Pharmacy benefit managers, commonly known as PBMs, are third-party administrators contracted by health plans, large employers, unions and government entities to manage prescription drug benefits programs.
PBMs are the single biggest influence on the soaring price of prescriptions.
Originally intended to process claims on behalf of clients, PBMs profit at every stage of the supply chain from drug maker to patient. They are often called the “invisible middleman” because they are hidden between the patient’s insurance company, who the PBM works for, and the pharmacy, who the PBM reimburses for dispensing the prescription. Currently the three largest PBMs are Fortune 500 companies and control nearly 80% of the prescription benefits market in the United States. While the prescription benefits plans have different names, most can be tied back to one of the “Big Three” PBMs.
How Are Patients Affected by PBMs?
PBMs make rebate deals with drug manufacturers to have the product included on the insurance formulary (drugs that are covered by your plan). These rebates collected by the PBM are not passed on to the plan or to you the patient, and they raise drug costs.
The rebates sound like a way to lower costs and save money, but the reality is that these rebates go in the pockets and bank accounts of PBMs, padding their own bottom lines instead of passing along savings to plans and patients.
PBMs also influence which drug a patient receives, taking away choice from the prescribing doctor, pharmacist, and the patient; the decision about which drug is ultimately filled is usually decided by which drug the PBMs chose to cover – and that decision is often based off which drug has the highest rebate, not necessarily which drug will provide the patient with the best outcomes.
Not only do PBMs work as middlemen, some also own (or are owned by) the pharmacies they mandate a patient uses. They also own retail, mail order, and specialty pharmacy facilities. That means that PBMs are setting reimbursements for local independent pharmacies – their competition. At the same time, they are steering patients toward their own brick-and-mortar or mail-order pharmacies, conveniently in-network, and can set a different reimbursement for those stores.
How Are Taxpayers Affected by PBMs?
Recent investigations in states like Ohio, Kentucky and Arkansas have uncovered serious questions about the level of profiteering PBMs that manage Medicaid may be engaged in. As with private health plans, PBMs provide a third-party prescription drug benefit plan to Medicaid and Medicare enrollees, and bill the government for their services. State government pays for services with money raised by local taxes and receives matching federal funding (also taxes) to cover costs.
The amount they bill the government is a very different – and much higher – amount than what they are paying the pharmacies that are filling the prescriptions. An independent investigation in Ohio found that a PBM had been charging the state as much as 9 times the cost of a prescription drug while reimbursing local pharmacies below cost.1 The PBMs pocket that difference, and it is all taxpayer-funded profit.
How Do They Get Away with It?
The lack of regulatory oversight and demand for transparency in the PBM industry has allowed PBMs to overcharge for prescription drugs for decades. PBMs typically don’t provide clients with complete, itemized billing statements so it’s only when informed patients and health plan sponsors “put 2 and 2 together” that they begin to understand how they’re probably greatly overpaying for their prescription medications while the “savings” they thought they would see go directly into the pockets of the PBMs — and their shareholders.
What’s the solution? At the government level, states should fire PBMs or at the very least limit PBMs involvement to a purely administrative roll in state-funded programs like Medicaid and the state employees’ health benefit plan. West Virginia recently did just this and saved $54 million in the first year. Based on a report released by West Virginia Medicaid, the state saved a little over $6 per individual prescription.2
What Role do Independent Pharmacies Have?
PBMs often indicate that independent pharmacies have “massive bargaining power” when they band together and create pharmacy services administrative organizations (PSAOs). In reality, the contracts and reimbursements that PSAOs “negotiate” are often take it or leave it – and it’s hard for a pharmacy to walk away from a contract when a large percentage of their patients may be covered by one PBM. Even with PSAOs, there is little success in truly making any changes since many of the contracts have standard terms and conditions that are largely non-negotiable.3 If independent pharmacies joined together and all refused to take a contract – even under a PSAO – they would face antitrust risks. And because the PBMs own pharmacies themselves, they can just require patients to go to their pharmacies and put the independents out of business; more and more small pharmacies are going out of business every day for this exact reason.
Despite the hardships that independent pharmacies face in this situation, they are invaluable to our communities, especially in underserved and rural areas. By offering immunizations, home delivery, and personal service, local pharmacies provide the much-needed healthcare services that may not be readily available otherwise. The owners are part of the community and contribute financially to local organizations, too – keeping money close to home by supporting their neighbors.
What Can I Do About It?
Several things. Come into our pharmacy and talk to one of our team to understand how your drug plan influences the price you pay for medications. If you manage an employee benefit plan, ask your broker or PBM representative to provide a detailed explanation of your fee structure, or contact Pharmacists United for Truth and Transparency (PUTT) for information on switching to a transparent “pass through” PBM. Finally, encourage state legislators to get involved in local and federal bills that reform obscure fees that threaten the existence of independent pharmacy and raise out-of-pocket costs while enriching these insurance middlemen.
3 Government Accounting Office GAO-13-176.