How PBMs impact Americans’ health care

The nation’s attention remains focused on pharmacy benefit managers. After a series of House Oversight Committee meetings on the role of PBMs in rising drug costs and an FTC research in anti-competitive business practices among PBMs, a growing number states litigate PPE for price fixing. And just last week, the Arkansas Insurance Department Commission punished four PBMs millions of dollars for paying pharmacies below the national average cost to purchase medications, an illegal action under state law.

But how do these lawsuits and accusations impact everyday Americans, many of whom have never heard of PBMs? In short: significant, even if they don’t know it. As I noted previously, pharmacy benefit managers are intermediaries who negotiate between pharmacies, insurers, drug manufacturers, and employers/plan sponsors. They also manage health plan forms, negotiating to determine where medications are placed and how much an insurer will pay for each drug, which ultimately affects the availability and affordability of patients’ treatment. Through a variety of tactics that I detailed in a previous column — including rebates, administrative costs and formulary tie-ins — PBMs have contributed to rising health care costs and limited patient control over their health care decisions.

However, this has not always been the case. When pharmacy benefit managers were first created, their services helped American consumers. They drove down the costs of pharmaceuticals by steering doctors toward cheap generic versions of brand-name drugs, shifting the market from a reliance on brand-name drugs to more affordable, equally effective alternatives.

But while PBMs still use this history to market their products defend themselves Despite legal challenges, they have changed their business model in a way that is hurting American consumers and driving up prices for everyone. As the PPE market has become increasingly consolidated, there are only three PPEs that handle almost everything 80% of all prescription drug claims in the United States, PBMs have benefited from their dominant position in the pharmaceutical supply chain.

Today, PBMs operate largely behind the scenes. While almost every American is familiar with hospitals, health insurers, pharmaceutical companies and pharmacies, very few people have heard of pharmacy benefit managers, at least until their recent appearance in the news. Yet their practices drive up costs for consumers and limit patient choice.

PBMs have incentives that conflict with the interests of patients and employers. They negotiate with pharmaceutical manufacturers to get rebates for including medications on a health plan form — a list of covered medications that the insurer will reimburse. These discounts are usually based on agreed list prices: higher prices lead to larger ‘discounts’ and discounts. As a result, PBMs have a vested interest in higher-priced drugs that get them bigger discounts, rather than opting for more affordable alternatives. This pricing strategy, based on artificially inflated prices, leads to higher co-payments for patients.

Furthermore, PBMs limit patient choice in several ways. By structuring a health care plan formula through negotiations with insurers and drug manufacturers, PBMs place drugs at different levels or exclude them from coverage altogether. By taking them off the form, they make some medications inaccessible to patients, even if they are the best available treatment option.

Another way they limit access is by referring patients to their affiliated pharmacies. Although patients may pay less for a particular drug if they have a script filled out at these pharmacies, this may not be as convenient. More importantly, PBMs sometimes limit reimbursement coverage entirely to pharmacy chains that are in-network with pharmacy chains owned by their parent companies. For patients, these practices mean higher costs, limited options and the inability to access medications from non-affiliated pharmacies.

Finally, PBMs lack transparency. The labyrinthine world of PBM operations is designed to obscure rather than illuminate, leaving patients, employers and even regulators in the dark about true drug costs. Although consumers know what prices they will pay for their medications, the lack of clarity about how these prices are determined—and how much of the discount PBMs are retained—fuels frustration and distrust. The problem isn’t just that PBMs operate in secret; it is also the case that this opacity makes it difficult to assess whether their role justifies the substantial share they take in drug pricing.

While it’s easy to point fingers at industry giants as PBM giants, there is a real need for an industry-wide overhaul. As I explain in my book, Adding value to healthcarePPE does not work in a vacuum. Lawsuits represent important steps in curbing egregious behavior, but without systemic solutions they risk becoming more hype than substance by failing to address the necessary changes in the business model.

PBMs exemplify the problems that have plagued the healthcare ecosystem for decades: opaque practices, consolidation, payments disconnected from outcomes, conflicts of interest, misaligned incentives, limited patient decision-making, high costs, and little to no accountability. A better model would be characterized by transparency in cost and quality, payment linked to outcomes that matter to patient-consumers, along with accountability for care across the continuum.

These investigations and lawsuits should not be seen as the end of the journey, but as an important step towards that new model. The national oversight we see today must translate to other parts of the healthcare ecosystem and lead to a thorough examination of how to put the pieces together differently. And it is a thing of the past that patients are given a central place at the table.