by Harry Gewanter
Gewanter is a retired pediatric rheumatologist who lives in Richmond.
Congressional lawmakers just held a hearing to figure out who’s responsible for surging drug prices.
No one could point to a single culprit. But Virginia Rep. Morgan Griffith (R-VA) correctly pointed to pharmacy benefit managers (PBMs) as an obscure but critical offender.
“I can’t for the life of me figure out what you do,” he said to a PBM lobbyist. “[But] we’ve got this black box called a PBM… and they [the pharmaceutical companies] are saying they’ve got to raise their prices to pay you.”
PBMs negotiate, manage, and administer prescription drug benefits for health insurers as well as self-insured companies, working between drug companies and pharmacies. They are the middlemen who are involved in every step of the drug supply chain.
When the PBM industry began growing about 15 years ago, insurers and many policy experts believed that PBMs would help trim healthcare costs. After all, the drug industry and the drug delivery system is complex. By negotiating volume pricing, processing prescriptions for millions of customers while also establishing and managing dispensing outlets, the thinking went, PBMs would be uniquely positioned to secure large discounts.
PBMs have, in fact, succeeded in securing large discounts. But rather than pass the savings along to consumers, PBMs and health insurers have converted these savings into huge profits.
Retaining the negotiated fees and rebates is a significant, but only one concerning practice. A practice called “clawbacks” has resulted in PBMs facing over a dozen lawsuits. Most insurers require patients to pay something for their medications, typically through a co-pay or coinsurance. Because those are predetermined by the PBMs, it’s possible for a patient to pay more for the drug than the PBM or insurer. In these situations, PBMs — not patients — pocket the difference. This is called a “clawback.” It’s especially devastating for patients who require regular prescriptions.
This scheme became so profitable that until recently, many PBMs barred pharmacists from telling patients about the least expensive way to pay for a drug. These practices are commonly known as “gag clauses.”
PBMs push back against criticism by blaming pharmaceutical companies. As the chief lobbyist for PBMs told Congress, “the original list price of a drug is solely determined and controlled by the drug company.”
While technically true, such statements ignore the negotiated discounts, fees and rebates that are necessary for a drug company to have its product placed on a PBM’s formulary. Indeed, the typical brand name drug now comes with, on average, at least a 30 percent rebate. Problem is, that rebate almost always goes directly to the PBM and health insurer. To add insult to injury, the patient’s out of pocket cost is based on the list price, not the negotiated real cost to the PBM.
It’s no wonder why PBMs are booming. Last year alone, the CEOs of the three largest PBMs — Express Scripts, CVS Caremark, and Optum Rx — each took home about $15 million. Further, these 3 PBMs, who manage 266 million people, are ranked higher on the Fortune 500 list than any pharmaceutical manufacturer while producing nothing.
Fortunately, some lawmakers are beginning to take notice. Together with Rep. Peter Welch (D-VT), Rep. Griffith has introduced legislation to stop PBM clawbacks in Medicare. And the Department of Health and Human Services recently put forward a request for information on ways to encourage PBMs and health insurers to share savings with Medicare Part D beneficiaries.
Drug companies have long been the obvious target of lawmakers, regulators and the media, but do not deserve all of the blame. PBMs have been able to profit so handsomely thanks largely to operating in the shadows. Washington is finally starting to notice — but there’s a long way to go. More transparency at the federal and state level of the entire drug supply system is critical if we are to slow the currently unsustainable increases in drug prices.