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Break the Grip of Pharmacy Benefit Managers

Break the Grip of Pharmacy Benefit Managers


Sally Pipes By Tuesday, 27 June 2023 01:31 PM EDT Current | Bio | Archive

A new Senate bill takes aim at one of the chief drivers of the high out-of-pocket drug costs that many consumers are experiencing — middlemen known as "pharmacy benefit managers."

Introduced in mid-June by a bipartisan group of senators including Finance Committee Chair Ron Wyden, D-Ore., and Ranking Member Mike Crapo, R-Idaho, the Patients Before Middlemen Act — or PBM Act, for short — would shed some much-needed light on a part of the pharmaceutical market that has been in the shadows for too long.

Few companies exert more control over the price of prescription drugs than PBMs.

Health insurers enlist them to negotiate on their behalf with pharmaceutical companies for lower prices.

The bigger the price concession that a PMB extracts from a drug company, the more money it makes.

Drug firms usually acquiesce to these price concessions in return for a place on a health plan's formulary, or list of covered drugs.

One might think that a company so committed to cutting drug costs would benefit patients, or at least save them money.

But insurers and PBMs keep most of the savings they secure for themselves.

In fact, insurers calculate consumers' copays and coinsurance as if those rebates don't exist. Consider a hypothetical drug with a $100 list price.

A PBM might negotiate that price down to $50. But the consumer's health plan bases its 25% coinsurance on the $100 list price, rather than the $50 the insurer actually pays.

Patients, of course, aren't privy to what insurers actually pay for a given drug.

And that's how insurers want it. It's this lack of transparency that enables insurers and PBMs to grow rich at the expense of patients.

The distorting effects of PBMs don't end there. Because they make more money when they secure bigger discounts from list price, they're actually better off when drug companies set high list prices.

This dynamic helps explain why list prices rose 159% between 2007 and 2018.

The losers in this arrangement are patients.

Rising list prices make every copay and coinsurance bill a bit more painful. Or for those without insurance, high list prices fueled by PBMs' quest for steeper rebates can make drugs all but inaccessible.

A 2021 analysis in the journal JAMA Network Open looked at pricing and rebate data on 444 brand-name drugs between the years 2007 and 2018.

The authors found that "increased rebate sizes were associated with increased out-of-pocket costs for those with Medicare, commercial insurance, or no insurance."

In short, the very same rebates that earn money for PBMs increase costs for patients. So it's only reasonable that efforts to lower out-of-pocket drug costs focus on these middlemen.

Unfortunately, that task has gotten harder, as the PBM market has consolidated in recent years. Right now, about 80% of the PBM market is controlled by just three firms.

Two of those companies — Express Scripts and Optum RX — are owned by insurers.

PBMs' business practices have led to the dysfunction in the pharmaceutical market that frustrates so many Americans.

Only by breaking their grip on drug pricing can we bring about the transparency and competition that will make drugs more affordable and accessible.

Thankfully, Congress seems interested in doing just that.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.

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A new Senate bill takes aim at one of the chief drivers of the high out-of-pocket drug costs that many consumers are experiencing, middlemen known as "pharmacy benefit managers."
pbm, jama, optum
Tuesday, 27 June 2023 01:31 PM
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