Tag Archive pharmaceutical rebates

Merck Data Discredits PBM-Sponsored Study of Brand Drug Price Inflation

Lawrence W. Abrams No Comments

Summary

We present data supplied by the drug company Merck that discredits a study sponsored by the pharmacy benefit manager (PBM) trade association showing no correlation between PBM rebate rates and brand drug price inflation.

Introduction

The management of the prescription (Rx) drug benefit portion of health care plans has become the domain of contracted specialists called pharmacy benefit managers (PBMs).

The three largest, independent PBMs — Express Scripts, CVS Health,  and Optum Rx, (known as “The Big 3”) control 73% of the total Rx claims processed the United States in 2015.

Since the early 2000s, PBMs have continually come under attack for not acting in the best interest of their clients.  We have written a number of papers since 2004 pinpointing an opaque reseller business model as the source of this misalignment.

In a 2017 paper, we have presented the case that there have been 3 distinct phases of the PBM business model over the past 15 years demarcated by radical shifts in the primary source of gross profits:

  1. up to 2005 — reliance on retained rebates from small molecule brand drugs;  
  2. 2005 – 2010 — reliance on mail order generics Rx margins;
  3. 2010 – today — reliance on retained rebates from specialty drugs.

To compensate for declining mail order generics Rx margins after 2010, PBMs saw the rising trend of specialty and biotech drugs as a promising basis for a renewed reliance on retained rebates.

But there are several constraints today on this phase of the PBM business model.

The first constraint in that the specialty drug Rx volume “basis” for collecting rebates today is a lot less than it was ten years ago when small molecule drugs were the basis for rebates.

The second constraint is a newfound awareness by clients of PBMs that retained rebate dollars can be substantial yet an opaque source of PBM gross profits.   As a defensive move, CVS Health finally declared publicly on their website that,

“CVS Caremark was able to reduce trend for clients through… negotiations of rebates, of which more than 90 percent are passed back to clients.”

The problem facing PBMs today is how to derive a majority of gross profits from specialty Rx while maintaining a transparent rebate retention rate at 10% on average.

In order to show how PBMs can overcome these constraints,  we have deconstructed data supplied by the drug company Merck (see below) that depicts a growing a divergence between their list prices for brand drugs (gross) and the prices they receive after deductions of rebates paid to PBMs (net).

This growing divergence has come to be known as   “gross-to-net rebate bubble”   Other drug companies are publishing similar data as a way of defending themselves against charges of double-digit price-gouging tactics.

This is a graphic depiction of Merck’s gross-to-net price bubble:

Our deconstruction of the Merck data lays out a step-by-step sequence of how PBMs and drug companies might negotiate the parameters of a rebate deal today under the constraint that PBMs have to grow gross profit DOLLARS over time while fixing the rebate retention rate at 10%.

We can use the same Merck-supplied data to plot annual % increases in list prices (line 1 above) against the annual negotiated rebates and discounts as a % of the list prices (line 3 above).  The result shows a significant positive correlation coefficient ratio of .653

PBMs Under Attack for Causing Drug Price Inflation

In January, 2017 newly elected President Donald Trump attacked drug companies in press conference for “getting away with murder” by raising drug prices at double-digit rates in recent years.

Since the Trump rant,  there have been articles in the New York Time, the Los Angeles Times and other publication where both retail pharmacists and drug companies are quoted as saying it is PBMs that drive drug price inflation.  Here is a quote from the New York Time article,

“Want to reduce prescription drug costs?” the pharmacists argued during their visits. “Pay attention to the middlemen.”

The PBM-Sponsored Study

The PBM trade group association Pharmaceutical Care Management Association (PCMA) commissioned a study by the health care consulting company Visante to provide data relevant to the issue of the causes of recent drug price inflation.  

