By DEBBIE GARZA
Texas Pharmacy Association
It’s somewhat gratifying that Congress and the White House are at least attempting to address the issue of drug costs. It’s simply not right when rising out-of-pocket costs at the pharmacy counter are forcing some Texans to choose between buying food and purchasing lifesaving medications like insulin. In their deliberations though, politicians are missing a key aspect of this problem – the role played by pharmacy benefit managers – known as PBMs. Any serious attempt to lower out-of-pocket costs for patients has to start by addressing the actions of these relatively obscure, but powerful, corporate middlemen.
Most people are probably unfamiliar with PBMs, or with their position in the drug supply chain, but these mysterious middlemen are increasing the cost of prescription drugs to boost their own profits. They play a dominant role in determining whether patients can access or afford certain prescriptions, yet they operate with little government oversight.
PBMs were originally created to process prescription claims and manage drug formularies, but their role has steadily grown. Now, they claim to negotiate savings and rebates with drug manufacturers purportedly on the behalf of patients. In reality, PBMs have consolidated their power, using their outsized market share to negotiate even larger discounts from drug manufacturers. Here’s the problem – none of these negotiated savings are reaching consumers.
The Senate Finance Committee found that, “PBMs used their size and aggressive negotiating tactics, like the threat of excluding drugs from formularies, to extract more generous rebates, discounts and fees.” While drug manufacturers offer rebates as high as 70%, these savings rarely, if ever, benefit patients. In fact, the PBM rebate game often results in higher out-of-pocket costs to patients. A recent University of Southern California study found that every additional $1 in rebates was associated with a $1.17 increase at the pharmacy counter. It’s not difficult to understand how this works. The higher a drug’s list price, the larger the rebate to the PBM. Thus, the middlemen steer consumers to higher-priced medicines.
PBMs can also control where patients get their medications by requiring or incentivizing the patient to use the PBM’s “preferred pharmacy network.” Looking again at the top three PBMs: one operates the nation’s largest chain drugstore, and all three own their own mail order pharmacies. PBMs have squeezed independent pharmacies out of business altogether, a further disservice to patients, especially in underserved or rural areas. The Rural Policy Research Institute reported that between 2003-2018, about one of every six independently owned rural pharmacies had to close their doors for good. The Drug Channels Institute also found that fewer than 20,000 independent pharmacies in rural and urban areas were still afloat in 2020, with that number declining for five straight years.
Moreover, the three largest PBMs are owned by or own health insurance companies, and control more than 76% of the U.S. prescription drug market. Insurers work with their own PBMs to decide which drugs will generate the biggest profits, and then try to steer patients to their affiliated pharmacies. See the problem?
Being a PBM is profitable, yet they don’t seem to provide much constructive value to the health care system. PBMs do not research or develop new therapies. They don’t diagnose or care for patients. Yet PBMs have a near monopoly on the drug supply chain and ultimately, make it more difficult for patients to access or afford their medicines.
If President Biden and our leaders in Congress are sincere about using government to foster competition and transparency to help reduce patients’ out-of-pocket costs, addressing PBMs would be the place to start.
Debbie Garza, R.Ph., is the chief executive officer of Texas Pharmacy Association.