The PBM industry originally existed to help manage prescription drug costs and benefits overall. In reality, PBMs are diverting potential prescription drug savings into the highest rates of profit in the prescription drug supply chain. Three major PBM companies make up 75% of the market. These PBMs have become so profitable over time, they are among the Fortune 25 companies – ranked higher than the drug manufacturers whose prices they had promised to control.
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It’s no coincidence that out-of-pocket drug costs are rising, while PBM profits are increasing. The process of pricing our medications is unknown to many Americans. To learn how the opacity and complexity of the drug pricing system undermines the possibility for dynamic, price competition between PBMs – putting consumers at a disadvantage -- click the links & watch the videos below:
How PBMs Drive up Costs
PBMs calculate some patients’ out-of-pocket costs based on the list price of a medicine, rather than the lower price the PBM negotiated with the pharmaceutical company.
PBMs reimburse independent pharmacies for prescriptions at such low rates that it’s hard for some to stay in business.
Employers and Unions
Self-insured employer and union health plans often hire PBMs to manage the prescription drug benefits for their employees. Many employers are not seeing the savings PBMs have negotiated with pharmaceutical companies for prescription medicines.
Many states have discovered that PBMs overcharged their public employee health plans and Medicaid programs for prescription medicines.
PBMs act as middlemen between prescription drug manufacturers and patients’ health plans, influencing drug costs (and increasing their profits) by:
Controlling which drugs employee health plans can cover by creating lists of PBM-allowed prescription drugs called “formularies.”
Leveraging significant discounts or “rebates” from the initial list price that a pharmaceutical company sets for a medicine in exchange, for preferred placement on PBM formularies.
Setting reimbursement rates paid to pharmacies for filling patient prescriptions.
Utilizing a pricing scheme, known as “spread pricing” through which they reimburse pharmacists substantially less for filling prescription at the counter than they charge health plans for prescription drug purchase.
PBMs’ Role in Shaping Insulin Costs
When it comes to prescription medications like insulin, PBMs put a particularly difficult strain on patients and other purchasers. In 2019, Senate Finance Committee released a Bipartisan Report: Examining the Factors Driving the Rising Cost of a Century Old Drug. The report stated the following: “As this investigation has shown, the size of rebates for the insulin therapeutic class has risen rapidly, with some PBMs securing rebates as high as 70% in recent years. However, it’s the PBM or health plan who ultimately decide a drug’s formulary placement and the patient’s cost-sharing responsibility.”
A separate analysis showed that one insulin maker increased list prices by 140 percent while net prices declined by 41 percent. It naturally begs the question: What are PBMs doing with these savings?
While the Inflation Reduction Act did include an out-of-pocket cap for insulin for Medicare beneficiaries, it’s clear, however, that more must be done to hold PBMs accountable – a conversation that we’ll continue to lead.
We’re working to identify policy solutions to the PBM problem so that Americans pay no more than is absolutely necessary for their medicines. There are a few meaningful PBM reform efforts happening across the U.S…
The PBM Reverse Auction Solution
State policymakers are examining innovative approaches to lower the out-of-pocket costs of prescription medications. This includes redirecting PBM savings with prescription drug manufacturers to taxpayers, patients, and public and private sector health plans. One of the most promising and successful of these solutions is the “PBM Reverse Auction,” which helps transform the opaque and uncompetitive process for setting prescription drug prices into a transparent, dynamically competitive marketplace where PBMs would compete with one another for any given state’s business. Six states have already taken action:
The state recently enacted signed legislation to create a PBM reverse auction. A study shows that the state can expect to save...
Maryland Governor Larry Hogan recently signed into law the Maryland Competitive Pharmacy Benefits Manager Marketplace Act...
Passing Along PBM Discounts
West Virginia became the first state to pass legislation mandating that insurers and PBMs pass negotiated discounts and rebates directly to consumers. State policymakers identified a way to "carve out" PBMs, including Express Scripts and CVS, from its Medicaid managed-care program and began running the program as a fee-for-service program - eliminating spread pricing and reducing administrative fees. This bipartisan solution was passed unanimously and is expected to save the state $30 million a year-about 4 percent of the state Medicaid drug spending.
Many more states are investigating PBMs and working to find meaningful policy solutions.