Recently pharmacy benefit managers (PBMs) have been at the center of criticism regarding high pharmaceutical prices, and with good reason. Among the top accusations are siphoning savings intended for safety net hospitals in the 340B drug safety net program, restricting access to more than 1,150 medicines, and concerns that the three largest PBMs now account for 80 percent of the market.
Even more concerning, a recent report shows that PBMs are not satisfied with the extra profit they already generate from restricting access to generics and biosimilars. The report contends that PBMs now want to make money by increasing their fees to biopharmaceutical companies, which will invariably drive-up drug prices and increase medication nonadherence. From 2018 to 2022 the fees collected by PBMs doubled from $3.8 billion to $7.6 billion, a cost passed on to patients in the form of higher prices. Over the past 10 years, these fees have increased fourfold, with an increasing share going to PBM contracting entities instead of traditional PBM operations, reducing PBM transparency in the process.
The increase in revenue comes from old and new fees. New fees accounted for $1.7 billion of the growth in PBM fee collection from 2018 to 2022.
Additionally, the report shows that from 2018 to 2022 PBMs’ traditional source of revenue, commercial market rebates, increased by 64 percent, or $25 billion, while commercial brand name sales growth increased only by 39 percent. This has contributed to PBMs’ practice of spread pricing in which they charge insurers the full price for a drug the manufacturer sold with a rebate or discount. In the process, PBMs pocket the drug savings that patients could have had.
Despite revenue increasing faster than the distribution of medicine, PBMs are using the lack of transparency in the industry to increase their profits in ways that also increase patient prices for pharmaceuticals.
While many blame drug manufacturers for high drug prices, PBMs have much more say over the prices patients pay for pharmaceuticals, setting prices that are “highly variable and disconnected from the manufacturer or pharmacy established price.” One National Institutes for Health study found that increases in drug manufacturers’ prices are often due to increased rebates or discounts demanded by PBMs, much of which goes to PBMs instead of patients due to spread pricing.
PBMs have even extended these practices into the federal 340B drug program intended to provide low-cost drugs to some of the most disadvantaged people in the country who could not otherwise afford medicine.
Many of the problems with PBMs stem from a lack of transparency with other stakeholders such as hospitals, drug manufacturers, insurers, and patients. PBMs even often go so far as to include bans in their contracts on disclosing data, or even prohibiting pharmacies from informing patients when medications would be less expensive if purchased directly. These contracts actively inhibit a transparent pharmaceutical market, undermining competition instead of increasing it. In one survey of pharmacies, 39 percent reported “gag clause” restrictions prevented them from informing patients of cheaper prices for medications between 10 and 50 times in a month. Another 19 percent reported those restrictions prevented them from informing patients over 50 times in a month.
Currently three big players dominate an opaque PBM market. To bring competition into the PBM market, there needs to be transparency regarding fees, rebates, and drug exclusions. With the number and size of fees growing, manufacturers, hospitals, and insurers are left with little recourse. While rebates, pass through rates, and the list of excluded drugs remains hidden from the other stakeholders in the pharmaceutical system, PBMs know all of it preventing real competition. This ultimately leads to patients paying higher prices and insurance premiums.
An open competitive market for PBM services requires manufacturers, hospitals, and insurers to have all the facts. Transparency in the form of reporting requirements on fees, pass through rates, and excluded medicines, would help provide all three groups with the information they need to make informed choices between PBMs, reducing prescription drug costs by introducing transparency and competition into a market that currently lacks both.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.
