The nation’s attention remains fixed on pharmacy benefit managers. Following a series of House Oversight Committee meetings on PBMs role in rising drug costs and an FTC investigation into anti-competitive business practices at PBMs, a growing number of states are litigating PBMs for price-fixing. And just last week, the Arkansas Insurance Department Commission penalized four PBMs millions of dollars for paying pharmacies below the national average drug acquisition cost, an illegal action according to state law.
But how do these lawsuits and allegations affect everyday Americans, many of whom have never heard of PBMs? In short: significantly, even if they don’t know it. As I’ve noted previously, pharmacy benefit managers are middlemen that negotiate between pharmacies, insurers, drug manufacturers and employers/plan sponsors. They also manage health plan formularies, negotiating to determine where drugs are placed and how much an insurer will pay for each medication, ultimately influencing the availability and affordability of patient treatment. Through a variety of tactics I explained in detail in a previous column–including rebates, administrative fees and formulary ties–PBMs have contributed to rising healthcare costs and limited patients’ control over their healthcare decisions.
It hasn’t always been this way, however. When pharmacy benefit managers were first established, their services helped American consumers. They brought down the cost of pharmaceutical products by steering doctors to low-cost generic versions of branded drugs, helping the market transition from a reliance on branded medications to more affordable, equally effective alternatives.
But while PBMs still leverage this history to market their products and defend themselves against legal challenges, they’ve changed their business model in ways that hurt American consumers and drive up prices for everyone. As the PBM market has become increasingly consolidated, with just three PBMs handling nearly 80% of all prescription drug claims in the United States, PBMs have taken advantage of their dominant position in the pharmaceutical supply chain.
Today, PBMs operate largely behind the scenes. While almost every American is familiar with hospitals, health insurers, drug companies and pharmacies, very few have heard of pharmacy benefit managers, at least until their recent appearance in the news. Yet their practices drive up costs for consumers and restrict patient choice.
PBMs have incentives that conflict with the best interests of patients and employers. They negotiate with pharmaceutical manufacturers to secure rebates for including drugs on a health plan’s formulary–a list of covered drugs that the insurer will reimburse. These rebates are typically based on agreed upon list prices: higher prices lead to larger ‘discounts’ and rebates. As a result, PBMs have a vested interest in more expensive drugs that give them bigger rebates, rather than opting for more affordable alternatives. This pricing strategy, based on artificially inflated prices, leads to higher out-of-pocket co-pays for patients... Click Here to Continue Reading
Reporter: Rita Numerof, Forbes Contributor
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