Traditional PBMs Capitalize On GLP-1 Drug Frenzy
Once Again, the Financial Burden Falls on Employers and Patients
The world of GLP-1 receptor agonists, particularly Ozempic and Trulicity, is riding a wave of unprecedented popularity. Initially hitting the market as treatments for type 2 diabetes, these drugs are now in the limelight for their ability to aid in weight loss. As a result, they’re not just drawing the attention of those managing diabetes, but also of a wider audience eager for effective weight management solutions.
Social media has thrown gasoline on this fire, with countless posts and videos promoting a dubious alternative for those unable to access these medications: the use of laxatives as a makeshift, “Budget Ozempic.” This misguided trend has not only ramped up demand, but also reshaped prescription trends across the market.
Not surprisingly, traditional PBMs are seizing this opportunity to swell their profit margins, riding the coattails of a trend that blurs the lines between medical necessity and social media-driven demand.
Familiar Territory: The Rebate Game
In the murky world of traditional PBMs, demand for a medication is viewed as a financial opportunity rather than a healthcare solution. Here’s a step-by-step breakdown of how PBMs are making a pretty penny – or rather, millions of them – on GLP-1s:
- Negotiated Rebates: When a medication is sold, the manufacturer will often offer a rebate. With a popular medication like Ozempic, the PBM may negotiate an even larger rebate by leveraging their power over the formulary (a list of medications that a health insurance plan covers).
- Deep Discounts: The manufacturer still needs to make money on the sale, so as a result of deep discounts and rebate negotiations, the sticker (or ‘list’) price of the medication is increased.
- Rebate Retention: Every time a prescription for the medication is filled, the PBM receives the agreed-upon rebate from the manufacturer. At this point, the PBM decides how much of the rebate it will keep. Usually, this retention of funds is disguised as hidden fees like clawbacks, DIR fees, NDC up-charging– the list goes on. Whatever’s left – if there’s anything at all – is what the employer group receives.
- Profits Skyrocket: By retaining such a significant portion of the rebates they negotiated, traditional PBMs make a huge profit.
If this all sounds like a ton of manipulation and self-serving behavior, it’s because it is. And it’s not going unnoticed. The Wall Street Journal recently reported on this trend, with analysts highlighting that higher volumes for GLP-1s drive up the profits of traditional PBMs through rebates. In their quarterly earnings call, the top PBMs all reported a profit increase this last quarter, primarily driven by GLP-1s and biosimilars.
Manufacturers are also benefiting from GLP-1 popularity, despite facing challenges in meeting the surging demand. Lilly and Novo Nordisk, for instance, have seen their revenue skyrocket, reporting $9.4 billion and $8.4 billion, respectively, in a single quarter.
Manufacturer Competition = Cash For PBMs
To add insult to injury, the usual market dynamics where increased options lead to lower prices are completely reversed when it comes to GLP-1s.
Here’s why: Each manufacturer producing a GLP-1 drug needs access to pharmacies and health plans to sell their product effectively. However, the top PBMs essentially control that access. This is what allows them to negotiate terms that are financially advantageous to them, rather than fostering a competitive environment that would typically drive prices down.
As a result, despite having multiple GLP-1 options, prices are soaring. And who’s paying? According to Wall Street experts, employers are.
For example, let’s say there are two GLP-1s, similar in safety and efficacy. One (Drug A) costs $1,000 and the other (Drug B) costs $1,500. While it seems obvious to choose the less expensive option (Drug A), the PBM may choose to cover Drug B to increase their own profits while driving up cost to the plan.
Choosing Transparency Over Profit
Just like they’ve done with many other medications, traditional PBMs are turning GLP-1s into major profit-makers. And with type 2 diabetes on the rise and more people turning to GLP-1s for their weight loss benefits, this trend isn’t just continuing; it’s gaining momentum.This unfolding scenario adds to an already bleak picture of our healthcare system, where the pursuit of profit often overshadows the fundamental goal of patient care and well-being.
At SmithRx, our approach is starkly different. We prioritize the patient’s health, and steer clear of rebate games entirely. Every bit of savings we negotiate, we pass directly to you — no exceptions, no hidden cuts. Our Connect 360 programs embody this ethos, ensuring patients have access to the most affordable options for diabetes care, including GLP-1 medications.
A new type of pharmacy benefits manager, SmithRx is working to reduce pharmacy costs by reimagining the traditional PBM as a Drug Acquisition Platform built on transparent modern technology that aligns with the needs of our customers.