Pharmacy Benefit Managers Drive High Drug Prices

Most consumers are probably aware of the growing problem of high drug prices in America today. From the high cost of drugs needed for everyday ailments, to specific prescription plans that require expensive copays and deductibles, Americans pay an unnecessarily high price for their medication. However, what they are probably unaware of is how Pharmacy Benefit Managers (PBMs), or companies that manage prescription drug benefits on behalf of private stakeholders, contribute to these high drug prices through a lack of transparency. PBMs routinely take advantage of drug manufacturers, pharmacists, plan sponsors, and their employee beneficiaries, to the detriment of everyone involved – especially consumers.

Fortunately, public officials are beginning to take notice. The Federal Trade Commission (FTC) recently announced that it will be “soliciting public input” on the ways PBMs are negatively impacting drug affordability and access. The formal request for information (FRI) establishes a public comment period that is set to end on April 25th. During this time, agency staff will have the opportunity to review PBM business practices and determine whether further investigation is needed.

These steps are critical to raising awareness about the issue, increasing public transparency, and establishing industry accountability.

For years, PBMs unique position as the industry middleman has given it access to vast amounts of information that no other industry player is privy to. This information can be used to leverage favorable contracts for itself, all the while withholding this same information from other members of the supply chain. The net result is that PBMs enrich themselves at the expense of consumers who often lack access the information they need to make informed decisions.

For instance, because PBMs administer prescription plans for firms, they know the price of various drugs and can selectively choose which drugs to include in their menu of offerings, known as formularies. PBMs negotiate favorable drug rebates worth billions of dollars from drugmakers in exchange for promises to sell their products at higher volumes. In addition, they can generate revenue by threatening not to do business with pharmacies that fail to provide adequate concessions on prescriptions. And since the top three PBMs control roughly 77% of the market, these pharmacies have little choice but to agree to their terms.

Unfortunately, PBMs monopoly on cost and price information is not limited to just these areas of the market. They also hold significant sway over other things like contract terms, discounts, fees, pricing policies, and steering methods. All of which are directly related to a lack of transparency that distort the market and lead to higher prices for consumers.

The problem is particularly obvious in total gross drug expenditures.

For instance, according to a recent study by Berkley Research Group, middlemen like PBM’s and insurers now reap the majority of profits generated from brand name prescription drug sales. This is money that could have been passed along to consumer but is instead pocketed by nonmanufacturers. As is, some 10% of the drugs on the market account for 82% of costs, because these drugs are brand name products. PBMs anticompetitive behavior only drives these costs higher.

PBMs often require its drug prices to provide a significant discount off of pharmacy list prices. This means, ironically, as PBMs increase their profits by lowering the price it pays, consumers who pay cash or are uninsured will pay more.

PBMs also frequently include arbitrary provisions in their contracts that harm patient care and create waste, such as prohibiting “delivery services” and “90-day fills,” but requiring customers to use mail order prescriptions. In some cases, PBMs have even sent patients, with government funded health plans, medications that far exceed their need. These medications inevitably go to waste at the expense of taxpayers.

The anticompetitive behavior of PBMs continue to play out in countless other ways as well. Fortunately, the FTC appears to be taking these abuses seriously through their request for public input. However, this is not enough.

The FTC should also begin a formal investigation into PBMs following the closing of the public comment period on April 25th. The preliminary findings of the comment period can then be used as the basis for establishing new market friendly reforms that address existing market failures and require PBMs to do more to disclose information critical to consumer welfare such as making drug formularies publicly available and allowing pharmacies to share more affordable options with patients. PBMs should also be required to provide access to important information such as the price they pay for prescription drugs and the amount of rebate they receive from manufactures. These rebates should be passed through to consumers in the form of lower prices. Reforms such as these will go a long way towards helping reverse the steady increase in drug prices for the American consumer.

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