New group hopes that reverse auctions on drug middlemen can help cut costs

A wide-ranging group of organizations, businesses and office-holders say New Hampshire could cut millions of dollars off prescription drug costs by tackling a portion of the industry that few people even know about: pharmacy benefit managers, or PBMs.

“I had not even heard the term – PBM – before,” Franklin Mayor Tony Giunta admitted Thursday. “It’s buried in the minutia of health care.”

He has heard it now. Giunta and Concord Mayor Jim Bouley were among the people who kicked off what is being called the PBM Accountability Project at a press conference Thursday.

The loose group of officials says state and local governments, as well as private businesses in New Hampshire, could save perhaps 15% off their prescription drug costs – which would save the state about $30 million under its s current 3-year contract with Express Scripts  – if they followed a “reverse-auction” model for PBMs as pioneered by New Jersey.

Pharmacy benefit managers are companies that act as middle operators between drug companies and customers that provide health care for others, such as businesses or governments. They were created in the 1990s to help customers deal with the complexity of choosing among thousands of types of drugs and medications and to lower prices by allowing bulk negotiation.

Critics say they have become too powerful now that three companies – Express Scripts, CVS Health and OptumRx – control about 80% of the total market. They have little oversight, critics say, allowing them to raise prices or switch allowable medications as part of what is known as their “formulary” without providing much in the way of explanation or alternative.

Robert Stoker, a director of the New England Chapter of the Asthma and Allergy Foundation, gave an example. He pointed to an inhaler called Advair that became a generic, with a monthly copay of $10 to $25. The PBM, he said, removed it from the formulary and required customers to buy a brand-name inhaler called BreoEllipta which carried a copay of $50.

“They made more money,” he said. “And don’t get me started on kickbacks – that’s a whole other Pandora’s Box.”

A big problem, said the advocates, is that buyers of health insurance have little information about what PBMs are doing, which makes it difficult to negotiate fair contracts.

“Right now they operate in a black box. … You’re at the mercy of terms they impose. There’s no way to compare what one PBM is offering to another,” said Mike Kapsa, chief economist with America’s Agenda, an alliance of groups looking to change the health-care system.

The reverse auction model developed in New Jersey is designed to change that. Under it, the government or business gives the formulary it wants and other coverage details and the PBM companies bid online. They bid openly and the process goes through three series of competitive bids, in hopes that companies will lower their bids over time to undercut each other. 

New Jersey claims the system –  which covers some 800,000 public employees, equivalent to two-thirds the population of New Hampshire – cut $1.6 billion from medication costs over three years without reducing benefits.

Several other states are looking into adopting a version the idea.

There’s no single way that it could be adopted in New Hampshire. Variations could be taken up by state government, although it’s unclear whether that would require legislative action, or by individual cities, towns and school district, or by businesses that are struggling to provide health care to employees.

“Every business owner in the state has a stake in what we’re doing today,” said Mike Farley of New Hampshire Steel Fabricators in Goffstown.

Bouley said the PBM Accountability Project would continue discussions about the idea in the months to come.