Robert F. Bukaty/AP
In recent months, ominous advertisements for prescription drugs have flooded the airwaves. Perhaps by design, it’s not always clear who is sponsoring the ads or why.
Or, for that matter, why now?
The short answer is that Congress is paying attention. House and Senate members from both parties have introduced at least nine bills, parts of which may be packaged together this fall, that target pharmaceutical benefit managers, companies that funnel prescription drugs to patients. Here’s a primer to help you figure out what’s going on.
What are pharmacy benefit managers?
Known as PBMs, these companies were created in the 1960s to help employers and insurers select and purchase drugs for their health plans. The industry exploded as spending on prescription drugs increased 200-fold between 1967 and 2021. In addition to negotiating discounts with manufacturers, PBMs set payment terms for pharmacies that purchase and dispense the drugs to patients. In effect, they are the dominant intermediaries between drug manufacturers, pharmacies, insurers, employers, and patients.
How big is the PBM industry?
There are about 70 PBMs in the US through mergers, three of them (CVS Caremark, Optum Rx and Express Scripts) have come to control 80% of the prescription drug market and each make tens of billions dollars in revenue annually. PBMs control the drug pipeline from manufacturers to the pharmacy counter.
Their purchasing power allows them to obtain discounted medicines for health plans at the same time that they set prices and conditions of sale in pharmacies. The Big Three are part of massive conglomerates with significant stakes in almost every sector of health care; each of them owns a powerful health insurer, Aetna, UnitedHealth and Cigna, respectively, as well as pharmacies and medical providers.
For example, UnitedHealth contracts with 70,000 physicians, making it the largest employer of physicians in the country. CVS Health, with the large drugstore chain, also owns Caremark and Aetna. Secret price negotiations and hidden corners of each PBM-linked corporation make it hard to track where the money ends up.
Why am I seeing all these ads about PBM?
Other sectors of health care are alarmed by the power of PBMs and are appealing to the Biden administration and Congress to rein in them. Irritation over PBM practices like “differential pricing,” in which companies pocket money traded on behalf of health plans.
Pharmacists not affiliated with PBMs, from mom-and-pop stores to big chains like Kroger, say PBMs squeeze their business by forcing them to sign opaque contracts that include refunds long after sales are made. PBMs often take patients using expensive drugs to their affiliated pharmacies, reducing revenue for independent ones.
Doctors say PBMs act as gatekeepers to the insurers they represent, blocking or delaying coverage for necessary medications.
Finally, the pharmaceutical industry has lost a portion of sales revenue to PBM intermediaries in recent years, even as it receives most of the bad publicity for high drug prices. (The median launch price of newly marketed brand-name drugs jumped from $2,100 to $180,000 a year between 2008 and 2021, but the net income of drug companies has stagnated in recent years.)
In some cases, PBMs prefer high producer list prices, because the rebates that drug manufacturers pay to PBMs in exchange for favorable health plan coverage for their drugs are often calculated as a percentage of those producer list prices. list.
Who pays for the ads?
Pharmaceutical Research and Manufacturers of America, the trade group for most of the big pharmaceutical companies, is the main driver of the anti-PBM campaign. Some of the ads are sponsored by the PBM Accountability Project, an emerging lobby, funded in part by the pharmaceutical industry, that includes unions and patient advocates whose members complain about restrictive PBM and insurance industry policies.
In a PhRMA ad, a smarmy guy in a suit snatches the prescription from a young woman. The Pharmaceutical Care Management Association, PBM’s trade group, has responded with its own ads, blaming drug companies for high prices and “targeting their pharmacy profits.” AHIP, the health insurance lobby, has joined its own campaign.
What is Congress doing about it?
Members of both parties speak out with outrage about PBM’s behavior and have launched bills to address it. The Senate Finance Committee, whose jurisdiction over Medicare and Medicaid gives it a leading role, introduced a bill that would prohibit PBMs from charging reimbursements and fees calculated as a percentage of a drug’s list price, to discourage PBMs from to favor expensive drugs.
The committee also plans to legislate to require PBMs to pass discounts directly to seniors, allow patients to use the pharmacy of their choice, and post more information about where their money ends up.
Sen. Bernie Sanders, who leads the Senate Committee on Health, Education, Labor and Pensions, has introduced a bill that bans differential pricing, while measures in the Senate and House would crack down on PBM practices. which are considered detrimental to rural and independent pharmacies. Other measures require more transparency or limit patient waits for drug approval.
Meanwhile, several states have taken a pragmatic path to reduce PBM-related costs, using high-tech auctions to get the best deals on their employees’ health care plans.
What is the end result?
While the secrecy, ubiquity and power of PBMs make them the subject of outrage, they generally operate on behalf of their clients, which are insurance plans and employers, whose goal is to keep prices low. PBMs do that by extracting painful trade-offs, a double-edged sword.
“PBMs are the only thing we have to bring down the prices of brand-name drugs and prevent the pharmaceutical industry from charging whatever it wants,” said Benjamin Rome, an internist and health policy researcher at Harvard Medical School.
If drug prices were covered 100% by insurance, that might do well for consumers, but it would further increase spending on health care, which already accounts for nearly a fifth of the economy. Hospitals, insurers, the pharmaceutical industry, and PBMs point fingers at each other for blame, but they all benefit from the system. The smooth-talking PBM guy in the lawsuit may prevent you from getting the drug your doctor prescribed, but that’s only because the manufacturer of another drug gave him, and therefore his insurance company, a better deal.
On the other hand, the vertical integration of PBMs allows unfair competition, it is an issue that is being studied by the Federal Trade Commission but that is not the subject of any bill in Congress. “My concern with any bill is unintended consequences,” Rome said. “Will the new structures they will create be better for the patients?”
KFF Health Newsformerly known as Kaiser Health News (KHN), is a national newsroom that produces detailed journalism on health issues and is one of the central operating programs of KFF — The independent source for health policy research, surveys and journalism.