How are Drug Prices Negotiated?
Large employers that offer health insurance to their employees recognize that many people struggle with the cost of prescriptions. This is the reason that many employers choose to work with pharmacy benefit managers (PBM) to reduce what employees, as well as the company, pays for prescription drug coverage.
What is a PBM?
A PBM is a third-party organization that manages prescription drug benefits for others. They decide on such things as which drugs are covered and the specific pharmacies that patients must use to fill their prescriptions. The PBM influences nearly everyone who contributes to the prescription drug supply chain from manufacturers to prescribing doctors to the patients who takes the drug. They also create formularies that determine which drugs a patient should use before trying other more expensive drugs.
Employers and Pharmacists Have Been Critical About Lack of Transparency
Employers using the services of a PBM and pharmacists dispensing prescription medication to the public have voiced concern in recent years about PBMs not being forthcoming with pricing and other important details. They are not the only ones with concerns. Even President Trump has challenged some PBMs because he feels they have not been forthcoming about how they negotiate discounts. He argues that this practice turns drug manufacturers into middlemen and drives up the cost for healthcare consumers.
Questions to Ask a PBM
Organizations looking to hire a PBM have the right to expect full transparency. Asking some of the following questions can help to ensure that the PBM the company chooses operates ethically and will serve its employees well.
the wholesale acquisition cost and the average wholesale price? The first term, abbreviated WAC, is the manufacturer’s list price for the drug as well as the price that wholesalers pay to the manufacturer to obtain the drug and sell it. The average wholesale price, or AWP, is the most common amount that wholesalers pay to drug manufacturers for the drug. The AWP is important because it is the amount that PBMs use when reimbursing pharmacies for a specific brand of drug.
is the maximum allowable drug
? This is the most that a PBM will pay for a generic drug obtained from multiple sources. New manufacturers cannot create a generic drug until the original manufacturer has had it on the market for more than six months.
What is the purpose of a drug rebate? A drug rebate is an incentive provided by a pharmacy to a PBM to promote its drug.
We Care About Healthcare Consumers
We know this is complicated information, so let us simplify it by saying we always represent your interests for quality and affordable drugs when working with PBMs. Please contact our pharmacist at Arena District Pharmacy if you have additional questions about how we negotiate drug prices.