In April 2017, the PCMA announced in a press release that results of the Visante study were available on-line.  The key result:

“There is no correlation between the prices drug companies set and the rebates they negotiate with PBMs”

The press release also provided a quote by PCMA President and CEO Mark Merritt:

“This study debunks the notion that the prices drugmakers set are contingent on the rebates they negotiate with PBMs…”

Below is a screenshot of the graph depicting the finding of “no correlation”

Reconciling Differences in Results: A Question of Sample Chosen

The Merck data shows a significant positive correlation between annual brand drug list price inflation and annual rebates rates that Merck has negotiated with PBMs.  The PBM-sponsored study shows no correlation.

Obviously, a key reconciling difference revolves around the sample chosen.  

The Merck results are heavily weighted by three brand drugs.  Merck has reported In its 2017 annual 10-K report that about one-third of its drug sales comes from three brand drugs: (1) the diabetes drug Januvia; (2) the cholesterol drug combinations Zetia/Vytorin; and (3) the cervical cancer prevention vaccine Gardasil.  

In terms of rank among the top 200 selling brand drugs, Januvia ranked #19, Zetia #38, and Gardasil #56 according to a 2015 listing.

Each of these drugs are what we call highly “rebatable” — in therapeutic classes where there are a number of other brand that are therapeutically equivalent.  

Merck competes vigorously with other drug companies for preferred status on formularies which list drugs approved by PBMs for coverage.  Competition insures that winning bids are high for placement in these therapeutic classes.  Merck has to “pay to play” and covers higher and higher rebate percentages paid to PBMs with list price inflation.

To achieve such high rankings,  it means that Merck must be winning placement for its top selling drugs with each of the Big 3 PBMs who control collectively 73% of the market.

While Merck’s sample size is small compared to the PBM-sponsored study, Merck’s data represents the essence of what has been going on between Pharma and Big 3 PBMs since 2010.

The sample size of the PBM-sponsored study is much larger. It contained a

“sample of the top 200 self-administered, patent protected, brand-name drugs, 24 drugs were excluded because of incomplete data for the study time period, leaving a remaining sample of 176 drugs for analysis”.

First, the initial sample size of 176 was aggregated in 23 therapeutic classes with the averages used in plots.  No mention is made as to whether the 23 data points represent simple or averages weighted by revenue.  In any case, samples of averages smooth out differences in the raw data.

Second, the larger sample size could contain significant number of drugs that just are not “rebatable” — in “aging” therapeutic classes with a 4+ brand drugs that are therapeutically equivalent (“me-too drugs”) plus a number of off-patent, low cost generic drugs.

In short, we believe that the sample used in the PBM-sponsored study is a smoothed-out representation of the outcomes of negotiations between drug companies with “rebatable” brand drugs and the Big 3 PBMs.

 

Blame Pharmacy Benefit Managers For Driving Drug Price Inflation

Lawrence W. Abrams No Comments

Summary:

We start with a review of the history of the opaque pharmacy benefit manager (PBM) reseller business model. We present our prior estimates of the distribution of PBM gross profits over the past decade showing that they have become dependent today on retained rebates from specialty drugs.

Next, we present numbers showing how PBMs today have painted themselves into a corner with a relatively small basis for drug rebates coupled with promises to hold their overall average rebate retention rate, a term we coined in 2003, to a “reasonable” 10%.

We conclude the paper with a deconstruction of the growing divergence between brand drug list prices (gross) and the prices Pharma actually receive after PBM rebates (net) — the so-called “gross-to-net price bubble”.  We use data supplied by the drug company Merck to go through a step-by-step sequence of how PBMs and drug companies might negotiate the parameters of a rebate deal today under the constraint that PBMs have to grow gross profit DOLLARS over time while fixing the rebate retention rate at 10%.  

We show that the outcome of such constrained negotiations produces a gross-to-net price bubble.

The “Gross-To-Net Price Bubble”

Before 2017, there had been two well-publicized exposes of massive increases in the list price of off-patented brand drugs that were rubber-stamped by pharmacy benefit managers (PBMs).  This included Mylan’s EpiPen and Martin Shkreli and his Turning Pharmaceutical’s HIV drug Daraprim.

