Medicare Drug Price Negotiations: Without Real PBM Reform, Middlemen Keep Rx Savings and Patients Pay the Price

By Mark Blum, Managing Director, PBM Accountability Project 

The Centers for Medicare & Medicaid Services (CMS) recently released results of a second round of CMS-negotiated Maximum Fair Prices for selected drugs under the Inflation Reduction Act (IRA). This transparency from the agency is promising as it allows policymakers and the public to better understand how negotiated prices may influence both patient out-of-pocket costs and federal spending. 

Taking a Closer Look 

While much attention and enthusiasm will focus on the size of the CVS- negotiated drug price reductions, a recent IQVIA Institute study showed that most Medicare beneficiaries will not see any corresponding reductions in the price of drugs they pay for at the pharmacy counter. In fact, some will see their out-of-pocket prescription drug spending rise.  

That’s primarily due to the enduring inflationary impact on U.S. prescription drug pricing of pharmacy benefit managers (PBMs) – the uniquely American corporate middlemen that control patient access and process prescription drug claims for nearly all Americans. 

The prevailing PBM business model is designed to increase profits from complex drug price arbitrage schemes (e.g., creation of drug pricing “spreads” driven by high drug list prices). Although these incentives run in direct contradiction to the goals of Medicare Fair Market Price negotiations, PBM business practices remain outside the scope of CMS’ current negotiations.   

For example, CMS estimates that the first-round negotiations of 10 selected drugs will result in 38% to 79% reductions of list price. However, PBMs will undoubtedly protect their profits by using well-documented business practices that shift costs to Medicare patients, erasing most savings for most beneficiaries – even raising out-of-pocket costs for others. 

Further, PBMs and their affiliated insurers could redesign insurance benefits to replace lower-priced options with higher list price alternatives on preferred tiers with lower patient cost-sharing, move CMS-negotiated drugs to less-preferred tiers where patients face higher copays or higher coinsurance, or even exclude lower-priced drugs from their formularies altogether, preventing Medicare beneficiaries from accessing them.   

PBM Profit-Preservation Tactics are Nothing New  

PBM strategies for steering patients to higher-priced prescription drugs in lieu of lower- priced alternatives are well documented in analyses by the U.S. Senate Finance Committee, FTC and other independent researchers. Perverse financial incentives for PBMs to do so remain fully intact in Medicare Part D, despite CMS’ negotiation of list price reductions with manufacturers. 

PBM business practices and arbitrage strategies reduce potential Medicare savings and erase cost savings for seniors at the pharmacy counter. IQVIA Institute analysts predicted that CMS has overstated the projected $6 billion in Medicare savings for 2026 from the first round of drug negotiations and the projected 44% savings from the second round beginning in January 2027. These projected savings must be greeted with similar skepticism unless Congress pairs Medicare drug price negotiations with effective PBM reforms. 

The Time is NOW for Real PBM Reform 

 CMS’ drug price negotiations underscore the pressing need for Congress and federal agencies to prevent PBMs and their affiliated insurance carriers from undermining the intent of such policies. The objectives of reducing the cost of life-saving prescription medicines for American seniors and stabilizing federal prescription drug spending to maintain Medicare solvency are simply too vital to Americans’ interests to allow subversion by PBM arbitrageurs. 

Until policymakers ensure that any changes to drug pricing policy are accompanied by robust and effective PBM reforms, middlemen will continue to divert the lion’s share of savings into profits for themselves, while patients struggle with high out-of-pocket costs and our federal government struggles with spiraling debt.