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JC Scott (00:09):Welcome to The Pharmacy Benefit, a podcast looking at health policy, drug pricing, and patient care issues through the lens of pharmacy benefit managers, more commonly known as PBMs. I'm your host, JC Scott, thank you for joining us.JC Scott (00:22):Today, I want to talk about one of the core roles played by PBMs and that's generating savings for patients in the healthcare system. Now, I realize that drug cost data research may not seem like the most exciting story of the day, but there is some new research that shows how we can save money on our drug costs. And that's something we should all be excited about. This new study was just released by Visante, a well-respected firm that specializes in pharmacy related business. And what their information shows is that hundreds of millions of Americans are saving money because of the work PBMs are doing to lower costs.JC Scott (00:57):Over the next decade, left uninterrupted, the current use of PBM tools in the marketplace will save the healthcare system, meaning those sponsoring health plans, consumers and patients, more than $1 trillion. $1 trillion, that feels like a number from an Austin Powers movie, because it's just so large. But what that means is that PBMs will save payers and patients an average of $962 per person per year, and that's real money.JC Scott (01:24):To help us understand these numbers, what it all means, why we should care we're joined by Mark Newsom, the principal and founder of Health Evaluations, here in Washington, DC. Mark has extensive healthcare and regulatory research experience having worked at Humana, CVS Health, the Centers for Medicare & Medicaid Services, and on Capitol Hill as a specialist in health financing for the Congressional Research Service.JC Scott (01:47):Mark, thanks very much for being here.Mark Newsom (01:49):Thanks for having me JC.JC Scott (01:52):So maybe to start off, Mark, let's give our listeners a bit of a chance to get to know you. You've got a really impressive set of experiences, working for a number of major players in healthcare, serving on Capitol Hill, working at HHS. Thank you for your service. What has attracted you to healthcare work and being in this space?Mark Newsom (02:11):So, I kind of fell into healthcare. I was a data guy in undergrad, and I needed money, and there was a paid internship at Roswell Park Cancer Institute doing data analysis. And I got that internship, loved it so much. I, at the time, was thinking I was going to do clinical psychology as a graduate school program. And instead I chose to go into health policy, and I've spent my entire career in healthcare ever since.JC Scott (02:40):It feels like a background in psychology may be necessary for understanding the politics around healthcare these days.Mark Newsom (02:47):Well, healthcare is complicated. Part of it is just the sheer size of this country. And then, the sheer size of what's involved in medical and in prescription drugs. There's a lot of different therapies just to level set on scale. And this is the number one thing that PBMs have to do to get our prescription drug system organized.Mark Newsom (03:14):There are 67,000 pharmacies, there wasn't PBMs there'd be nobody to set up contracts with these pharmacies. There are over 7,000 drugs and there are 4.3 billion prescriptions filled a year. All those claims have to be processed by PBMs. This comes from over a million prescribers. So, just gives you an idea of the scale that PBMs have to deal with in this country to help organize that system.JC Scott (03:44):It is truly a massive undertaking, isn't it? When you think about all the components that come to bear to get us our individual prescription, that we might need to take care of whatever the condition is.JC Scott (03:57):So, obviously, you've been around the block in healthcare. When you look at this new study, that I referenced at the outset, what's your first thought, what's your reaction?Mark Newsom (04:06):It really shows that why PBMs exist, it all starts with the clinical aspect. Doing the formulary, making sure the best clinical drugs are available. And then, that drives the cost savings. And so, if PBMs didn't exist, who would do this work? And that's the core piece, it all starts with that.JC Scott (04:32):So, I think a lot of our listeners are tuning in because they have some familiarity with PBMs, and the work that's being done. But let's break it down a little bit further because you're familiar with this industry. How does a PBM generate the savings? What are the tools they're bringing to bear? What are the leverage points that are resulting in the savings that are benefiting all of us?Mark Newsom (04:54):Number one tool is the formulary. It starts with a pharmacy and therapeutics committee, which is made up of doctors and pharmacists, and other clinical experts. And they're constantly reviewing the research literature to find out which drugs work the best. And then, they build the formulary off that. And then, that drives further cost savings by trying to set up incentives, so that people take the lowest net cost drugs, which more often than not are generics. And we've seen the generic dispensing rate couple decades ago was in the low 60s, now it's up to about 90%.JC Scott (05:35):And then, typically doctors are finding those generics are equally safe and effective, is that right?Mark Newsom (05:42):Absolutely. And the literature shows that.JC Scott (05:43):So, you're saying one of the key tools, as a PBM is representing whoever sponsoring our health insurance plan they're helping to encourage us to look at the most effective, but least expensive option for our drug needs?Mark Newsom (05:58):Absolutely.JC Scott (05:59):Talk a little bit, also, about what PBMs do in terms of negotiations, because as I look at this study what really pops out to me, in terms of where the majority of those savings are driven, it comes around negotiating with other players in the supply chain. Is that right?Mark Newsom (06:14):Absolutely. So, one of the core aspects of a PBM is negotiating with both pharmacies, and with drug manufacturers to reduce costs on those sides. The rebates get a lot of the attention with the drug manufacturers. That's a core part of reducing costs. But what also gets missed often is forming the contracts with pharmacies, and driving cost savings from the pharmacies as well. In the end, PBMs end up saving payers and patients 40 to 50% off of their annual drug and related medical costs by doing those different negotiations.JC Scott (06:58):So, I have to assume that PBMs are wildly popular in the supply chain with the other players that they're helping to drive those costs savings from.Mark Newsom (07:06):Well, PBMs have a tough job in organizing, as I mentioned, this very complicated system made up of different players. And so, when you do tough work like that you're not necessarily the most popular guy around, but the work needs to be done