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According to a survey by insurance company Willis Towers Watson, employers expect the cost of medical and pharmacy benefits to increase by over 5% in 2022, challenging employers to prioritize healthcare while still making it affordable for their employees.
However, employers cannot do this alone — drug prices need to drop. Matthew Gibbs, president of commercial markets at pharmacy benefit solutions company Capital Rx, believes affordability cannot be achieved without changing the PBM model first.
“The majority of pharmacy costs today in the PBM space are based off a completely arbitrary metric,” says Gibbs. “I think we have started to see the result of that in our country, where we have the most expensive healthcare, but some of the worst outcomes.”
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Capital Rx offers a pharmacy benefits spending platform that links providers, patients, pharmacies and plans to bring cost-effective care to employers and their workforce. On average, Capital Rx claims to save its clients 27% on drug costs, mainly by refusing to use the industry standard model for drug costs: average wholesale price.
“I think it astonishes a lot of people, but the average wholesale price has nothing to do with the actual price of the drug,” Gibbs says. “[PBMs] don’t release how it’s calculated, which is scary in and of itself.” Instead, Capital Rx relies on the national average drug acquisition cost, avoiding several pitfalls of AWP-based models.
Capital Rx conducted a study on generic drug prices between 2015 and 2020, finding that while AWP prices increased by 1%, NADAC prices decreased by more than 50%. And since AWP does not reflect how much the pharmacy paid for the drug, costs are estimated to be inflated by 20%, according to data by Truven Health Analytics. Collusion between AWP publishers and wholesalers, who buy products directly from drug manufacturers, has even led to court cases. Eleven pharmaceutical companies agreed to pay $125 million in a nationwide settlement between 2006 and 2012.
NADAC, on the other hand, which was established by the government, allows consumers to go to a public website and see drug prices, allowing for transparency and pricing stability, Gibbs explains. He goes on to note that while a majority of pharmacy benefits that use AWP do offer a member tool to see prices, prices can change by the time a consumer goes to the pharmacy. Besides Capital Rx, NADAC is only used in the Medicaid space.
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“When you create pricing stability, you remove that conflict at a retail level, which for the most part, allows you to actually do your job as a pharmacy benefit and stop managing drug prices to optimize your earnings,” says Gibbs. “It’s sad that you have to build this model in 2021, but that's where we're at in a for-profit healthcare system.”
Capital Rx also puts pharmacists as the account lead, so they’re viewed as an advisor to the client rather than someone who seems to have little connection with a client’s pharmacy benefits, explains Gibbs. Under Capital Rx’s model, buyers, such as employers, can communicate with pharmacies as well, which is usually prohibited in PBM contracts.
“It prevents the employers from ever really knowing the actual cost of the drugs,” says Gibbs. “For us, employers and pharmacies can talk if they want, but you could also go to a public website and see if I’m paying the pharmacy what they should be paid because you can see the prices.”
Gibbs believes this allows consumers to essentially audit Capital Rx, and see if they are getting the lowest prices. The only cost variance customers should see is the dispensing fee, which varies a few dollars from pharmacy to pharmacy. Gibbs also points out that Capital Rx does not own any pharmacies like other PBMs — an ability that he does not think PBMs should have.
“There is a direct conflict when you own the dispensing asset and you're being paid to lower drug costs,” says Gibbs. “It doesn't make sense and PBMs can't help themselves.”
With increasing scrutiny placed on PBMs, solutions like those provided by Capital Rx may become more common, especially as employers look to keep rising healthcare costs at bay. For Gibbs, nothing is more crucial than transparency.
“If you don't remove the fundamental problem, which to me is AWP, you're not solving anything,” Gibbs says. “Your model should allow employers to make decisions that are in the best interest of their budgets and for the employees they represent and serve.”
