This rebate system, as well as the revelation that PBMs around the country are profiting hundreds of millions of dollars on Medicaid programs, has put PBMs in the middle of a PR nightmare. (Photo: Getty)

“Eliminate the middleman.” This has become the mantra for reducing prices of prescription medication, but many consumers find themselves wondering just who is the middleman?

In the prescription medication universe, pharmacy benefit managers (PBMs) act as go-betweens for insurers, drug makers and pharmacies, with the supposed goal of controlling drug utilization and cost. These PBMs are the entities primarily responsible for producing health formularies, the lists of prescription drugs covered in part or in full for insurance enrollees. As formulary coverage could mean the difference between financial security or ruin, PBMs are rightfully coming under increasing scrutiny.

Related: Amazon aims to overhaul pharmacy benefits with latest health care hire

A large part of the system currently revolves around the use of rebates. As it currently stands, drug manufacturers pay out rebates to PBMs to get preferred placements on their formularies. The higher the rebate, the better the chance for preferred placement. These rebates have been very lucrative for PBMs. Recently their clients (employers and health plans) began requesting that these large sums of money be passed back to them.

PBMs may get a drug for as little as 20 cents on the dollar after all price concessions, but patients do not benefit from that discount. Their coinsurance is based on a percentage of the list (non-discounted) price. This results in co-insurances that are out of reach for many autoimmune patients and insulin prices that are prohibitive. Essentially, the pharmacy benefit coverage for diabetes, rheumatoid arthritis, Crohn's disease, and other autoimmune diseases is woefully inadequate.

While the PBMs' rebate system clearly incentivizes higher list prices, nobody FORCES the drug companies to raise prices. Clearly, there is shared blame for skyrocketing drug prices in this complicated conversation.

This rebate system, as well as the revelation that PBMs around the country are profiting hundreds of millions of dollars on Medicaid programs, has put PBMs in the middle of a PR nightmare. Perhaps in response to this PR mess, Express Scripts, one of the 'big three' PBMs, announced that it will be introducing its new “National Preferred Flex Formulary.” The plan has been touted as an alternative to the rebate-based system, and could provide, “a better opportunity to leverage changing dynamics” to help payers lower prices for their insureds. It can be confusing when “leverage” and “changing dynamics” are used in the same sentence.

According to the press release, Express Scripts will evaluate lower-cost alternatives to branded medications for possible placement on Flex. For example, two authorized alternatives for hepatitis C treatment are planned to be the first added to Flex, and patients would pay their cost share based on a lower price. It sounds like a good idea, but will these drugs actually be affordable in practice? It appears that the only medications that would qualify for this new Flex formulary are those that are lower-cost alternatives to branded products. That would keep most of the expensive specialty drugs—those with no lower cost alternative—off of the Flex formulary.

If that's the case, it won't be much help to my rheumatoid arthritis patients who use self-injectable biologics. Additionally, there is no mention of lower-priced insulins being included. In other words, it sounds as if this will be a very narrow formulary, possibly beneficial to a small group of patients and only offered to a small group of employers and health plans with co-insurances that still may be unaffordable.

Why would Express Scripts keep the rebated formulary as its predominant offering if the majority of rebates are being passed back to their clients? PBMs claim their clients are addicted to rebates, making it difficult to change the system. It has come to light in a recent lawsuit involving Express Scripts and Kaleo (manufacturer of a naloxone pen) that rebates may be a small percentage of the price concession given to PBMs to secure preferred formulary status. The formulary rebate was found to be less than 10 percent of the price concession, which included exorbitant administrative fees paid to Express Scripts. These large administrative fees and other concessions are retained by the PBMs and allow the rebate formulary contracts to still function as large income generators for PBMs.

There is an ongoing false claims act lawsuit against Express Scripts, other PBMs and manufacturers, because of over-market values for administrative fees. It begs the question: Do these fees play a part in deciding which medications will be allowed on the new Flex formulary?

Many other questions remain to be answered, as well. Will Flex be offered to every client? Will there be incentives to sign up for Flex? Will employers pay more to include this formulary? Will all lower cost alternatives be allowed on Flex? Will step therapy and fail first policies still be implemented, and if so, why? Will co-insurances still be unaffordable?

There are no simple answers. I hope that this will be a new beginning, encouraging innovators to make lower cost alternatives. I'll be the first to applaud if this does change the status quo of increasingly higher list price drugs with large market shares, having the advantage on formularies.

However, this may all be just smoke and mirrors to take the heat off PBMs in the drug pricing debate. Is Flex a genuine alternative, or a ploy for better optics?

Pardon my cynicism, but let's hope that if this new Flex formulary doesn't work, that failure will not be used as an argument to continue the broken rebate system.

Is it time to end the rebate system altogether?

• Pfizer CEO predicts an end to drug rebates
• HHS secretary Azar calls for 'a system without rebates'
• Cigna CEO: The way drug rebates work will 'change and evolve'

Madelaine A. Feldman, MD, FACR is the President of the Coalition of State Rheumatology Organizations, a member organization of the Alliance for Transparent & Affordable Prescriptions (ATAP).