April 25, 2023

The Hidden Cost of PBMs in the Health Care Industry

Pharmacy benefit managers (PBMs) play an essential role in managing prescription drug benefit plans for employers and health insurers. But too often, these corporate middlemen are using tactics that drive up drug prices, limit patient access to needed medicines and contribute to health risks. PBM profiteering is hurting patients, and Congress needs to enact measurable reforms now.

The Role of PBMs

PBMs are organizations that manage prescription drug programs for employers who provide health benefits for their workers.  They are supposed to use their purchasing power to negotiate discounts from pharmacies and pharmaceutical companies on behalf of employers, and this should bring down the costs for employers and patients. However, PBMs do not always pass along to their customers all the savings they negotiate.

How PBMs Game the System

PBMs employ a variety of tactics designed to increase profits at the expense of patients and often profit more when higher cost medications are used. One example is when PBMs charge a co-pay or deductible amount higher than what they paid for a medication. They then keep the difference as profit instead of passing it along to their customer or patient. Another tactic is “spread pricing,” or paying pharmacies less than what they’ve charged the health plan, employer or patient.  The intentional complexity and lack of transparency in the current system allows PBMs to benefit from high-cost drugs and results in employers, and ultimately patients, paying more.

Impact on Patients and Employers

These tactics have serious implications for both patients and employers. Patients may be forced into costly treatments or have to switch medication because a higher-cost drug offers a PBM a higher rebate, and PBMs determine which prescription drugs patients have access to. In addition, employers are left footing the bill and are most times prohibited from even auditing the PBM to see if they are getting a fair deal and paying a reasonable price. All this can lead to higher risks for patients and increased out-of-pocket costs leading some people to have to make the choice not take necessary medications.

What’s Needed

The nation’s employers are purchasing life-saving health benefits for American workers in a market that is not functioning as intended. The result is that employees and their families are being denied access to affordable prescription drugs. Federal action is essential to curb PBMs’ anti-competitive practices and to require accountability for the industry. 

These actions must include:

  1. Require full and complete transparency and reporting: PBMs and their parent companies should be required to provide strong reporting to employers on costs, fees and total manufacturer revenue, and ensure employers have the right to audit their PBM with an auditor of their choosing. PBMs should not be allowed to engage in workarounds or legal games that skirt these laws.
  2. Ban spread pricing: PBMs should not be allowed to charge employers, health plans or patients more for a drug than the PBM paid the pharmacy for that drug.
  3. Require PBMs to pass-through 100% of all rebates, discounts and fees: PBMs should be required to pass on 100% of all rebates and volume or access-based administrative fees to employers and plan sponsors.
  4. Hold PBMs accountable the same way employers are held accountable: Employers are required as plan fiduciaries to be good managers of the health care benefits they provide employees and act in a manner that minimizes costs. PBMs should be held to the same level of accountability as employers and health insurance plans.

Read more about how PBMs are failing American workers.

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