There are now numerous reports providing quantitative evidence of outrageous increases in specialty brand drugs list prices over the past 5 year.  For example, consider this table of list price inflation between 2012-7 of Multiple Sclerosis drugs taken from Congressman Michael Vounatsos’ request to manufacturers for more information:

In April 2017, Adam Fein first reported on his blog Drug Channels that the health information company QuintilesIMS had just published  aggregate trend data for brand name drug prices before (gross) and AFTER rebates (net) had been paid to pharmacy benefit managers (PBMs).

The data showed  two trends beginning in 2011: (1) gross prices were growing faster than net prices; (2) the divergence itself was growing.

Dr. Fein coined the term “gross-to-net rebate bubble” to describe (2) above, which has become the standard lexicon for the phenomena. Below is graph summarizing QuintilesIMS latest findings taken from an April 2017 blog post by Dr. Fein:

The PBM Business Model:  2005 – 2010

In an earlier 2017 paper, we presented the case that there has been three distinct phases of the pharmacy benefit manager (PBM) business model over the past 15 years. Each has been demarcated by radical shifts in their primary source of gross profits:

  1. up to 2005 — reliance on retained rebates from small molecule brand drugs;  
  2. 2005 – 2010 — reliance on mail order generic Rx margins;
  3. 2010 – today — reliance on retained rebates from specialty drugs.

Below is graph of our estimates of the distribution of PBM gross profits over the past 15 years.

The majority of PBMs gross profits between 2005 – 2010 came a mail order generic Rx.   The Big 3 PBMs devised a strategy of tacitly colluding with their counterpart Big 3 retail pharmacies — Walgreen, CVS, and Rite-Aid — to hold up margins on generic Rx fills.  

Essentially the Big 3 PBMs have the power to set their competitors’ prices, an anti-competitive weapon if there ever was one.   PBMs gave retailers fat margins for 30-day generics in return for promises not to compete on 90-day Rx.  Then, PBMs set the prices of generic Rx filled by captive mail order operations slightly less than retail to give the appearance of alignment with client interests.  But, the supply chain hold up still allowed for fat mail order generic Rx margins.

The first blow to this scheme came in late 2006 when Walmart saw the fat retail margins and began a disruptive  $4 / generic Rx campaign. They could do this as an “outsider” retailer because their business model wasn’t dependent on fat pharmacy margins subsidizing the rest of the store.

The final blow to this “hold-up” scheme came around 2008 several years after the vertical merger of the pharmacy retailer CVS and the PBM Caremark.   Consistent with the business model of the merged company, CVS-Caremark began offering preferred provider pharmacy networks featuring lower  unit prices at retail in return for Rx volume.  

While this managed care technique is used successfully in reducing hospital and physician costs, it has never really been instituted by PBMs prior to the CVS-Caremark merger.  This absence had been an obvious sign to us at the time of tacit collusion between the Big 3 retail pharmacies and the Big 3 PBMs.

The PBM Business Model: 2010 – today

To compensate for declining mail order generic margins after 2010, PBMs saw the rising trend of specialty and biotech drugs as a promising basis for a renewed reliance on retained rebates.

But there were several problems with the goal of deriving a majority of gross profits from specialty drug rebates.    Reconstructing how PBMs solved these problems is the key to understand why PBMs, not Pharma, drive the gross-to-net drug price bubble today.

First, assume that since 2010, the Big 3 PBMs needed additional gross profits each year from specialty drug retained rebates to replace incremental losses in margins from mail order generics Rx.

This creates a problem in that the specialty drug Rx volume “basis” for collecting rebates today is a lot less than it was ten years ago when small molecule drugs were the basis for rebates.  How much less?  The Pew Charitable Trust Foundation sponsored a study which found that in 2015 special Rx comprised only 1% of total Rx.  

A decade ago, we estimated that about 20% of total Rx filled were “rebatable” brand drugs, i.e. in therapeutic classes with a few other brand drugs that were therapeutic equivalents.  So instead of 1:100 specialty Rx to total Rx basis differential, we arrive at a 1:20 “rebatable” specialty drug Rx to “rebatable” small molecule brand drug Rx basis differential.

In other words,  ten years ago PBMs has 20 times the volume of Rx available to them to use as a basis for generating retained rebates as they do today.