to drive cost savings and improve quality.JC Scott (07:26):Talk a little bit about how the individual consumer, or patient sees those savings because, obviously, we're all working together in the supply chain with an end goal in mind of serving the individual patient, making sure they get the drug and that they're able to afford it. I think it's easy for us, as individuals, to see the value that's brought by a pharmaceutical company that's innovating a great new treatment and developing a new therapy that treats a condition, right? How do we, as individuals, manifestors see the work that's done by PBMs, where do those savings go?Mark Newsom (08:00):Primarily two ways. First and foremost, by driving the lowest net cost that keeps premiums flat, lowers premiums. And that's the primary cost overall for a health insurance product is the premium. You can't expect the average patient to have expert clinical knowledge, and so the formulary is incentivizing and directing them to not just the lowest cost products, but the products that are most effective as treatments. And so, those signals help lower costs as well overall.JC Scott (08:37):So, keeping costs down for all of us across the system in the form of lower premiums, but also helping to augment the patient care aspect of what's being done.Mark Newsom (08:46):We know that when therapies are taken appropriately and adherence is maintained, and that's another clinical job for PBMs is to help patients stay adherent to their treatment, that that lowers overall costs to the system. It keeps people out of the hospital, it will reduce the likelihood of somebody having a cardiac event, if they're at risk for that. That's a key clinical role that reduces long-term costs that folks don't necessarily pay attention to when they're just looking at, what's the unit cost of a drug.JC Scott (09:22):So, we've talked quite a bit, as we've gone back and forth, about the various players in the supply chain. So, let's switch gears a little bit as we look at the players in the supply chain, and breakdown where some of the profit flows. Because I think that's something else that came out with this study that may surprise some people who haven't looked at this too closely.JC Scott (09:43):So, the vast majority of the purchasing dollar goes back to the drug manufacturer, about 65%. makes a lot of sense. They're investing in actually making the product. 25% to the pharmacy, 4% to the wholesaler, and for the PBM 6% of each dollar spent on prescription drugs with about two thirds of that paying for the services and the work that's being done. Meaning there's just about a 2% profit margin on average for the PBM. But I think a lot of people look at it and say, "Man, they're handling billions of dollars. I don't understand how that profit margin can be so low." What's your perspective on that?Mark Newsom (10:21):A couple of things. For one, the study showed that for every dollar spent on PBM services i reduced cost by about $10. In terms of the low profit margin, that's true. And there's other studies that have shown that. There was a USC study that showed PBM profit margins are pretty thin. But, as we talked about at the beginning, we're talking about scale. So, people see big dollar figures. It's because, again, 4.3 billion prescriptions fill the year. So, even a couple of pennies on billions ends up being a lot of money. So, on a percentage basis, it's the other players making more money, but size and scale will show gross dollars that appear to be a lot to the casual observer.JC Scott (11:11):So, there can sometimes be misunderstandings about the work that is being done. And I think that probably feeds into the problem that we often see that when it comes to prescription drug costs, people are not understanding that the PBM is part of the solution, not part of the problem. From your perspective, how do we help to clear that up?Mark Newsom (11:32):Well, it always starts off with the manufacturer. They're the ones setting the prices. And we're there to negotiate the best possible prices for the members. And the manufacturer, they exist to try to make the highest profit margin they can. I think the data clearly shows that they make pretty high profit margins. And you don't necessarily need a study for that. You can go look on the websites of any of these companies and it shows that, so that's the core issue. It all starts with that manufacturer and what they're setting the price at.JC Scott (12:09):So, one of the takeaways for me, in talking to you, Mark, and looking at this new research, PBMs are providing some real savings. Things seem to be working pretty well when it comes to their role within the system. What are the risks that that gets screwed up? Like what could happen that would undermine their ability to continue to drive those savings?Mark Newsom (12:33):I think it's fair to say whether it's in this industry, or any other part of healthcare there's a tendency for everybody to want everything. They want access to everything, but they want it at a lower cost. And those are fundamentally conflicting angles on things. And so, what we see often is regulations or, in the commercial market, preferences of clients actually restrict PBM tools and limit them in different ways. And that's, certainly, a choice for people to make, but they ought to be clear what that choice ends up leading to. And that's higher costs and sometimes, also, lower quality.JC Scott (13:21):So, it sounds like the one word answer to my question of what could screw this all up is politics.Mark Newsom (13:27):Usually is not helpful, as you know.JC Scott (13:32):Mark, you've been generous with your time. I'll ask you one more question here, as we wrap up, if there is one thing about the work that's being done by PBMs that, perhaps, is not well understood that you would like those listening to this podcast to understand what would that be?Mark Newsom (13:46):I think the clinical piece. The politics tends to drive conversations about the cost and the interaction with drug manufacturers, but PBMs started off as, and have always been engaged in clinical activities, whether it's medication therapy management, whether it's preventing drug interaction effects and adverse events. Those things are really important and they don't get the same air time on the Hill, or in the media as the cost stuff. Even though, at the end of the day, it has very serious cost implications if that work isn't done correctlyJC Scott (14:24):Well said. Mark, thanks very much for joining us today for your insights and your thoughts. I really enjoyed the conversation.Mark Newsom (14:32):Thank you.JC Scott (14:33):And I also want to thank everyone for listening to The Pharmacy Benefit. I hope you found it helpful and informative. And if you haven't done so yet, please subscribe to The Pharmacy Benefit on Apple podcasts, Google podcasts, Spotify, or wherever you're listening to this. And please ask your friends to do the same. I'm JC Scott, thanks for joining me.