By Arthur Allen | KFF Health News
In recent months, there has been a surge in TV ads about prescription drugs. However, it’s not always clear who is behind these ads or why they are being aired. The reason for this sudden increase in ads can be attributed to the attention being paid by Congress. Both House and Senate members from both political parties have introduced at least nine bills that aim to address the role of pharmacy benefit managers (PBMs) in the distribution of prescription drugs.
Pharmacy benefit managers, also known as PBMs, were established in the 1960s to assist employers and insurers in selecting and purchasing medications for their health plans. With the significant growth of prescription drug spending over the years, PBMs have become important intermediaries between drug manufacturers, drugstores, insurers, employers, and patients. They negotiate discounts with manufacturers and set payment terms for pharmacies, playing a dominant role in the drug supply chain.
The PBM industry in the U.S. consists of around 70 PBMs. Through mergers, three of these companies (CVS Caremark, Optum Rx, and Express Scripts) have come to control 80% of the prescription drug market. These companies are part of larger conglomerates that have stakes in various sectors of healthcare. For example, UnitedHealth, which owns Optum Rx, contracts with 70,000 doctors, making it the largest employer of physicians in the country. The dominance of these PBMs in the market, coupled with their complex corporate structures, makes it difficult to track where the money ends up.
The recent influx of ads about PBMs is a response to concerns from other sectors of healthcare. Drugmakers, employers, pharmacies, doctors, and even patients have raised issues with PBM practices such as “spread pricing,” where PBMs retain money negotiated on behalf of health plans. Independent pharmacists argue that PBMs squeeze their businesses by imposing opaque contracts, including clawbacks of money long after sales have taken place. PBMs also direct patients to their affiliated pharmacies, leading to financial losses for independent pharmacies. Doctors claim that PBMs act as gatekeepers for insurers, hindering or delaying coverage of necessary drugs. Additionally, the pharmaceutical industry has seen a decline in sales revenue due to the influence of PBMs, even though they predominantly face criticism for high drug prices.
The anti-PBM campaign is primarily led by the Pharmaceutical Research and Manufacturers of America (PhRMA), the trade group representing most of the major drug companies. The ads are also sponsored by the PBM Accountability Project, a temporary lobby funded in part by the drug industry, which includes unions and patient advocates concerned about restrictive PBM and insurance industry policies. The Pharmaceutical Care Management Association, the PBM trade group, has responded with its own ads, placing blame on drug companies for high prices and their impact on pharmacy benefits. The health insurance lobby, AHIP, has also launched its own campaign on the topic.
Congress has taken note of concerns about PBM practices and has introduced various bills to address these issues. The Senate Finance Committee has drafted legislation that would prohibit PBMs from collecting rebates and fees based on a drug’s list price, aiming to discourage the favoring of expensive drugs. The committee also plans to introduce legislation that would require PBMs to pass discounts directly to seniors, allow patients to choose their preferred pharmacy, and provide more information on where their money goes. Senator Bernie Sanders has introduced a bill that bans spread pricing, while other bills in the Senate and House aim to crack down on PBM practices that harm independent and rural pharmacies. Other proposed measures focus on increasing transparency or reducing patient wait times for drug approvals. Some states have also implemented strategies to lower PBM-related costs, such as using high-tech auctions to secure the best deals for their employee healthcare plans.
While PBMs may be the target of public outrage due to their secrecy, omnipresence, and power, they primarily operate on behalf of their customers, which are insurance plans and employers striving to control prices. However, this often involves extracting concessions that can have both positive and negative effects. PBMs play a crucial role in lowering brand-name drug prices and preventing the drug industry from charging exorbitant prices. If all drug prices were fully covered by insurance, it would further increase healthcare spending, which already accounts for nearly a fifth of the economy. Although hospitals, insurers, the drug industry, and PBMs often shift blame onto each other, they all benefit from the current system. The smarmy PBM guy preventing access to a prescribed drug is a result of the insurance company striking a better deal with another drug manufacturer. However, the vertical integration of PBMs enables unfair competition, an issue being studied by the Federal Trade Commission but not yet addressed in any congressional bill. The concern is that new structures created by these bills may not necessarily be better for patients.
KFF Health News is a national newsroom that produces in-depth journalism about health issues. It is one of the core operating programs at KFF, an independent source for health policy research, polling, and journalism. To learn more about KFF, visit their website.