There's an old French proverb, "the more things change, the more they stay the same." Nothing could be truer of the U.S. healthcare system, especially in the shell game of prescription drug pricing. Although the cost and accessibility of healthcare – particularly medication – has hovered among voters' top concerns in presidential and midterm elections since at least 2012, elected officials have little power to control, let alone keep their campaign promises to lower drug prices. It's counterintuitive to think those who can create, execute, and enforce the laws somehow lack the power to rein in the drug industry. But it's not "Big Pharma" who's the problem, it's "Big Health Insurance."
It doesn't get any bigger than CVS Health, UnitedHealth/OptumRx, and CIGNA/Express Scripts. These three behemoths – publicly-traded corporations and their pharmacy benefit manager (PBM) divisions – hold an estimated 74% of the market share for prescription drug benefits.
They are the true arbiters of drug prices.
You may have heard the term "PBM middlemen" (or just "middlemen"). Most people don't know PBMs, but they see the carrier logo emblazoned on their prescription drug coverage card. That carrier is the PBM.
PBMs began by processing pharmacy claims in the late 1970s-early 1980s, but have grown to a nearly $400 billion industry. They are the designers of benefit plans, gatekeepers of patient plan formularies, the approvers of prior authorizations, and the enforcers of "step" or "fail first" therapies.
Though they are drug price negotiators, they are not negotiating on anyone's behalf but their own. They "negotiate" by requiring drug manufacturers to pay "rebates" – you and I would call them "kickbacks" – for drug placement on the patient's plan formulary of approved drugs. The more expensive the rebate/kickback, the better or more exclusive the drug's placement. This is why some patients are required to buy brand medicines instead of less-expensive generics. The PBM makes more every time that brand is dispensed.
The travesty of these "negotiated" prices is the end payers - often the patient's employer - and the patient see almost none of these savings. If PBMs' alleged competitive edge is their so-called ability to negotiate better prices, their secret revenue gain comes from the difference between the price they charge the plan and the amount they reimburse the pharmacy. Several studies of different states' Medicaid programs have shown taxpayers footing the bill for anywhere between $224 and $300 million in spread – the profit pocketed by PBMs.
The first study in Ohio found the average spread was more than $6 per prescription, meaning the State of Ohio paid an average additional $6 per prescription per Medicaid enrollee per month. And that's just one state – 49 others are dealing with some version of spread pricing and rebate kickbacks to PBMs.
And that's just on the "normal" prescriptions. The news is far worse for more expensive "specialty" medications, where studies are finding PBMs steer patients to PBM-owned pharmacies and mail order. Self-dealing and patient steering are revenue generation schemes straight out of the PBM playbook. Still, their unfortunate consequences leave patients scrambling as "pharmacy deserts" emerge in the wake of independent and community pharmacies' closures. No business can withstand for long having its customers routed to the competitor.