The rise of pharmacy benefit managers (PBMs) has transformed them into the dominant force in U.S. healthcare, wielding nearly unchecked power allowing them to manipulate the system for record profits. Recently, these behemoths have been a hot topic in Congress as bipartisan legislation takes aim at their role in increasing the costs of healthcare and undermining market competition. With Congress locked in a fierce battle against this healthcare parasite, an urgent question is in front of us: Can the free market survive PBMs’ insatiable appetite for power, or will patients continue to pay the price?
In recent decades, PBMs have fought to increase their market power and today, their monopolized influence is completely corroding fair and open competition in the marketplace needed to keep healthcare costs down. In fact, out of the over 70 PBMs in the United States, the top 10 control 97 percent of the prescription drug market. This consolidation has resulted in PBMs having unprecedented powers to influence drug prices and dictate nearly all the terms in their agreements with manufacturers, and pharmacies.
To make matters worse, a hallmark of major PBMs today is their vertical integration with insurers, further allowing these conglomerates to bully other players in the system into submission. For example, PBMs’ shadow extends over many small, independent pharmacies that play a crucial role in local communities, especially in rural areas. A report from Rep. Buddy Carter (R-GA), a practicing pharmacist for over 30 years, explains how PBMs muscle independent pharmacies out of the market through escalating fees, steering practices, and heavy-handed agreements that primarily seek to fatten their profits. The report notes that between 2017 and 2020 the U.S. lost over 2,300 independent pharmacies. PBMs reap the rewards of this arrangement while the free market withers.
These middlemen essentially form a chokepoint in the pharmaceutical supply chain between manufacturers and patients that allows them to act with impunity to further capture market share and advance their corrupt profit-driven schemes. These practices ultimately increase healthcare costs without considering the most important actor: patients.
For example, PBMs favor drugs with high list prices in order to increase the rebates they can squeeze out of manufacturers. This impact is felt by everyone in the system. PBMs collect almost $200 billion in rebates annually – $200 billion that could instead improve the quality, access, and affordability of Americans’ healthcare. Instead, current incentive structures drive and allow PBMs to hold manufacturers and patients hostage to their voracious appetite for revenue.
Put simply, PBMs have warped the market in a drastic way. Lawmakers that claim to be on the side of free-market principles can no longer ignore this biased and exploitative system. Proper reforms are needed now to reinvigorate market forces and prevent PBMs from continuing to artificially twist the system in their favor. Priority legislation should include concrete steps such as delinking PBMs’ compensation from the price of medications. Otherwise, prices will continue to rise on pace with PBM profits. This will only continue to fuel PBMs’ ability to cut out competition and raise prices on consumers.
It is time for Congress to act decisively to end this corrupt racket and support free market principles and greater competition in the pharmaceutical supply chain. PBMs’ anti-competitive business model is anathema to the notion of fair and open market competition that have made our nation the global leader in healthcare innovation. Millions of consumers and patients across the country continue to stand defenseless against a ruthless and secretive system that puts profits over people. American patients are relying on Congress to enact high-level legislation that creates a more transparent system free from the grip of middlemen.
Gerard Scimeca is an attorney and serves as chairman and co-founder of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.
