When a discount isn’t a discount

Better regulation of PBMs could help reduce drug costs

MOST OF US have negotiated a better price for ourselves at one time or another – online, with a local merchant, or as part of our job. Those selling an item we want set the opening bid – we counter with a lower offer. And so on. While every negotiation is different, they all share two things in common: first, both parties come to an agreement on a price, and second, that price is different—and presumably lower—than the original.

But what if someone were negotiating on our behalf? We’d expect them to pass those savings on to us, right? Unfortunately, when it comes to negotiating the prices of lifesaving drugs, too often that isn’t happening – and pharmacy benefit managers, often referred to as PBMs, are one big reason why.

While most people have probably never heard of them, PBMs play an outsized role in setting drug prices we all pay for at the pharmacy counter. Middlemen between drug manufacturers and health insurance plans, the job of PBMs is to develop and maintain a list of covered drugs (“formularies”), contract with pharmacies, and, most important of all, negotiate discounts and rebates on behalf of patients in those health plans.

Today three companies—Express Scripts, CVS Caremark, and OptumRx—control 80 percent of the PBM market, covering nearly 180 million prescription drug customers. In fact, PBMs have become so profitable that some rank even higher in the Fortune Top 25 than the drug manufacturers whose prices they are supposed to control. So drugmakers have a big incentive to offer steep rebates to PBMs. If they don’t, they potentially can lose access to tens of millions of customers.

The problem is, the manufacturer rebates negotiated by PBMs are increasingly not being passed on to patients at the pharmacy counter but rather kept as profits. According to the Massachusetts Association of Health Plans, prices for “widely used brand-name prescription drugs” increased at twice the rate of inflation over a 15-year period. This is on top of a report from the state’s Health Policy Commission which found that MassHealth, the state’s Medicaid program, saw prescription drug spending grow twice as fast as all other MassHealth spending from 2012 to 2017, surging from $1.1 billion to $1.9 billion in just five years.

Patients are the ones who suffer when savings are not passed along.  My organization represents patients with lupus, a chronic autoimmune disease that causes the immune system to attack healthy tissue, resulting in inflammation and damage throughout the body. An unpredictable disease with individualized treatment courses that often change over time, lupus patients rely on sometimes as many as eight different medications to treat related diseases and conditions, including skin disorders, kidney diseases, and blood disorders. For these patients, rebates and discounts that PBMs supposedly negotiate on their behalf should be saving them hundreds or even thousands of dollars per year.

Compounding the problem is how PBM rebates and fees also impact formulary design, potentially threatening patients’ ability to access these medications at all. Because PBMs get to decide what drugs are covered and what aren’t, they often require additional authorizations, step therapy programs, and rely on specialty tiers for biologics and other high-cost medications that many patients with Lupus rely upon. These practices not only raise costs but can actually eliminate access to treatments.

Part of the challenge is that PBMs are largely unregulated – and no one really knows what kind of savings are being negotiated on patients’ behalf. As a result, policymakers ranging from the Federal Trade Commission to Congress to state legislators, including here in Massachusetts, are looking to take action.

Our hope is that policymakers will require PBMs to disclose their arrangements with health plans and pharmacies – and require manufacturer discounts and rebates to be shared with patients, offering significant savings at the pharmacy counter. So, too, should they look at how PBMs’ influence on formulary design can reduce access to the medications patients need.

Meet the Author

Beverly Goodell

Executive director, Lupus Foundation of New England
Too often we’ve been told that health care costs should be contained – but that our options are limited. By finally regulating PBMs, we have a chance to make a real difference on drug prices – and patient lives.

Beverly Goodell is executive director of the Lupus Foundation of New England.