Since my last post, I have learned that CVS is the largest plan provider/sponsor for LIS Medicare Part D enrollees. These represent 30% of Part D members but about 66% of total Part D spending. ESRX has a neglible level of Part D members as a plan sponsor.
This is what the companies refer to as "direct" or when they are not acting as only the PBM. They are taking some insurance risk on the revenue.
I raise this point b/c it is becoming clear that the incentive structure for Part D, in its current form, benefits the MCOs/PBMs at the expense of Medicare and the individuals. The increasing levels of rebates protect profits while simultaneously shifting more of the ultimate drug cost to the individuals and Medicare.
It is complicated to explain the nuances but you can see Medpac report from June 2015 for more details. See link
http://www.medpac.gov/-documents-/reportsExcerpt from 2015 Medpac report "One commenter pointed out that the rebates sponsors receive from manufacturers for all brand-name drugs dispensed to enrollees who reach Part D’s catastrophic threshold (including rebates in the coverage gap phase) can more than offset plans’ 15 percent share of payments for spending that exceeds the Part D catastrophic threshold. Thus, requiring plans to pay a share larger than 15 percent could provide greater incentive for sponsors to negotiate larger rebates with manufacturers or design formularies in ways that encourage greater use of lower cost drugs."
As Part D spends $73B/yr or ~25% of total US net drug spend using tax payer funds, I can see how any shenanigans by the suppliers (e.g. PBM/MCOs) will be leveraged and politicized by opponents to the existing model.
There is no question that drug companies are raising gross/list prices to offset the higher rebates they must provide network customers (e.g. PBMs). This allows them to recapture some revenue at the point-of-sale (e.g. retail pharmacy) from the individual as their co-payment/coinsurance is calculated based on the list price and not the net price received by the PBM/MCO. Further compounding the matter is the shift to higher deductible plans in the commercial market that is forcing individuals to absorb more of this "gross pricing" increases at point-of-sale.
This is how yesterday's WSJ report cites insulin shots costing Joe from wherever $400 last month and $600 this month in out-of-pocket expense at the pharmacy while at the same time PBMs are promoting drug inflation for their clients tracking the 3% level in 2016. It is because the PBM only consider the plan spend by their customers and not total drug (which includes what the individuals pay out of pocket).
Excerpt from Jan 2017 JPM Healthcare Conference ESRX CEO
"Quite frankly, there is no question in my mind that the reason that our clients today have a
3.9% drug trend is because we exist and we have created that competition in classes where there are multiple agents that could take care of a patient and I'm not going to apologize for that and I know our industry is not going to apologize for that."
Excerpt from CVS investor day Dec 2016CVS CEO
"One of the hallmarks of this value proposition, it lies in our ability to help clients more effectively manage their pharmacy spend, and we continue to deliver on this goal with our clients realizing o
nly a 3.3% increase in their pharmacy spend through September of this year."
