Spread pricing is a term that, for many, has become synonymous with PBM greed.
The public has been conditioned to believe it is an evil scheme where PBMs act as unnecessary middlemen and drive-up costs for everyone.
There are a lot of talking points, spin, and PR coming from all sides of the issue.
Let’s ignore those and just look at the facts.
At its most basic level, spread pricing is simply an optional payment arrangement that PBMs offer clients such as Medicare, insurers, or businesses.
How does spread pricing work?
Clients hire PBMs to do things like keep costs down for members while ensuring they are getting high quality, appropriate medication.
PBMs do this in various ways such as creating formularies, obtaining rebates with manufacturers, and negotiating contracts with pharmacies.
Spread pricing deals with the pharmacies.
When a customer goes into a pharmacy to get a drug, they pay their cost-share at the register. The customer’s insurance or employer, through their PBM, pays the pharmacy the balance.
The amount that the PBM pays is subject to negotiation.
PBMs negotiate various prices with pharmacies for different medications. Each pharmacy is different.
There are two ways that PBMs receive payments from their clients to reimburse the pharmacy.
The first option is called pass-through payments.
Under this arrangement, the client simply gives the PBM the amount of money the pharmacy charged for the medication. Then the PBM pays the pharmacy.
The second option is spread pricing.
Under spread pricing, the client agrees to pay the PBM a fixed amount every time a drug is purchased. For example, a PBM and its client may agree to guaranteed rate of $5 on a drug. If the PBM can negotiate a reimbursement rate of $4 with a pharmacy, it makes $1 on the “spread.” If the PBM can only negotiate a $6 reimbursement with a pharmacy, it loses $1 on the “spread.”
Why do clients choose spread pricing?
Many businesses choose spread pricing for its predictability.
Remember that different pharmacies charge different things for the same drug.
By picking the spread pricing option, employers know roughly how much their drug spend is going to be each month regardless of if their employees choose to go to a more or less expensive pharmacy.
Under HB163, the North Carolina General Assembly is proposing to get rid of the spread pricing model.
When this was tried at the federal level many spoke out against it.
“This bill bans spread pricing, which small businesses and startups often choose because the PBMs take on the additional risk for themselves…This bill takes away choices. So there is a choice in the marketplace between spread pricing and pass through, every company has it. You’re going to take this choice away,” said Sen. Rand Paul (R-KY).
Sen. Mitt Romney (R-UT) voiced similar concerns saying, “A vast majority of small and middle-sized employers prefer spread price contracting because it’s lower cost and more certainty for them. That’s why they choose it. Making that illegal is not going to help small or mid-sized businesses.”
The United States Chamber even spoke out against the provision writing, “Risk-mitigation pricing (also referred to as spread-pricing) provides employers a definitive price for prescription drug benefit payments to pharmacies, and transfers the risks associated with daily fluctuations in drug prices onto the Pharmacy Benefit Manager (PBM). This ability to include spread pricing as part of a contractual agreement is highly valued by many employers and plan sponsors and incentivizes these PBMs to push pharmacies to reduce their acquisition costs. This is a contracting term that employers demand, bringing much needed pricing predictability. The Chamber opposes proposals that would eliminate and prohibit the ability of entities to include such a provision in private contracts.”
North Carolina is the most expensive state for healthcare in the country.
Taking away choices for how businesses can best plan and pay for their worker’s medicine is not a reform that will help anyone.
The government ban on spread pricing has been rejected at the federal level.
North Carolina should do the same.
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