Understanding PMBs' role and impact on drug pricing

The Hidden Players Behind High Prescription Costs

Pharmacy benefit managers (PBMs) are pivotal players in the pharmaceutical supply chain, influencing drug pricing, patient access, and healthcare spending. These intermediaries have been at the center of a growing debate over their practices and their impact on the affordability of prescription medications. In this article, we will delve into the role of PBMs, their impact on drug pricing, and the controversies surrounding their operations.

What are PBMs?

Pharmacy benefit managers are companies that act as intermediaries between pharmacies, health plan sponsors, pharmaceutical manufacturers, and wholesalers. They manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers. PBMs are responsible for negotiating with drug manufacturers and pharmacies to control drug spending. By doing so, they significantly influence which medications are included on a health plan's formulary and determine out-of-pocket costs for patients.

The Role of PBMs in Drug Pricing

PBMs play a crucial role in shaping drug prices through several mechanisms:

• Negotiating Rebates and Discounts: PBMs use their market leverage to negotiate rebates and discounts from drug manufacturers. These rebates are often tied to the placement of drugs on the PBM's formulary. However, the savings from these rebates do not always translate to lower costs for consumers. Instead, the rebates often go to the PBMs as profits, while manufacturers offset the reductions by raising the list price of their drugs.

• Formulary Management: By controlling which medications are included on the formulary, PBMs determine which drugs are available to patients. This can lead to higher costs for consumers if less expensive alternatives are excluded from the formulary.

• Spread Pricing: One of the most contentious practices is known as spread pricing, where PBMs charge health plans and employers a higher price for generic drugs than what they actually pay pharmacies. This practice allows PBMs to keep the difference as profit, contributing to higher healthcare costs.

The Impact on Patient Access

PBMs not only influence drug pricing but also shape patient access to medications:

• Network Participation Fees: PBMs often require pharmacies to pay network participation fees. These fees can be substantial and are sometimes tied to performance metrics, such as refill rates or audit compliance. This can lead to independent pharmacies being reimbursed less than the cost of filling a prescription, making it difficult for them to survive.

• Affiliated Pharmacies: The largest PBMs often own their own pharmacies, creating conflicts of interest. These affiliations can lead to patients being "steered" towards the PBM-owned pharmacies, further limiting access to independent pharmacies.

Controversies Surrounding PBMs

The practices of PBMs have been under intense scrutiny for their potential to drive up healthcare costs and limit patient access:

• Lack of Transparency: The negotiations between PBMs and drug manufacturers are often opaque, making it difficult for employers and health plans to understand their own pharmacy benefits. This lack of transparency raises suspicions about the true cost of prescription medications.

• Rebate Transparency: The rebates received by PBMs from drug manufacturers are not always transparent. While PBMs argue that they pass a significant portion of these rebates to insurers, many small insurers and employers report not receiving this share of savings.

Efforts to Reform PBM Practices

In response to the growing concerns, regulatory bodies and lawmakers are exploring ways to reform PBM practices:

• Regulatory Scrutiny: The Federal Trade Commission (FTC) has launched an investigation into the largest PBMs, focusing on the impact of consolidation and vertical integration on prescription drug prices. The interim staff report highlights how dominant PBMs can hike drug costs, including overcharging patients for cancer drugs, and how they squeeze independent pharmacies.

• Legislative Proposals: Congress is considering proposals that require PBMs to provide cost disclosures and report on negotiations with drug manufacturers. Additionally, PBMs should be mandated to pass through rebates to payers or patients. Transparency requirements would enable employers to negotiate fairer contracts with PBMs, limiting spread pricing and ensuring pass-throughs.

Innovators in the Market

The rising costs of prescription medications have also spurred innovation in the pharmaceutical benefits space. Companies like Mark Cuban’s Cost Plus Drug Company are trying to change the dynamics by offering discounts directly to employers. These initiatives aim to lower drug prices by providing transparent pricing and passing through rebates, thereby reducing the influence of opaque PBM practices.

Conclusion

Pharmacy benefit managers play a crucial role in managing prescription drug benefits, but their practices have significant implications for drug pricing and patient access. The controversies surrounding their operations highlight the need for greater transparency and accountability. As regulatory bodies and lawmakers continue to scrutinize PBM practices, it is essential to understand how these intermediaries shape the pharmaceutical supply chain and impact American healthcare.

References

• FTC Releases Interim Staff Report on Prescription Drug Middlemen
• High Drug Prices: Are PBMs the Right Target?
• Pharmacy Benefit Managers and Their Role in Drug Spending
• If Pharmacy Benefit Managers Raise Drug Prices, Then Why Are ...
• 5 Things to Know About PBMs' Influence on Drug Costs and Access