Costly “Spread Pricing” Prescription Drug Markups by Pharmacy Benefit Managers Cited by Wells Fargo Analysts

By Kevin Schweers

For years, consumer advocates, independent community pharmacists and others have voiced concerns over the cost-inflating practices of some pharmacy benefit managers (PBMs). Those worries were recently echoed by two health plan advisors.

In a podcast interview, Employee Benefit News asked two executives with Wells Fargo Insurance Services to explain their observations of one common way PBMs allegedly drive up health care costs for employers and patients: spread pricing. Experts say through this practice the PBM bills the health plan and employer more, sometimes much more, for a prescription claim than the pharmacy is reimbursed for its services and medication acquisition costs.

These costs are in turn paid by patients and plan sponsors (employers, et. al) through higher insurance premiums. Indeed, such practices could grow in frequency and scope should the proposed Express Scripts-Medco merger go through.

Here are some intriguing points raised by Wells Fargo’s Terrance Killilea and Scott Haas in the interview, which is available in its entirety here.

  • PBM spread pricing has long been an issue. PBM spread pricing has existed in the health care system for at least 10-15 years but has never been brought to the forefront to be truly addressed.
  • Impact of the “generic wave.” The rising prevalence of lower-cost generic drugs creates an additional impetus for employers and plan sponsors to address PBM spread pricing. Now the patient’s $5 or $10 co-payment, not to mention the likely higher cost billed to health plans and employers, can exceed the total cost of a generic drug dispensed by a community pharmacy, including the pharmacy’s dispensing fee.
  • Significant cost inflation by PBMs. Patients with complex conditions such as hypertension can be effectively treated with generic medications costing less than $300 per year, but spread pricing is, as the analysts put it, “frequently” driving the cost to the employer or plan sponsor up to $2,000 or above.
  • Continuing lack of awareness. Most employers and health insurance brokers are typically not aware of spread pricing.
  • Bigger may not always be better. The Wells Fargo analysts reported working with plans with as few as 200 employees that had “more optimal pricing” than did 200,000-member plans. They maintain that simple contract adjustments, while rare in today’s marketplace, can drive “significant cost reductions” for employers and their plan members.

One can only hope that more employers and plan sponsors seize on these or other potential sources of savings rather than mandating mail order use or other excessive restrictions on a patient’s choice of pharmacy.

1 Response to “Costly “Spread Pricing” Prescription Drug Markups by Pharmacy Benefit Managers Cited by Wells Fargo Analysts”

  1. 1 Express Scripts Continues Its Assault on Community Pharmacy « NCPA's The Dose – The Voice of the Community Pharmacist Trackback on February 28, 2012 at 5:33 am

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