Pharma rebates, pharmacy benefit managers and employer outcomes

Corporate employers contract with pharmacy benefit managers (PBMs) with the goals of lowering their employee prescription drug coverage costs while maintaining health care quality. However, little is known about how employer-PBM contract elements and brand drugmakers' rebates combine to influence a profit-maximizing PBM's actions, and the impact of those actions on the employer's outcomes. To shed more light on these issues, the authors build and analyze a mathematical simulation model of a competitive pharmaceutical market comprised of one generic and two branded drugs, and involving a PBM contracted by a corporate employer to help it lower prescription drug costs while achieving a minimum desired quality of health care for its employees. The brand drugmakers' rebate offers, the PBM's assignment of drugs to formulary tiers, and the resulting employer outcomes under varying contracts and pharma brand marketing mix environmental scenarios are analyzed to provide insights. The findings include that the pharma brands offer rebates for the PBM's ability to move prescription share away from the unpreferred brand, but reduce these offers when the PBM's contract requires it to proactively influence physicians to prescribe the generic drug alternative. Further, Pareto optimal contracts that provide the highest health benefit for a given employer cost budget for the employer are analyzed to provide managerial implications. They are found to involve strong PBM influence on physician prescribing to discourage unpreferred brands, as well as high patient copayment requirements for unpreferred brands to align the patient prescription fill probability with the formulary, while other copayment requirements provide an instrument to determine the level of desired health benefit-cost tradeoff.