programs. If you’re interested in how plan sponsor clients view PBMs, I recommend that you download the full report.
Starting on the report’s page 32, PSG analyzed aggregated differences between two types of PBMs:
- Big Three PBMs, which included CVS Health, Express Scripts, and Optum Rx
- Other PBMs, which included 24 smaller PBMs
FYI, Drug Channels Institute profiles both large and small PBMs in Sections 5.2.2. and 5.2.3. of our 2024 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
HIDING IN THE SHADOWS?
Plan sponsors’ average overall satisfaction with their PBMs was 7.6 (out of 10), which is equal to the previous year’s figure. Over the past 10 years, this overall figure has ranged from 7.6 to 8.2. The lowest ratings were recorded over the past two years, although I don’t think that this slight change has been statistically or practically significant.
The Big Three PBMs’ overall satisfaction was 7.4, which was only 0.1 point lower than the 2023 figure. The other 24 PBMs collectively scored 7.9, which was equivalent to last year’s score. Depending on how you feel about the large PBMs, a 0.5 gap on a 10-point scale will be either meaningful or trivial.
For 2024, plans provided their views on satisfaction with three measures of PBM transparency:
- Satisfaction with overall PBM transparency
- Level of transparency: Rebates
- Level of transparency: Sources of revenue
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The results highlight intriguing gaps between larger and smaller PBMs:
- Clients of smaller PBMs are somewhat more satisfied with the perceived transparency of their PBM compared with clients of larger PBMs. For 2024, 25% of plan sponsors that worked with the Big Three PBMs are dissatisfied with the degree of transparency from their PBM, compared with 17% of plan sponsors that worked with the smaller PBMs. By contrast, 72% of plan sponsors that worked with smaller PBMs are satisfied with their PBM’s transparency, compared with 56% of plan sponsors that worked with the Big Three PBMs.
Given the public rhetoric about the larger companies, the gap between the larger and smaller PBMs seems smaller than I had expected. What’s more, these figures are almost identical to the results from the 2023 survey.
- Smaller PBMs win big on transparency to rebates. The largest gap between large and small PBMs comes from transparency to rebates. About two-thirds of plan sponsors are satisfied with transparency to rebates from smaller PBMs, compared with only 38% of the larger PBMs’ clients.
There is one interesting twist to this finding. Many smaller PBMs do not have the scale to negotiate favorable formulary rebates and may lack a claims processing system. In these situations, a larger PBM acts as an aggregator for these smaller entities, often through PBM-owned group purchasing organizations.
In my opinion, the presence of aggregators muddies the transparency discussion. A PBM that accesses rebates through an aggregator or purchasing group may not receive 100% of the rebates paid by the manufacturer. Consequently, a smaller PBM that touts “100% rebate pass-through” may only be able to pass through the less-than-100% portion of the rebates that they received. It's unclear how this economic reality would affect plan sponsors’ perceived satisfaction.
- Plans sponsors are not satisfied with transparency to their PBMs’ sources of revenues. PBMs now pass through most formulary and price protection rebates to plan sponsors. Hence, PBM compensation models have evolved so that PBMs’ profits now derive from revenue sources that may be less transparent to some plan sponsors. Read this recent Drug Channels article for a list of novel PBM revenue sources.
Consequently, I am not surprised to see that only 15% of plan sponsors are satisfied with the transparency of the large PBMs’ revenue sources, while nearly half (46%) are dissatisfied.
However, I was surprised that only 42% of plan sponsors are satisfied with transparency for the smaller PBMs, while only 30% were dissatisfied. Most of the smaller PBMs differentiate themselves with promises of transparency. Apparently, not all plan sponsors are convinced.
The satisfaction data come with a gigantic caveat: The causality behind these relationships is not readily apparent. Smaller plan sponsors tend to work with smaller PBMs. In the PSG sample, PBM clients using smaller PBMs had plans with about 5,100 covered lives, while those using larger PBMs had about 11,500 covered lives.
Therefore, plan sponsor satisfaction surveys may reflect self-selection by the PBMs’ clients. Plan sponsors with fewer internal resources choose smaller PBMs with more transparent and easier-to-evaluate business and profit models, while larger plans choose larger PBMs.
This poses a question that only the world’s greatest detective could answer: Why do buyers of PBM services remain dissatisfied? Most respondents to the PSG survey indicated a powerful desire for change. Almost half were willing to be “part of disruptive change” to the PBM industry. (See page 51 of the report.)
I’m not sure we should believe them.
As I noted in my comments on the Federal Trade Commission’s recent report, critics of the PBM industry need to address the following questions:
- If plan sponsors are so unhappy with the Big Three PBMs, why don’t they restructure their PBM contracts? There is a small army of consultants and lawyers that analyze PBM relationships, advise on contracting, and assist with negotiations. Plan sponsors should be able to make better decisions—if they put in the effort. Caveat emptor!
- If large PBMs don’t provide sufficient value, why do plan sponsors keep hiring them? It’s not sensible to assume that large, for-profit companies don’t like money. So why would they choose to overpay for subpar services—even if those services are a small part of the overall enterprise?
- Why don’t more plan sponsors work with one of the many smaller PBMs that would surely welcome the business opportunity? The Big Three PBMs handle nearly 80% of all equivalent prescription claims, but a smaller share of covered lives. If a smaller PBM has a better mousetrap, we should expect plan sponsors to beat a path to their door. As Mark Cuban has argued: “There is not a single thing that those big three PBMs do that is unique or can’t be replaced by independent rebate-avoiding PBMs.”
- Why don’t plan sponsors have the right incentives to fix perceived problems? By now, the warped incentives of the current system are visible to any plan sponsor who is paying even the slightest bit of attention. Yet for PBMs' clients, it’s the same bat time, same bat drug channel.
Plans primarily use rebates to offset overall healthcare costs and reduce general premiums, rather than reduce the out-of-pocket prices paid by the patients whose prescriptions generated the rebate funds. They therefore care most about premiums, rather than “transparency,” "rebates," and the complex financing mechanics behind premiums. After all, premiums are visible to everyone at a company or who shops for a health plan.
And while no one will ever say it aloud, we can’t rule out adverse selection motives. Lower premiums attract younger and healthier beneficiaries and employees, whereas high out-of-pocket costs discourage sicker and older people. The slow adoption of low-priced Humira biosimilars suggests that many are not ready to abandon their addiction to rebates or reject the high-list products that inflate the gross-to-net bubble while reducing overall premiums.
Consequently, there is no easy resolution to the challenges. Mark Cuban has been telling CEOs that “they're getting ripped off." But that sounds a lot like “raising awareness,” which often doesn’t lead to changes in behavior.
Perhaps PBMs are the providers that plans deserve, but not the ones they need.
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