The second constraint that PBMs have today is an the awareness by their clients that retained rebate dollars can be substantial yet opaque source of PBM gross profits.    

Today,  there seems to be an order of magnitude more articles critical of PBMs in general, and retained rebates specifically,  As a defensive move, CVS Health finally declared publicly on its website that,

“CVS Caremark was able to reduce trend for clients through… negotiation of rebates, of which more than 90 percent are passed back to clients.”

The problem facing PBMs today is how to derive a majority of gross profits from specialty Rx while maintaining a transparent rebate retention rate at 10% on average.

The business model of the drug companies is simple and stable by comparison.  Sure, drug companies want to maximize profits just like the PBMs.  But drug companies are not constrained as much as the Big 3 PBMs and don’t need a convoluted gross-to-net price scheme to achieve their targets.

It is important to remember that it takes two parties to negotiate drug rebate deals. Drug companies have some power in determining how these deals are structured, especially if there are only one or two other brands drugs that are therapeutic equivalents.

The Big 3 PBMs today have a lot of power in rebate negotiations.  Drug companies have a lot to lose if negotiations fall through.  Exclusion of a single drug from one of Big 3 PBMs’ national lists of drugs covered by an insurance plan  — called formularies — can cost a widely-used or expensive drug $3+ Billion dollars in lost revenue.

It is the Big 3 PBMs who drive schemes involving high-list-price / high-rebate specialty drug deals.  For now, drug companies are accomplices along for the ride. They are culpable, but much less so than PBMs.  

A Deconstruction of Merck’s Gross-to-Net Drug Price Bubble

We conclude the paper with a deconstruction of the growing divergence between brand drug list prices (gross) and the prices Pharma actually receive after PBM rebates (net) — the so-called “gross-to-net price bubble”.  We use data supplied by the drug company Merck to go through a step-by-step sequence of how PBMs and drug companies might negotiate the parameters of a rebate deal today under the constraint that PBMs have to grow gross profit DOLLARS over time while fixing the rebate retention rate at 10%.

We show that the outcome of such constrained negotiations reproduces produces a gross-to-net price bubble.

Below is a screenshot from a Merck memo laying out for all to see their “gross-to-net drug price bubble”.  Other drug companies are publishing similar data as a way of defending themselves against charges of “double-digit” price-gouging tactics.

This is a graphic depiction of Merck’s gross-to-net price bubble:

Below we build a spreadsheet which “deconstructs” Merck’s bubble for a hypothetical specialty drug.  It  shows how PBMs can grow retained rebates dollars via a combination of growing rebate percentages while maintaining a retention rate fixed at 10%.

A larger view of the spreadsheet above:

 

Note that despite being constrained to a 10% rebate retention rate, this deal scheme give PBMs yearly retained rebate DOLLARS that are 176% greater that what they received 6 years earlier.

Some have predicted that the divergence between gross and net prices will level off after 2017.

We tend to agree with that prediction as the current bubble was fueled by PBMs’ need to REPLACE a declining trend in gross profits from mail order generic Rx.  With that loss fully offset, PBMs could grow gross profits in the future by maintain a steady divergence between list prices and net prices.

Pharmacy Benefit Managers: The Sopranos of the Specialty Drug Market

Lawrence W. Abrams No Comments

Summary:

We present the case that Big 3 PBMs — CVS Health, Express Scripts, and OptumRx —  and the Sopranos are both gatekeepers who limit access to otherwise competitive markets.  In return, PBMs and the Sopranos take an outsized slice of the super-competitive profits.  The analogy is presented in the diagram below:  

 

The Sopranos Business Model

In the pilot episode of the HBO hit series The Sopranos, Tony Soprano complained to his therapist Dr. Melfi about the stresses of being a “waste management consultant.”

Tony’s “consulting practice” consisted of managing the competing interests of various sanitation companies wishing to win lucrative garbage collection contracts put out to bid by suburban New Jersey municipalities.

