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.
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 to resources below:
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 PBM reverse auctions conducted in New Jersey enabled the state to reduce its spending on prescription medicines by an unprecedented...
Bipartisan legislation to create an open PBM marketplace through the reverse auction process passed both houses...
The Minnesota Legislature passed bipartisan legislation to secure savings on prescription medications by...
Maryland Governor Larry Hogan recently signed into law the Maryland Competitive Pharmacy Benefits Manager Marketplace Act...
Governor Mike DeWine’s administration unveiled plans to overhaul the state’s Medicaid program, which is moving...
Increasing PBM Transparency
Employers have also been kept in the dark by PBMs. One study shows that three in five employers think their contracts with PBMs are problematic, reiterating the many issues all stakeholders and policymakers are seeing, including:
Employers said that current pharmacy benefit management models lack transparency: 30% said they understand the details of their PBM contracts, 40% said they fully understand their PBMs’ performance guarantees, 63% said PBMs are not transparent about how they make money.
Nearly three in five employers surveyed said PBM contracts are overly complicated, ambiguously worded, and often benefit the PBM at the expense of the employer. Tops on employer’s wish list: clearer definitions and simpler contracts.
FOCUSING LESS ON REBATES:
70% of employers said they thought PBMs should offer other ways besides rebates to reduce prices. Employers also said rebates detract their attention from more important factors, like reducing employee coinsurance or deductibles or getting better access to the most effective pharmaceuticals.
Several states have worked to increase PBM transparency and ensure they perform services in the best interests of patients, employers and the health plan or provider they are meant to serve. PBMs should have an obligation to those covered by insurance companies and states are working to open the PBM “black box” to see how to ensure they work in the interest of patients, employers and consumers, for example:
New York Governor Kathy Hochul signed legislation to regulate PBMs, giving the Department of Financial Services (DFS) the ability to “bring needed reforms to this previously unregulated industry.” The state also created a framework to “close loopholes used by PBMs that allowed them to force patients to use mail-order pharmacies or other ‘non-retail’ pharmacies at a local pharmacy, as long as that pharmacy is participating in the PBM’s network.”
In Michigan, policymakers advanced legislation to prohibit PBMs from forcing pharmacists to sign gag clauses that stop pharmacists from telling consumers when it is cheaper to purchase drugs out-of-pocket rather than through insurance; require PBMs to get licenses and to file transparency reports with state officials; and to ban spread pricing where a PBM can drive up costs for reimbursing a pharmacist for prescription drugs and charging a co-pay higher than the selling cost of the drug. Governor Gretchen Whitmer said of the legislation, “For too long, unlicensed pharmacy benefit managers have been able to engage in practices that drive up costs for Michiganders whose lives and health depend on critical prescription drugs like insulin. This bill brings much-needed transparency to our healthcare system.”
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.