Insurers, pharmacy benefit managers driving up drug costs

Proposed rule could set flat rate, saving billions

IF WE EVER NEEDED MORE PROOF that insurers and pharmacy benefit managers (PBMs) are a major cost driver for the price of prescription drugs, we need look no further than what happened when President Trump and his Health and Human Services Secretary, Alex Azar, decided to withdraw their proposal to eliminate drug rebates under Medicare. 

Immediately, the stock prices soared (between 7 and 10 percent) for the three largest PBMs–Express Scripts, CVS Caremark, and Optum Rx.  The insurance companies that own the PBMs also saw huge returns—anywhere between 5 to 9 percent. 

Since their inception PBMs have accrued such power that they now control the flow and cost of drugs, negotiating with drug manufacturers and telling insurers which drugs to include on their formularies.  What everyone failed to realize for years was that the PBMs were pocketing the profits from those discounts instead of passing them along to the people they were intended for—consumers both in commercial plans and government taxpayer-funded plans (Medicaid and Medicare). 

The proposed federal rule would have impacted Part D Medicare patients by mandating manufacturers set a flat rate with PBMs, thus allowing the discounts to flow directly to consumers when they picked up their prescriptions at pharmacies.   

Removing the middleman, it was figured, would save billions in US healthcare costs. 

And now, a new report by the non-profit 46brooklyn, whose mission is to make drug pricing data accessible, confirms why the rebate rule proposal was needed.  It found that PBMs have not only bilked billions off the backs of those on commercial plans, but it turns out there’s substantial evidence showing they are bilking seniors and all of us taxpayers who fund Medicare Part D and Medicaid. According to the report, many generic drugs in Part D were “wildly overpriced” and “over-tiered” (in some cases costing more than the brand equivalent), which has resulted in seniors paying higher out-of-pocket costs than they need to.   

The same kind of manipulation is happening with state Medicaid plans where state programs — in our case MassHealth — are paying grossly inflated costs for drugs.  It’s called “spread pricing” in which the cost of the drug is much lower than what PBMs are charging.  These spread pricing practices by the PBMs provide incentives to underpay pharmacies and overcharge insurers so they can keep the difference.   Who loses?  You, me, community pharmacies, and everyone who pays taxes. 

The opioid epidemic in our state provides one of the clearest examples.  The commission found that last year PBMs were charging Medicaid managed care organizations $159 per prescription of Buprenorphine (Nalaxone), one of the most commonly prescribed drugs in the opioid addiction battle.  Yet the average price of the drug was less than half that—$75 per prescription. Imagine what we could do with extra money to fight this public health epidemic. 

Spread pricing is just one of the reasons the Massachusetts Health Policy Commission has called for shining a light on the “black box” of PBMs.  

There are also other, heartbreaking consequences of PBMs overcharging for drugs.   

Meet the Author

Todd Brown

Executive director, Massachusetts Independent Pharmacists Association
Unfortunately, this often incentivizes the patient to stretch out their medications, or stop taking them altogether, which in turn leads to chronic conditions not being controlled and ultimately leading to the use of more expensive medications and an increase in more costly care (i.e., hospitalizations). 

The recent Massachusetts Health Policy Commission report calls for greater transparency around PBM pricing, practices, and revenue, and the Massachusetts House Post Audit and Oversight Committee has started to look into these issues. The recent report by 46brooklyn and Congress’ inaction further illustrate why this is important and why action needs to happen on the state level. 

Todd Brown is the vice chair of the Department of Pharmacy and Health Systems Sciences at Northeastern University and the executive director of the Massachusetts Independent Pharmacists Association.