Tony guaranteed garbage collection companies exclusivity in bidding on any given municipal garbage contract.  This exclusivity was insured via dispatching his nephew Christopher to persuade the unfavored that bidding on a given contract would be dangerous to their health.  

In return for exclusivity, Tony and his crew received a large slice of the super-competitive profits earned by the favored bidder.

The Sopranos provide no real value added here.  Their operation was designed to transfer value, a.k.a. theft,  from down-steam consumers to sanitation companies while taking an outsized slice of the transfer.

The competition-limiting gatekeeper role can be stressful.  Hence the need for Tony to seek out Dr. Melfi. Tensions can break out among the sell-side sanitation companies with cries of favoritism and “unfairness” in the Sopranos cut of the overall surplus.  Instead of a psychiatrist, maybe Tony should have sought out the advice of game and bargaining theorists with knowledge of Nash equilibriums?  

Being the wisest guy in the Soprano crew,  Tony was careful not to play favorites and cognizant of being too greedy. That way no sanitation company was motivated to break ranks and seek out other gatekeeping crews like the DiMeo’s or the Lupertazzi’s.

Note that the few players on both the sell-side — sanitation companies — and the buy-side — Mafia crews — mattered here.  Had there been 10+ sell-side sanitation companies, there would have been no way Tony’s nephew Christopher could have the time to enforce limited competition for bids.  Competitive bidding would breakout eliminating super-competitive profits.

Also,  had there been 10+ Mafia crews competing with the Tony’s crew, he would not have been able to demand and get the outsized kickbacks that he got.

In economic terms, a market characterized by a few buyers and a few sellers is known as a bilateral oligopoly.  Prices are negotiable as the gain or loss of single trading partner has a material effect.

Note that business model matters here.  Tony could have been a legitimate fee-for-service waste management consultant helping NJ municipalities structure bid contracts and perform due diligence on sanitation companies.  Under this business model, Tony’s interests align with his buy-side clients’ interests in getting most cost-effective service. There would have been no “theft” from downstream consumers.

The Pharmacy Benefit Manager Business Model

The management of the prescription (Rx) drug benefit portion of health care plans has become the domain of contracted specialists called pharmacy benefit managers (PBMs).

The three largest, independent PBMs — Express Scripts, CVS Health,  and Optum Rx, (known as “The Big 3”) control 73% of the total Rx claims processed the United State in 2015.

PBMs provide a bundle of managed care services designed to provide a cost-effective Rx drug benefit to plan sponsors and their members.  

Since the early 2000s, PBMs have continually come under attack for not acting in the best interest of their clients.  We have written a number of papers since 2004 pinpointing an opaque reseller business model as the source of this misalignment.

The PBM reseller business model is in stark contrast to the two other transparent business models used by managed care companies:  

  1. a self-insurance agency model with 100% pass through of claims expenses to plans accompanied by per-member-per-month (PMPM) management fees;
  2. a risk-based insurance model with capitated premiums paid by plans.

The current PBM business model features five major streams of revenue and gross profits:

  1. “spread margins” on top of retailers own margins and lately, direct and indirect reimbursement (DIR) fees, that are collected from retail pharmacies in return for being included in preferred provider networks;
  2. claims processing and data fees;
  3. rebates given by Pharma on small molecule brand drugs in return for preferred status on formularies;
  4. rebates give by Pharma on speciality (biotech) drugs in return for preferred status on formularies;
  5. profit margins on 90-day generic Rx filled by captive mail order operations.

Since we began following PBMs in 2002, the distribution of gross profits has changed dramatically. These radical shifts in such a short period of time is unprecedented among Fortune 50 companies.

We see 3 distinct phases of the PBM business model over the past 15 years demarcated by radical shifts in the primary source of gross profits:

  1. up to 2005 — reliance on retained rebates from small molecule brand drugs;  
  2. 2005 – 2010 — reliance on mail order generic Rx margins;
  3. 2010 – today — reliance on retained rebates from specialty drugs.

Below is a summary graph of our work on estimating the distribution of PBM gross profits by source over time.  Details about its derivation and causes of shift can be found in our 2017 paper Three Phases of the Pharmacy Benefit Manager Business Model.

