Hospital Impact—Pharmacy benefit managers are a lot like car dealers

Any time you try to buy a car, the same question is considered: Am I getting the best price?

Sure, price tags are displayed on freshly waxed cars, but it’s always possible to talk the salesman down.

The system for car purchases—where Americans buy cars from dealerships instead of directly from the companies making them—makes it hard to know how much it actually costs to make a car, so it’s hard to know you’re getting the best price.

The same system applies to buying lifesaving prescriptions. Drug manufacturers set a list price, but consumers rarely pay that, and how much drugs should really cost is uncertain.

That’s because of pharmacy benefit managers (PBMs), large corporations wielding enormous power over which drugs you get. Just three big PBMs control nearly 80% of the market, using their size and influence to negotiate drug prices with manufacturers. However, big PBMs have mixed incentives around containing drug costs and managing premium costs, while maximizing profits from their own in-house pharmacies.

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In the past few years, PBMs have ramped up their mail-order and specialty pharmacies to lock down profits and exclude independent pharmacies. Increasingly, they’re exploiting a Medicare provision allowing them to charge “direct and indirect remuneration fees” to pharmacies within their network. They're ratcheting up the use of these fees—ostensibly part of Medicare reimbursement—to price out competition: local independent pharmacies, where pharmacists have personal relationships with patients and partner with referring providers to support patient care.

The way PBM incentives are structured, PBMs can retain more of the discounts and fees they negotiate by collecting them long after the patient pays a higher co-payment and picks the drug up from the pharmacy. This drives up costs for the 40 million seniors on Medicare and taxpayers who fund it, and pushes seniors into Medicare’s dreaded “donut hole” coverage gap—where they must pay more out of pocket for drugs.

While big PBMs claim that—as middlemen—they’re using rebates to lower costs for patients, their pricing model is fiercely guarded, hiding the costs paid by patients, by health insurance companies and by the government, and hiding how the fees retained are applied. PBMs resist every attempt to boost transparency, and now they’re conducting an expensive lobbying campaign to push lawmakers and regulators to maintain the status quo.

Patients struggling to afford prescription medications cannot afford the status quo. Americans consistently rank runaway prescription drug prices as a top healthcare concern. This year, Americans are expected to spend more than $328 billion on prescription drugs, with individuals paying about $50 billion out of pocket.

We must do better. Two pieces of California legislation considered this session provide an opportunity.

State Sen. Ed Hernandez’s S.B. 17, which cleared the state Senate and is headed to Gov. Edmund Brown’s desk, would require PBMs to tell patients how much of their monthly premiums cover costs of prescription drugs and pharmacist support for patients suffering from the most complex, most costly diseases, versus paying for expensive TV commercials.

And Assemblyman Jim Wood’s A.B. 315 would have required PBMs to obtain licensure, act in the best interests of their customers and disclose what they pay for a drug—including acquisition costs, rebates received and administrative fees collected.

Like a car dealership, it’s hard to know a PBM’s actual costs or how that impacts what patients pay, and it’s not in a PBM’s best interest for patients to understand the breakdown of costs for the products they sell.

California lawmakers are pushing forward to require more transparency from PBMs around prescription drug pricing. That’s the only way to ensure patients get the best price.

Sheila Arquette is the executive director of the National Association of Specialty Pharmacy, which represents thousands of specialty pharmacy healthcare professionals who provide medications to patients suffering from complex diseases including cancer, hepatitis C, Crohn’s disease, HIV/AIDS and multiple sclerosis.