When it comes to the alphabet soup of acronyms in health care, it can be hard to keep up. Whether it is the difference between an HMO and a PPO, the ACA versus the AMA, or a litany of other examples, acronyms have become so commonplace that there is an entire Wikipedia article dedicated to them.
Recently, three buzzworthy letters have taken the health care industry and its regulators in Congress by storm: PBM. Also known as pharmacy benefit managers, PBMs were created in the 1960s around the same time health insurers began covering prescription drugs. Over the years, as the scope and cost of prescription drugs have grown, PBMs have consolidated their power and entangled themselves in our health care supply chain.
Today, PBMs are the critical link between pharmaceutical companies that manufacture prescription drugs, health insurers that cover them, pharmacies that sell them, and patients who rely on them. If this description makes it sound like PBMs are middlemen, it is because they are. Their influence largely stems from the fact that drug manufacturers rely on them to have their products covered by insurance. If a certain drug is excluded from the approved list that PBMs negotiate for insurance companies, it can mean millions of dollars in lost revenue.
PBMs not only determine which drugs health plans will cover, they also play an important role in setting the prices that patients see at the pharmacy counter. They do this by linking their own compensation to the list price of prescription drugs, earning profits as a percentage of the medication’s sticker price. Through rebates, opaque administrative fees, and other complicated mechanisms, PBMs have a financial incentive to grant coverage to more expensive drugs.
Add to the mix a steadfast aversion to transparency and openness and you are left with an industry in desperate need of reform.
This Congress, PBMs are a bipartisan target for reform. In addition to the vise grip that they have on the industry, multiple investigations have found that pharmacy benefit managers routinely profit from the prices of the drugs that they gate-keep. In other words, the higher the medication’s list price, the more money they earn for themselves.
A 2021 investigation by the Senate Finance Committee found that insulin manufacturers coordinated a price hike with their competitors in order to stay in the good graces of the PBMs. When some manufacturers considered lowering the price of insulin to benefit their patients, they ultimately determined that it would put them at a competitive disadvantage. Why? Because lower prices would mean lower profits for PBMs, which would in turn reduce the chance that their product would remain covered by insurance. It does not take a PhD in public health or economics to realize that this arrangement hurts patients, reduces competition and limits access to affordable prescriptions.
Americans deserve a health care system where pharmacy benefit managers are not allowed to rip off hardworking families and seniors. Which is why, despite the differences between our states and our political beliefs, we are united on the issue of curbing the most significant abuses by PBMs.
We have joined forces on a bipartisan bill — the Patients Before Middlemen (PBM) Act — which delinks PBM compensation from drug prices and better aligns incentives to help lower prescription drug costs for Medicare Part D beneficiaries. Under our legislation, PBMs would instead receive a flat fee, eliminating the current complicated schemes that inflate the prices that patients see at the pharmacy counter. To ensure compliance, PBMs would have to pay the federal government any amount that they collect over this designated fee.
Simply put, our bill would prevent PBMs from continuing to price gouge seniors on Medicare. We are proud of this legislation and its potential to remove the incentive for PBMs to profit from the price of prescription drugs and unfairly drive up the cost of medications.
As Congress looks to tackle the PBM industry in upcoming legislation, we will be working diligently to include our legislation in any PBM reform package that advances to the floor of the U.S. Senate. Seniors and other patients deserve to know that their hard-earned dollars are not lining the pockets of shadowy middlemen working against their best interests. As elected officials, we have a responsibility to work together to bring down the skyrocketing cost of prescriptions that the American people rely on — and we must not stop until we accomplish this objective. Thanks to the PBM Act, we are one step closer to our shared goal.
Authors: SENS. BOB MENENDEZ (D-N.J.) AND MARSHA BLACKBURN (R-TENN.)
Menendez is the senior senator from New Jersey and Blackburn is the senior senator from Tennessee. They are both members of the Senate Finance Committee’s Subcommittee on Health Care.