These radical changes are indicative of the opaqueness of the PBM business model to downstream customers — health insurance plan sponsors.  It is also indicative of the power of the Big 3 PBMs to negotiate rapid changes in payment streams with upstream suppliers — retail pharmacies and brand drug companies –who tacitly collude with them to hold up prices and divide up the super-competitive profits in two intermediate market bilateral oligopolies.

PBMs As Competition-Limiting Gatekeepers to Markets

As we have summarized earlier, the PBM business model relies heavily on retaining a portion of rebates received from Pharma in return for placement on a list of drugs covered by a Rx benefit plan.  That list of covered drugs is called a formulary.

The purpose of this section is to present our conceptualization of formularies as a group of markets.  On the sell-side are brand drug companies with close, but not perfect substitutes, call therapeutic equivalents.  On the buy-side are the Big 3 PBMs representing plan sponsors and their members.

Economists call such markets bilateral oligopolies.  We have written a number of papers about the Pharma – PBM bilateral oligopoly available for download free on our website.

Rebates are essentially tariffs paid by drug companies to PBMs for access to markets with limited competition.

The formulary is a lookup table that PBMs add to their claims processing systems that checks a Rx request against a list of therapeutic equivalents preferred by the plan.  The formulary is designed to limit Rx to the most cost-effective drug(s) in each of 50-80 different therapeutic classes.  

In terms of pinpointing where drug companies and PBM negotiate rebates, it is important to note that there are 3 basic types of therapeutic classes or markets:

  1. competitive — featuring at 2+ drugs that have lost patent protection and have lower cost generics that are therapeutic equivalents to remaining brands;
  2. monopolistic – featuring a single first-to-market “innovative” patented drug;
  3. oligopolistic — featuring a small number of patented drugs that are therapeutic equivalents that becomes increasingly competitive over time as new “me too” drugs enter and older drugs lose patent protection opening the door to generics or “biosimilars”.

In the case of (1),  drug companies are powerless and prices fall to marginal costs so no rebates can be paid. Also, no substantial rebates are paid in the case of (2). Here the monopolist drug company is all powerful knowing that they must be included.  It is only in case (3), the bilateral oligopoly, that prices are negotiated among the few.

Our assessment of where rebates are paid was confirmed by a  2005 FTC study of PBM operations.  It confirmed that Pharma pays rebates only on a small portion of brand drugs. It does not pay on brand drugs with a monopoly position.  Nor does Pharma pay on brand drugs in aging therapeutic classes where most of the competing brands have lost patent protection.

The FTC study also confirmed that Pharma negotiates brand rebate deals only with PBMs, and not retail drugstore chains like Walgreen and CVS. Size does not matter on the buy-side if an entity does not also have the power to affect the demand for brand drugs through discretion in formulary design and compliance.

On the other hand, it is generic drug manufacturers that negotiate volume discount deals with drugstores because only dispensing pharmacies have the power to choose from an array of suppliers of perfect substitutes.  

Again, no rebates would be paid even in case (3) if there were many PBMs competing for business.  PBMs would be price takers in this case as any attempt to extract a lower price from a drug company and the drug company would walk away from the deal with little loss in business.

Finally, there would be no concerns about PBMs resorting to misaligned formularies  and opaque rebate retentions if they would have adopted a transparent fee-for-service and 100% pass through business model.

In other words, PBMs as countervailing powers, a term coined by economist J.K. Galbreath in the 1950s, have the potential to enhance consumer welfare.  But, countervailing powers with a misaligned business models won’t. See our 2007 paper  PBMs As Conflicted Countervailing Powers.

The Connection Between Formulary Design and Rebates

We conclude this paper with an observation that PBMs have changed their approach to formulary design over the past 15 years.  We are just beginning to figure out the causes of this change.  

But the basic idea, appearing first in our 2005 paper on PBMs as bargaining agents, is this:

The more a gatekeeper limits competition, the more potential entrants will pay for access.  Small molecule therapeutic classes tend to be open, hence less valuable to entrants.  Specialty and biotech therapeutic classes tend to be closed, hence more valuable to the single favored entrant.  

