January 11, 2020
The hidden culprit behind skyrocketing drug costs are the invisible middlemen whose policies drive up costs for patients and health plans.
They’re called pharmacy benefit managers (PBMs), who began as pharmacy claims processors. They were independent third parties and had no direct or indirect financial relationship with health insurers or pharmacies they worked with. Their job was to get the best drug pricing possible for the health plans and their members.
But that has changed. PBMs today are a more than $300 billion-a-year industry, with three main players: Express Scripts, CVS Caremark and OptumRx. They hold up to 80% of the market, and each is owned by a Fortune 25 health insurance corporation. PBMs are no longer independent, and they are not required to be transparent with patients, health plans or taxpayers.
PBMs can engage in self-dealing to their own pharmacies. They can underpay pharmacies that aren’t theirs. Most notoriously, they have demanded drug-manufacturer rebates in exchange for premium drug placement on the list of drugs that are covered by insurance. This all leads to higher costs for patients and health plans. The big three PBMs have created an oligopoly that is limiting patient choice and driving up out-of-pocket drug expenses by driving out competition from local pharmacies. Even if you’re not taking prescribed medication, you’re affected.
Earlier this year, Rep. Michael Schraa, R-Oshkosh, and Sen. Jon Erpenbach, D-West Point, introduced legislation aimed at lowering out-of-pocket drug costs by curtailing the very practices that allow PBM middlemen to game our system for their financial gain. Assembly Bill 114 and Senate Bill 100 has broad bipartisan support — yet the proposal is stalled because PBMs don’t want to defend their practices in a public hearing. This is good for PBMs but bad for everyone else.
Today, PBMs work against the interest of patients and health plans by finding subtle ways to squeeze the drug supply chain for revenue. For example, PBMs can charge a higher copay for a drug than its cash price, while contractually preventing a pharmacist from sharing this information with a patient. AB 114 and SB 100 outlaw the use of the contractual “gag clauses” that silence pharmacists and keep lower cash prices a secret. When patients and pharmacists are free to talk about lower cost options, consumers and plan payers save money.
PBMs also can legally hide what they bill health plans for medications versus what they reimburse the pharmacies. In other states, this “spread” has resulted in as much as $300 million over the cost of medication flowing out of state into corporate shareholders’ wallets. Under AB 114 and SB 100, PBMs must disclose the spread assessed on medications billed to a health plan, equipping plan payers with the facts and enabling them to make informed choices in their choice of benefits plan.
There was a time when PBMs were truly trying to help keep down the cost of prescription drugs. Today, PBMs’ primary objective is profit for shareholders — often at the expense of patients, health plans and local pharmacies.
AB 114 and SB 100 create the PBM transparency necessary to ensure patients, health plans and taxpayers are getting the best price possible for prescription drugs while preserving patient access to local Main Street pharmacies. With a highly polarized political landscape, this is one health care reform that enjoys widespread bipartisan support.
Stause is president of Hometown Pharmacies, with more than 65 locations in Wisconsin: hometownpharmacyrx.com.