The rise of more transparent, "Cost Plus" pharmacy models is stirring debate within the pharmaceutical space as smaller players put pressure on the large PBMs.
In January 2022, entrepreneur Mark Cuban launched online pharmacy Cost Plus Drugs, which priced 100 medications by their manufacturing fee, a 15% markup, and a shipping and handling fee. Now boasting more than 2,500 medications, Mr. Cuban said in August that the company will soon publish all its contracts.
This year, Walgreens' CEO Tim Wentworth emphasized the urgency of developing new drug pricing models to provide patients with a "Cost Plus" experience, reflecting shifts in the retail pharmacy market. Major players like UnitedHealth, Elevance Health, Express Scripts, and CVS have also introduced new pharmacy services and models focused on transparency and competitive pricing, aiming to meet growing demand for more predictable medication costs.
Chronis Manolis, senior vice president, pharmacy and chief pharmacy officer at UPMC Health Plan, joined the Becker's Payer Issues podcast to discuss his perspective on the PBM landscape and 'Cost Plus transparent models.'
Question: What's keeping you up at night from a drug access and affordability perspective for your members?
Chronis Manolis: We’re running out of levers in pharmacy to manage costs. Whether you like them or not, our traditional methods were to squeeze pharmacies and pharma more, mainly through rebating. It was really a volume play, and we lived off driving the supply chain down and squeezing costs out of it. Now, prior authorizations are falling out of favor. There’s a lot of opposition to them, and while I don’t entirely agree, it’s become table stakes and is no longer the lever it once was. Network pharmacies are becoming louder, and rightly so, which is what’s causing all the consternation with PBMs. Anyone thinking they’ll continue reducing pharmacy reimbursement is mistaken. It’s similar to hospitals, where we provide cost-of-living increases. That’s never happened in pharmacy, but I think network pharmacies have hit the bottom. In a sense, PBMs did their job. We charged them with reducing costs, but we’ve gone too far, and I don’t think we can rely on that lever anymore.
Rebate uncertainty is the big question now. We’ve ridden that wave, but with drug negotiation on the Medicare side, what will pharma do about rebates? Will it affect commercial plans, and what are the unintended consequences? Biosimilars have saved some money, but not as much as expected. It’s opaque, hard to explain, and the brand-name companies are still involved. Then there’s the demand for innovative therapies like gene and rare disease treatments, which come to market faster and faster with help from the FDA and new technologies. Add in health inequities and disparities, it's not a lever we can rely on.
We’ve been through this before. In the early 2000s, five drug categories — statins, PPIs, non-sedating antihistamines, SSRIs, and ACE inhibitors/ARBs — drove significant costs. Those categories are still the standard of care, but now they’re generics. Managed care had to work through it, and I think we’re in a similar situation now. The pressure and demand will remain, but I’m concerned that the levers for affordability are becoming scarce.
Question: What do you make of some of the large PBMs — Optum Rx, CVS Caremark, and Express Scripts — launching 'Cost Plus transparent models' and the rise of Mark Cuban's pharmacy company?
CM: It's to be determined. I’ve been advocating for a Cost Plus model from the PBMs for years, and we currently use Express Scripts. We talk about it a lot, but I believe Cost Plus needs to be tied to transparency. What’s happening is that the smaller players are pushing the big guys to fall in line, which is a good thing. However, the fundamental challenge we face is that government business, particularly Medicare, is tough. Think about the complexity of calculating all those dollars in real time. Many smaller PBMs don’t want to invest in Medicare, so for plans like ours with multiple lines of business, the field is limited. But competition is a start.
The more we fragment care with 'Cost Plus' pharmacies, the more it will undermine the PBM model. I’m not shy about saying it, and I’ll defend it. The PBM model was designed for all claims to be in one pool. When they are, you can run all the safety checks. But when claims are scattered, it affects processes like medication reconciliation. CMS pays us to do that in our Stars programs, but if three out of 12 claims are missing, how does that help? I sympathize with the need to find ways to affordability, but without data sharing and care coordination to ensure our safeguards work, I’m not sure what we’ve really accomplished.