Today, PBMs need to squeeze everything they can from access to specialty therapeutic classes because there are lot fewer of those classes than the small molecule drug therapeutic classes that they relied on before 2010.   

A recent paper of ours presents in more detail how PBMs  coax Pharma into having high list prices so that they can take back most of the inflated list price via opaque deep discount rebate rates.

Today PBMs struggle with a rebate “basis”  that is a lot less than it was ten years ago.  How much less?  A study sponsored by the Pew Foundation found that in 2015 specialty Rx comprised only 1% of total Rx.  

A decade ago, we estimated that about 20% of total Rx filled were “rebatable” brand drugs, i.e. in formulary classes with a few other brand drugs that were therapeutic equivalents.  So instead of 1:100 specialty Rx to total Rx basis differential, we arrive a 1:20  “rebatable” specialty drug Rx to “rebatable” small molecule brand drug Rx basis differential.

In other words,  ten years ago PBMs has 20 times the volume of Rx available to them to use as a basis for generating retained rebates as they do today.

It is the greatly reduced basis for generating retained rebates today that is root cause of formulary designs with closed therapeutic classes. The greatly reduced rebate basis is also a factor in such new phenomena as the gross-to-net drug price bubble, and a growing lists of drugs outright excluded from formularies.

 

Pharmacy Benefit Managers – Research Papers

Lawrence W. Abrams No Comments

All papers downloadable as .pdf  for free

CURRENT PAPERS ON PBMs

It is Pharmacy Benefit Managers that Drive the Gross-to-Net Drug Price Bubble (09/17)

AbbVie’s Mavyret Hep C Drug Pricing Is Disruptive to the PBM Business Model (09/17)

The FTC and Pharmacy Benefit Managers: A History of Failed Economic Analysis, forthcoming

Merck Data Discredits PBM-Sponsored Study of Brand Drug Price Inflation (09/17) 

Pharmacy Benefit Managers: The Sopranos of The Specialty Drug Market (09/17)

THE PHARMACY BENEFIT MANAGER BUSINESS MODEL

Pharmacy Benefit Manager Valuation and Profitability: Business Models Matter (07/09)

Medco As a Business Model Imperialist (07/08)

Quantifying Medco’s Business Model: An Update (11/08)

A Tale of Two PBMs: Express Scripts vs. Medco (11/05)

Searching for Windfall Profits from a Change in the AWP Markup Ratio (09/09)

Exclusionary Practices in the Mail Order Pharmacy Market (09/05)

Quantifying Medco’s Business Model (04/05)

Estimating the Rebate-Retention Rate of Pharmacy Benefit Managers (04/03)

Walgreen’s Transparency Issue (11/03)

 UNDERSTANDING DRUG REBATES THROUGH BARGAINING THEORY

Pharmacy Benefit Managers as Conflicted Countervailing Powers (01/07)

Who is Best at Negotiating Pharmaceutical Rebates? (12/05)

The Role of Pharmacy Benefit Managers in Formulary Design: Service Providers or Fiduciaries?
Journal of Managed Care Pharmacy Vol. 10 No. 4 July/August 2004 pp 359-60

PBMs as Bargaining Agents
Paper presented at the 80th Annual Western Economic Association Meeting, July 6, 2005, San Francisco

PBMs as Bargaining Agents
PowerPoint presented at the 80th Annual Western Economic Association, Meeting, July 6, 2005, San Francisco

The Effect of Corporate Structure on Formulary Design: The Case of Large Insurance Companies
Poster Presentation, ISPOR 10th Annual Meeting, Washington DC, May 2005

PREFERRED PROVIDER PHARMACY NETWORKS

The CVS-Caremark Merger and the Coming Preferred Provider War (12/06)

Medicare Part D and Preferred Provider Pharmacy (04/05)

The CVS-Caremark Merger: The Creation of an Elasticity of Demand for Retail Rx (11/06)

Contrary to What Wall Street and the FTC Say, The PBM Business Model is Misaligned (11/05)

