The Senate is considering the Patients Before Middlemen Act, a bill that could save Americans billions of dollars on their prescriptions by curbing the power of pharmacy benefit managers.
PBMs reap enormous profits from our healthcare system. Yet unlike doctors and hospitals, PBMs provide no medical services. Unlike insurers and drug companies, they don't take any notable financial risks.
Instead, PBMs function as pure middlemen, standing in between insurers on one side, and drug makers on the other. PBMs manage the prescription-related aspects of health plans on insurers' behalf. Part of their job is to negotiate with drug companies for discounts.
Because they bargain on behalf of many different health plans -- which are collectively able to purchase huge quantities of drugs -- PBMs have considerable negotiating leverage. They play drugmakers against each other, demanding huge discounts in order to steer patients towards one company's product instead of a rival company's treatment.
In theory, this sharp-elbowed haggling ought to lower costs for consumers. But in practice, it rarely does.
Because PBMs' compensation is based on a percentage of a drug's nominal, or "list" price, PBMs often select higher-priced drugs -- which come with big discounts -- for inclusion on health plans' list of covered medicines, rather than equally effective lower-priced ones.
In some cases, PBMs' preference for pricier drugs has reached absurd proportions.
Consider how the biopharmaceutical firm Amgen recently released two identical versions of Amjevita -- a "biosimilar" copycat of AbbVie's blockbuster drug Humira -- at two different list prices: $3,288 (about 5% cheaper than Humira's) for one version and $1,557 (about 55% cheaper) for the other. The pricier version comes with a much larger discount, and after accounting for discounts, analysts estimate the post-discount "net" price of the two versions is effectively the same.
Why would Amgen go through the trouble of offering two identical products, especially if they have virtually identical net prices? Because as analysts predicted, PBMs gave preferential treatment to the higher-priced, higher-discount version. PBMs get to keep a share of those discounts for themselves.
The same thing has happened before. Biotech firm Viatris launched two identical versions of its biosimilar insulin product in late 2021 -- the sole difference was the list price and accompanying discount. At least one PBM preferred the higher priced version, and actively tried to block patients from accessing the cheaper version.
Of course, PBMs keep these decisions secret from patients. That way, they can pocket a large percentage of the ever-greater discounts they're negotiating, while passing only a miniscule portion onto health plans so they can lower premiums for patients. All the while, patients pay copays and coinsurance based on the artificially high list prices, not on the lower net prices that the middlemen negotiate.
In other words, PBMs do little to lower costs for patients. Instead, they perpetuate a convoluted system in which the sickest patients pay the highest out-of-pocket costs for the medicines that keep them alive. In so doing, they subsidize the costs and premiums of healthy patients, rather than the other way around.
This status quo is bad for patients' health. It's extremely well documented that when patients' out-of-pocket costs increase, their adherence to their doctor-prescribed treatment plans declines.
PBMs' self-dealing negatively impacts scientists, not just patients. Just three PBMs control 80% of the market. By making it clear to drug manufacturers that higher list prices are favored -- and by actively blocking coverage of lower-priced generics and biosimilars -- PBMs discourage the creation and adoption of more cost-effective medications. Why develop a cheaper treatment if PBMs won't cover it?
Thankfully, Congress wants to fix this warped incentive structure. The Patients Before Middlemen Act would forbid PBMs from using the list price of a drug to set compensation terms when contracting with a Medicare Part D insurance plan. The middlemen's rake ends here.
The legislation has bipartisan sponsorship -- rare in our overheated political era. If it passes, it would vastly improve pricing incentives in Medicare, which accounts for 30% of the country's total drug spending.
In theory, hard-bargaining PBMs could help control drug costs and improve access to medications. But in practice, they operate within a perverse incentive structure that encourages them to steer patients towards higher-priced medicines.
By decoupling PBM compensation from drug list prices, Congress can foster a fairer and more patient-centric pharmaceutical market.
Sandip Shah, a visiting professor at Rutgers University, is founder and president of Market Access Solutions, which develops strategies to optimize patient access to life-changing therapies. Krunal Patel, PharmD, is manager of Global Pricing & Market Access at Market Access Solutions.
