A pile of money and pills that represent medical expenses

When we hear about prescription drug price hikes, the focus is usually on the list prices set by drug companies. However, this price list is only the starting point for complex negotiations between drug companies and pharmacy benefit managers (PBMs) who are intermediaries between manufacturers, insurers, and patients who ultimately receive the drugs. But the function and impact of PBMs go far beyond that of a negotiator. PBMs play a large role in determining whether or not patients have access to needed treatments.

When you hear the term “PBM,” it usually refers to one of three large companies – OptumRx/United Healthcare, Express Scripts/Cigna, and CVS Caremark. They collectively treat about 85% of all prescription claims in the United States. Their profits have increased dramatically in recent years. Profit-maximization policies often delay, deny or impede care, resulting in higher costs and reduced access to needed treatments for patients with cancer and other serious diseases.

The role of PBMs in drug pricing

PBMs control patients’ access to medications in several ways:

  • Prescribing: PBMs determine which drugs will be included (or excluded) from a health care plan’s coverage through a list known as a formulary. They use pricing levels and other tools to guide patients and prescribe physicians toward the most profitable medications for PBM. Such actions cost patients and the health care system in general more, and can lead to financial non-compliance (when patients stop taking their prescribed medications due to higher out-of-pocket costs). For patients, non-compliance can lead to medical complications and higher medical costs, more hospitalization, and catastrophic outcomes, including death.
  • Price Negotiations: PBMs negotiate acquisitions with drug manufacturers, often exchanging a preferred place in the formulary for a cashback discount on the drug price list. These discounts create financial incentives for PBMs to cover brand-name drugs while excluding coverage of low-cost drugs or biosimilars.
  • Pharmacy management: PBMs manage relationships with pharmacies to further control patients’ access to treatments and what they pay out of their own pocket. In addition, they may require patients who use “specialty drugs,” which include important, expensive drugs such as cancer chemotherapy, to use their own specialty pharmacies. These specialty pharmacies may operate by mail only, which limits patient options and often causes delays and other problems.

Other money making schemes

Another tool to make money from PBM that has attracted congressional scrutiny and the drafting of legislation is “distributed pricing.” This happens when PBMs charge insurance companies for a prescribed drug more than they pay the pharmacy and then get the difference. For example, a pharmacy might be charged $50 for the drug they dispense, while PBM charges the insurance company $60 for the same prescription and keeps the $10 difference.

These hidden “fees”, perverse incentives such as rebates, and opaque negotiations all contribute to a system in which drug prices continue to rise, and patients bear more and more of the cost.

This year, the Federal Trade Commission (FTC) issued an open call for public comment and input on RBM practices and received more than 24,000 submissions. On June 7, 2022, the Federal Trade Commission (FTC) announced that it was opening an investigation into the business practices of PBM including its impact on access to and affordability of prescription drugs.

So, what company should you do?

Big employers, especially self-insurers, can demand a better and fairer system. They can use their contractual power to insist that their plans cover all FDA-approved drugs. If they decide to restrict their own formulary, the choice of drugs and prescription levels should be based on clinical considerations with unit cost of drugs in the PBM a secondary consideration. Manufacturer’s discounts should not affect preferred tier status or status.

They can insist that use management tools such as prior authorization are applied only to frequently misused drugs, and that any PA permits are done electronically to prevent delays. They can instruct their PBMs to account for all payments made by or on behalf of the patient at the maximum deductible and for personal expenses. They can ensure that generic drugs and biosimilars are offered with the lowest level of cost-sharing.

These steps, while small, can help curb abusive practices that contribute so much to increasing health care costs and create significant barriers to patients’ access to needed treatments.

Photo: gerenme, Getty Images

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