Pharmacy benefit managers should share more drug company discounts to consumers

Pharmacy benefit managers should share more drug company discounts to consumers

Some corners of the health care market remain unnecessarily opaque, shrouding the true cost of everything from an extensive medical procedure to a single pain pill.

Now, regulators at the Centers for Medicare and Medicaid Services (CMS) want to get to the bottom of one of the biggest mysteries — why patients don’t see a larger share of drug company discounts.

Pharmaceutical companies regularly offer rebates and other price reductions to make prescription drugs more affordable. In fact, between 2010 and 2015, drug companies increased the discounts they offered by nearly 24 percent annually, according to CMS.


Consumers saw very little of those saving and CMS wants to do something about it. The agency recently proposed a new rule that requests information on how the sponsors of prescription-drug plans under Medicare can pass some share of those discounts along to the patients they cover.

This proposal represents a meaningful step to help Medicare beneficiaries pay less for their prescription drugs. By shedding light on a little-understood segment of the health care market, the rule would also give patients and health care providers more information about who benefits from drug companies ongoing efforts to lower patients’ out-of-pocket costs.

That might not seem like such a novel concept in other industries, but it would represent a major breakthrough for the health care market. By disclosing who collects the bulk of these savings, patients will see where their money goes and drug companies will have a better understanding of why the rebates and other discounts they offer don’t wind up in the pockets of the patients they are trying to help.

The new system proposed by CMS would increase transparency in a health care market and help ensure price reductions offered by pharmaceutical companies get passed along to the people they are intended to benefit. CMS projects this shift would save Medicare beneficiaries $10.4 billion.

Most people might not know what a pharmacy-benefit manager is, but just about everyone with health coverage uses one. These companies manage prescription-drug programs for large commercial health plans, companies that insure their workers and governments at the local, state and federal level. They also manage plans under Medicare’s prescription-drug program.

This data should give patients a better sense for how much of the existing savings are being collected by pharmacy benefit managers (PBMs), who as the middlemen of the pharmaceutical industry often collect the lion’s share of drug-company savings with little direct benefit to the patients they were created to serve.

These intermediaries determine what medicines are covered entirely by your insurer and what medicines require patients to pay out-of-pocket costs. Their size and influence over the entire health care industry gives them enormous leverage to negotiate rebates and other discounts with bio-pharmaceutical companies whose sales depend on access to these patients. The three largest PBMs represent 78 percent of the entire market.

In explaining the reasons behind this proposed rule, CMS noted that these PBMs “very rarely” pass the savings they negotiate along to their customers. “In recent years, only a handful of plans have passed through a small share of price concessions to beneficiaries at the point of sale,” the agency wrote. CMS wants to fix that.

The agency announced plans to design a policy that would require PBMs and other plan sponsors to pass some share of the rebates and other discounts they receive to patients at the point of sale. As part of that process, they would be required to disclose where these discounts go.

This is a step towards the reform we need to help patients save money without disrupting the supply of groundbreaking medicines that help people live longer, better lives. The proposed system would assure patients they would receive the discounts that were intended for them. This change would affect patients of every income level, but particularly those older Americans who struggle to pay for their medicine.

The debate around drug prices has grown so heated that it can be difficult to distinguish good policy from convenient politicking. This rule proposed by CMS is a practical fix that could result in real savings and, in the process, shines light on one of the industry’s biggest secrets.

Howard Dean is the former Governor of Vermont and a former chairman of the Democratic National Committee. He is an advisor to Dentons.