When you pick up a prescription, you’re not just paying for the pills, you’re also paying shadowy middlemen you’ve never heard of. Pharmacy Benefit Managers (PBMs) operate behind the scenes under the guise of lowering drug prices. In reality, they inflate costs, limit patient choices, and dodge accountability. It’s time to drag this $600 billion corner of the healthcare system into the disinfecting light of transparency.
Federal efforts to address PBMs have been slow, with reforms more than once, failing to pass Congress. One hope of progress came in a recent expansive Executive Order from the Trump Administration directing the Secretary of Labor to propose transparency regulations for PBM’s “direct and indirect compensation.”
Currently PBMs profit through a web of direct and indirect renumeration (DIR), clawbacks from pharmacies, spread pricing, and preferential treatments for certain drugs. The maze of opaque fees leaves pharmacies in the dark about their own financial outlook, contributing to the hundreds of independent pharmacy closuresthat restrict patient access to medicines.
In the absence of federal leadership, state legislatures have stepped in with a patchwork of efforts intended to protect independent pharmacies. The incentive for states to act is clear. A recent Federal Trade Commission report estimates PBMs marked up 63 percent of their drugs by more than double the cost. Over a fifth of drugs PBMs provided were marked up by 1,000 percent or more, bringing in over $7 billion at the expense of patients. It is no wonder states are beginning to act, with or without the information they need.
In April, Alabama passed legislation preventing PBMs from providing inflated reimbursement and steering patients to their own pharmacies. The law also eliminates price spreading and retroactive fees. Arkansas has proposed a bill that would prevent PBMs from owning pharmacies, which CVS claims will force them to close 23 pharmacies in the state. Despite CVS’s warnings the bill passed the Arkansas House and Senate and is currently waiting for the Governor’s signature. Calls to prohibit PBMs from owning pharmacies have grown across the country with many State Attorneys General petitioning congress to act.
One county in Iowa went so far as to swap the PBM for their county employees’ insurance for a smaller one that focuses on transparency and reducing costs. The focus on transparency is key. While differences in state approaches certainly reflect the laboratory of democracy theory, the lack of transparency in the market leaves legislatures guessing as to how to regulate it.
However, there are other stakeholders in this market that could pressure PBMs as well. When stakeholders can compare PBMs based on steering practices, reimbursements, and fees, those that fail to compete on value will lose business.
Transparency unlocks competition. It has the potential to resolve many of the problems in the PBM market, reducing the burden on legislatures to regulate the market while lowering patient prices. The order to promote transparency in the PBM market creates an opportunity to empower the private market to regulate itself and to provide regulators with needed knowledge. Transparency can open the PBM market up to the light of day so pharmacies and drug manufacturers’ decisions and negotiations with PBMs are better informed. Only then can we move toward leaner, smarter, and more effective regulation.
Read the original piece here.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, follow on Twitter @ConsumerPal.