Pharmacy benefit managers (PBMs) play a complex role in the U.S. healthcare system. They handle prescription drug benefits for employers, unions, and other groups, and they negotiate with drug manufacturers on behalf of their clients. In theory, PBMs can help to lower drug prices by encouraging competition and ensuring that consumers have access to the lowest-cost drugs available.Pharmacy benefit managers (PBMs) play a complex role in the U.S. healthcare system. They handle prescription drug benefits for employers, unions, and other groups, and they negotiate with drug manufacturers on behalf of their clients. In theory, PBMs can help to lower drug prices by encouraging competition and ensuring that consumers have access to the lowest-cost drugs available. However, recent studies and reports have raised concerns that PBMs may actually be inflating the cost of drugs to line their own pockets. For example, a 2019 investigation by The New York Times found that PBMs often steer patients toward more expensive drugs, charge high markups for otherwise cheap medications, and rake in billions of dollars in hidden fees. Another study, published in the journal JAMA Internal Medicine, found that PBMs often negotiate rebates with drug manufacturers that are contingent on the PBM restricting patients’ access to lower-cost alternatives. These types of rebate practices, the study concluded, “urgently require further investigation and possible regulation.” In response to these concerns, Congress and state legislatures are considering a number of bills that would regulate PBMs more closely. One bill, passed by the House of Representatives in July 2023, would require transparency about drug rebates and PBMs’ relationships with other business entities. Another bill, introduced in the Senate Finance Committee, would ban Medicare compensation of PBMs based on a drug’s sticker price, impose more federal oversight, and ban “spread pricing” in Medicaid. It remains to be seen whether these bills will be passed into law. However, the growing scrutiny of PBMs is a sign that policymakers are taking seriously the concerns about their pricing practices.
In theory, PBMs can play a valuable role in keeping prices down if they can negotiate lower drug prices, encourage competition in the industry, or ensure that consumers have access to the lowest-cost drug available for their condition. PBM industry representatives say PBMs save consumers money by encouraging patients to switch from brand-name drugs to generics and by using market power to lower drug prices overall.
In Massachusetts, for example, CVS Caremark, one of the leading PBMs, says it has saved clients $25 million since April 1 by delisting the expensive brand-name arthritis drug Humira and referring patients to the similar but less expensive drug Hyrimoz.
PBMs blame drug manufacturers for the high prices.
Now, drugmakers should be scrutinized for their pricing, and there is certainly blame to be assigned for inflated drug prices. But several recent studies have found that PBMs often do the opposite of what they claim: inflate the cost of drugs to line their own pockets.
Three major PBMs, CVS Caremark, Optum Rx and Express Scripts, control about 80 percent of U.S. prescriptions. In June, The New York Times published an investigation that found that PBMs “steer patients toward more expensive drugs, charge high markups for otherwise cheap medications and rake in billions of dollars in hidden fees.”
For example, a common practice is for a pharmaceutical company to charge a high sticker price and then give a large rebate to the PBM, which puts the drug on a formulary. Some of that rebate goes to the employer and some is retained by the PBM. Insurance plans charge consumers copays based on the original sticker price, so a higher sticker price can mean higher copays but more PBM profit.
PBMs also discourage competition among pharmacies. The Federal Trade Commission released a report on PBMs this month that found that because the Big Three PBMs each have affiliated insurance plans and pharmacists, they can exploit their own pharmacies by paying them higher reimbursement rates, hurting independent pharmacies and their clients. A recent story in the Boston Globe partially blamed PBMs for forcing independent pharmacies out of the market.
The FTC report also found that PBMs and brand-name drugmakers negotiate rebates that are contingent on the PBM restricting patients’ access to lower-cost alternatives. These types of rebate practices, the FTC concluded, “urgently require further investigation and possible regulation.”
The U.S. House Committee on Oversight and Accountability released its own report in conjunction with a July 23 hearing, concluding that “PBMs are inflating prescription drug costs and distorting patient care for their own financial gain.” This includes using anti-competitive practices to steer patients to affiliated pharmacies and using pricing strategies to overcharge insurers and payers and steer patients toward more expensive drugs.
According to the Wall Street Journal, the FTC is preparing to file a lawsuit against the three largest PBMs over issues related to their rebate negotiations with drugmakers.
The industry disputes most of these findings.
Are there ways to curb PBMs’ price-gouging practices and get them back to their mission: lowering the cost of medicines and adding value to the healthcare system?
There are a few bills that Congress is considering. The House has passed a bill that would require transparency about drug rebates and PBMs’ relationships with other business entities. The Senate Finance Committee has introduced a bill that would ban Medicare compensation of PBMs based on a drug’s sticker price, impose more federal oversight, and ban “spread pricing” in Medicaid, where a PBM charges an insurer more than it reimburses the pharmacy for a drug and pockets the difference. (An alternative model for spread pricing is to pay a PBM a fixed fee that is unrelated to drug prices.)
Massachusetts Congressman Jake Auchincloss recently introduced a bill that would create a market-based model for drug reimbursement and limit PBMs’ ability to direct patients to affiliated pharmacies, engage in price spreading, or require patients to purchase a brand-name drug instead of a generic.
At the state level, this editorial board has supported bringing pharmaceutical companies and pharmacy benefit managers into the Health Policy Commission’s cost-trends hearing process, which would require them to provide financial information to state regulators. The Senate passed a bill that would do this in November, and the House followed suit last Wednesday. The House bill would also require the Division of Insurance to license and audit PBMs, ban spread pricing and certain types of reimbursements, require PBMs to reimburse all pharmacies at the same rates, and require PBMs and insurers to pass along at least 80 percent of drug rebates to consumers.
Some of these requirements may be warranted, but the House bill is complicated and leaves little time for review, since it was released days before the end of formal sessions. By immediately passing provisions to bring PBMs under the jurisdiction of the Health Policy Commission and create a state licensing scheme, lawmakers would have a chance to gather the information they need to determine what additional policies make sense.
PBMs have the potential to drive down drug prices and save consumers money. They should not be allowed to do the opposite.
Editorials represent the views of the Boston Globe Editorial Board. Follow us @GlobeOpinion.
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