The Battle Between PBMs and Pharma

Pharmacy benefit managers (PBMs) and pharmaceutical companies have been locked in a battle over the cost of prescription drugs for years. PBMs, third-party companies that administer prescription drug benefits for health insurers, argue that they are working to reduce drug costs for patients. Pharmaceutical companies, conversely, say that PBMs are using their market power to extract excessive rebates from drugmakers, which are passed on to patients through higher prices.

With Congress discussing policy changes that would lower drug costs for patients and rein in powerful middlemen, insurers and their PBMs are dusting off their old playbook and once again threatening to increase costs for employers if required to do their job and provide meaningful coverage to patients. But recent remarks by one executive make clear that the PBM industry has a choice: protect its profits or lower costs for patients. The PBM industry prefers profits over patients. According to a new report by STAT News:

As Congress considers wide-ranging reforms to pharmacy benefit managers, a top executive at CVS Health, which owns one of the largest PBMs in the country, said the company would find ways to maintain its level of profit if those reforms to things like drug rebates went into effect.

The battle between PBMs and pharma has intensified in recent years as the cost of prescription drugs has risen. In 2020, Americans spent an average of $1,220 on prescription drugs, up from $940 in 2010. Drug cost increases have strained both patients and insurers and led to calls for reform.

Kaiser Family Foundation (KFF) reports that this fall, insurers have to pay back over $1 billion in excess premiums they’ve collected, and this follows $1 billion in extra premiums for 2022 and $2 billion in 2021. A 2021 KFF analysis found that the average family premium has increased by 47% since 2011. Meanwhile, states from New York and Iowa to Connecticut face double-digit premium increases from some of the nation’s largest insurers each year.

One of the main points of contention between PBMs and pharma is the use of rebates. PBMs negotiate rebates with drugmakers on behalf of health insurers. These rebates are supposed to be passed on to patients through lower copays and deductibles. However, pharmaceutical companies allege that PBMs are keeping a significant portion of these rebates for themselves.

Another point of contention is the use of formularies. Formularies are lists of covered drugs that PBMs approve. Patients who use drugs not on the formulary may have to pay higher copays or deductibles. Pharmaceutical companies argue that PBMs are using their market power to keep certain drugs off of formularies, which drives up the cost of those drugs for patients.

The battle between PBMs and pharma is likely to continue for some time. Both sides have deep pockets and are willing to fight for their interests. The outcome of this battle will significantly impact the cost of prescription drugs for patients and insurers.

What Can Be Done to Lower Prescription Drug Costs?

Several things can be done to lower prescription drug costs. One is to increase transparency in the drug pricing process. Patients and insurers need to see how much drugmakers charge for their products and how much PBMs are taking in rebates. This will help ensure that patients are appropriately charged for their medications.

Another thing that can be done is reforming how PBMs operate. PBMs should be required to pass on rebates to patients through lower copays and deductibles. They should also be prohibited from keeping certain drugs off of formularies.

Finally, the government can play a role in lowering prescription drug costs. The government can negotiate lower prices for prescription drugs on behalf of Medicare and Medicaid. It can also provide subsidies to help patients afford their medications.

The battle between PBMs and pharma is complex, but several things can be done to lower prescription drug costs. By increasing transparency, reforming PBMs, and taking action on the part of the government, we can make prescription drugs more affordable for patients.