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It’s Time To End the PBM Shakedown

Who says bipartisanship is dead? In the House and Senate, members of both parties are advancing legislation to check the power of pharmacy benefit managers (PBMs), the self-dealing middlemen in the drug supply chain that inflate Americans' spending on prescriptions by billions of dollars a year. By shining a light on PBMs' questionable business practices, and potentially cracking down on some of their anticompetitive behavior, lawmakers can help patients fill their prescriptions without breaking the bank. As their name implies, pharmacy benefit managers oversee all the drug-related details of the health plans sponsored by insurance companies and large employers. They decide which medicines to include on those health plans' "formularies," or list of covered drugs, and which ones to exclude. Because PBMs control access to tens of millions of customers, drug companies are willing to offer significant discounts—often 40% or more off the nominal "list" price of drugs—in exchange for PBMs steering patients towards their products and away from a rival manufacturer's medicines.

In theory, PBMs leverage the collective buying power of tens of millions of patients to secure lower drug costs for those patients. But in practice, these middlemen use that power to line their own pockets, and the pockets of insurers, at patients' expense. PBMs typically keep a certain percentage of a medicine's nominal "list" price as their compensation.

This business model creates a perverse incentive structure, since PBMs can increase their own profits by putting expensive drugs on formularies—and then negotiating hefty discounts off those drugs—instead of less expensive medicines that'd come with lower discounts. This results in higher out-of-pocket costs for patients, whose cost-sharing obligations are generally based on the list prices of drugs, rather than the secret, discounted cost that PBMs negotiate.

The increasing consolidation, and vertical integration, within the pharmacy benefit management industry also enables these middlemen to further pad their bottom lines at patients' expense. The three biggest PBMs—ExpressScripts, CVS Caremark, and OptumRx—control 80% of the market. Nearly three-quarters of people with prescription drug coverage are enrolled in an insurance plan that either owns, or is owned by, a PBM, according to a recent American Medical Association study.

Because the largest PBMs are vertically integrated with health insurance companies and certain chain pharmacies, they can generally see when patients use "co-pay coupons"—a type of financial assistance offered by drug companies directly to patients—to cover their cost-sharing obligations at the pharmacy counter.

PBMs often then refuse to count payments made via these coupons towards patients' deductibles or out-of-pocket maximums—which puts patients on the hook for continued out-of-pocket expenses once the coupons run out. Essentially, it enables PBMs and health plans to extract more money out of patients.

Practices like these help explain how PBMs and other non-manufacturers pocketed over half of every dollar spent on brand-named medications in 2020.

PBMs record tens of billions of dollars in profits each year, despite providing no medical services and shouldering effectively no financial risk. Reigning in their anticompetitive business practices would make our healthcare market function more like a genuine market—and ultimately lead to lower drug costs for patients.

Author: Sally Pipes Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute.


2 comentarios

Congress needs to act ASAP!!! We are barely hanging on!

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The author notes the PBMs keep part of the nominal list price of drugs as compensation. She does note note they charge pharmacies transaction fees and the entity providing the coverage a claim charge. That is supposed to cover the expenses. A server farm makes the system work.

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