Sins of Omission’: A Review of the FTC Study of PBM Conflict of Interest (10/05)

THE EXPRESS SCRIPTS – ANTHEM 2009 DEAL

Express Scripts – Anthem 2009 Deal as Double Trouble Front (08/09)

Express Scripts Misses on Guidance of Anthem’s NextRx PBM Business Article Written for Seeking Alpha, November 4, 2010

THE FUTURE OF CONSUMER-DIRECTED PHARMACY BENEFITS

The Future of Consumer-Directed Pharmacy Benefits (08/07)

Show Me the Display: A Review of an ESI Study of Consumer-Directed Pharmacy Benefits (07/07)

LEGAL ISSUES

Exclusionary Practices in the Mail Order Pharmacy Market (09/05)

Practical Issues With PBM Full Disclosure Laws
Originally Published in Update Magazine, Issue 4, 2004. Available with permission from FDLI

The Formulary Game (07/03)

About the author:

I have a B.A. in Economics from Amherst College. I have a Ph.D. in Economics from Washington University in St. Louis.

My writings are at the intersection of economics, accounting,  financial analysis, and high tech.

I have received no remuneration for these articles. I have no financial relation with any company written about in these articles.

Lawrence W. Abrams

 

©Lawrence W. Abrams, 2017
To Contact:
labrams9@gmail.com
831-254-7325

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Understanding Drug Rebates Through Bargaining Theory

Lawrence W. Abrams No Comments

All papers downloadable .pdf

 Pharmacy Benefit Managers as Conflicted Countervailing Powers (01/07)

Who is Best at Negotiating Pharmaceutical Rebates? (12/05)

The Role of Pharmacy Benefit Managers in Formulary Design: Service Providers or Fiduciaries?
Journal of Managed Care Pharmacy Vol. 10 No. 4 July/August 2004 pp 359-60

PBMs as Bargaining Agents
Paper presented at the 80th Annual Western Economic Association Meeting, July 6, 2005, San Francisco

PBMs as Bargaining Agents
PowerPoint presented at the 80th Annual Western Economic Association, Meeting, July 6, 2005, San Francisco

The Effect of Corporate Structure on Formulary Design: The Case of Large Insurance Companies
Poster Presentation, ISPOR 10th Annual Meeting, Washington DC, May 2005

 

The Pharmacy Benefit Manager Business Model

Lawrence W. Abrams No Comments

CURRENT PAPERS:

Three Phases of the Pharmacy Benefit Manager Business Model (09/17)

It is Pharmacy Benefit Managers that Drive the Gross-to-Net Drug Price Bubble (09/17)

Merck Data Discredits PBM-Sponsored Study of Brand Drug Price Inflation (09/17) 

Pharmacy Benefit Managers: The Sopranos of The Specialty Drug Market (09/17)

AbbVie’s Mavyret Hep C Drug Pricing is Disruptive to the PBM Business Model (09/17)

PAST PAPERS:

Pharmacy Benefit Manager Valuation and Profitability: Business Models Matter (07/09)

Medco As a Business Model Imperialist (07/08)

Quantifying Medco’s Business Model: An Update (11/08)

A Tale of Two PBMs: Express Scripts vs. Medco (11/05)

Searching for Windfall Profits from a Change in the AWP Markup Ratio (09/09)

Exclusionary Practices in the Mail Order Pharmacy Market (09/05)

Quantifying Medco’s Business Model (04/05)

Estimating the Rebate-Retention Rate of Pharmacy Benefit Managers (04/03)

Walgreen’s Transparency Issue (11/03)

 

Legal Issues – Pharmacy Benefit Managers – PBMs

Lawrence W. Abrams No Comments

All papers downloadable .pdf

Exclusionary Practices in the Mail Order Pharmacy Market

Practical Issues With PBM Full Disclosure Laws
Originally Published in Update Magazine, Issue 4, 2004. Available with permission from FDLI

The Formulary Game

Contrary to What Wall Street and the FTC Say, The PBM Business Model is Misaligned

Sins of Omission’: A Review of the FTC Study of PBM Conflict of Interest (10/05)