PBM stranglehold on prescription drug market demands reform

Around Washington, there’s a lot of talk about the prices of prescription drugs. But a new player has emerged into the public debate known as Pharmacy Benefit Managers (PBMSs) that is drawing considerable attention to their role in rising prices.

PBMs serve as the middlemen in drug pricing system, by making deals with manufacturers and pharmacies. Their impact on our drug pricing system is enormous, in fact the three largest PBMs control an astounding 75-85 percent of the market and have upwards of $250 billion in estimated revenues. These companies are powerful forces in prescription negotiation but their reach is often obscured by a lack of transparency.

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Because PBMs are the intermediary between drug manufacturers, pharmacies, and ultimately patients these companies hold sway over everything from pharmacy reimbursements, to what drugs are covered under formularies. Their influence is notable especially considering the lack of competition in the PBM space.

 

PBMs were initially formed as a means of cost reduction but their consolidation in the marketplace has instead resulted in bloated profit margins for just a few companies. Look no further than one of the largest PBMs, Express Scripts, whose profit per prescription has increased 500 percent since 2003 in tandem with rising costs of prescription drugs. Such a dramatic increase did not come from fleecing big drug companies but the very consumers that rely on these medicines.

What is so often obscured in pharmaceutical pricing discussions is that drug manufacturers offer rebates to PBMs aimed at increasing access for patients. But PBMs can pocket up to 15 percent of these rebates expanding their profit margins while doubling the costs of prescription drugs for consumers and employers.

Exacerbating this problem is the secrecy that accompanies the actions of PBMs in the negotiation process. Recently, health insurance provider Anthem split ways with Express Scripts due to billions in withheld cost savings aimed at consumers. PBMs are also notoriously hostile to pharmacists with their negotiating tactics, often using punitive tactics to silence local pharmacists. But PBMs can get away with these actions because they have an outsized monopoly on this niche portion of the pharmaceutical pipeline.

This is no way for a free market to operate. A free market needs robust competition that helps drive down prices and ultimately gives consumers the power to shop around for the best deal. As the system currently stands, the consolidation of PBMs along with their operational secrecy means consumers are often unaware of one of the largest drivers of costs.

While most actors in the drug pricing debates are held accountable, for too long PBMs have been able to remain unchallenged because of their disconnect from consumers. Conversations about drug pricing reforms that neglect to include changes to how PBMs are structured, ultimately do a disservice to consumers who rely on fair pricing for medicines. The actions that PBMs take currently have an adverse effect on the health of pharmaceutical markets and must be addressed. Lawmakers, consumers, industry stakeholders, and PBMs must work to structure a fair distribution system for prescription drug benefits. Neglecting to open this piece of the broader conversation is paramount to not even having a discussion at all.      

Matthew Kandrach is President of CASE — Consumer Action for a Strong Economy, a non-partisan, free-market consumer advocacy organization based in Arlington, VA.


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