PBMs and your prescription drug bill

Written by Derek Monson

December 1, 2020

“The key to lowering drug costs,” says Michelle Mack, director of state affairs for the Pharmaceutical Care Management Association (PCMA), “is increasing competition and not imposing laws or regulations that can have unintended consequences, including higher costs to patients.”

The PCMA is the national trade association for pharmaceutical benefit managers (PBMs) that fill the role in the prescription drug market of representing the insurers, employers, unions and government programs who hire PBMs in price/formulary negotiations with drug manufacturers and payment/network negotiations with pharmacies.

“The core mission for PBMs is to reduce prescription drug costs for patients,” says Mack. That includes negotiating rebates on drug prices from manufacturers; insurers then decide what to do with those rebates. “The fact of the matter is that despite consistently higher drug prices, when PBMs are able to leverage competition and negotiate, we have been able to achieve an overall stable cost trend for prescription drugs.”

Want to learn more about the influence PBMs have on the price you pay at the pharmacy window? Read Sutherland Institute’s full interview with Mack below.

Derek Monson, Sutherland Institute vice president of policy: PBMs are often unknown or misunderstood actors in the prescription drug market. Can you explain the role that they play?

Michelle Mack: PBMs are hired by employers, unions, and state and federal government programs because of their experience and expertise in helping manage and lowering drug costs. There is no requirement to use a PBM; health care plan sponsors choose to work with PBMs because we lower drug costs and help increase quality of care. 

At times, there is a lack of understanding as to just how much value and savings PBMs provide in our health care system. Over the next 10 years, PBMs will save health care plan sponsors and consumers more than $1 trillion – that includes total savings for Utahns of over $9 billion. 

Monson: Market share in prescription benefits market is largely concentrated in a few of the largest PBMs, which are in turn integrated with insurers and/or national chain pharmacies. How does the market concentration and integration in the PBM industry impact patients?

Mack: There are 66 full-service PBMs operating in the market today. The PBM market is extremely competitive. It is not unusual for PBM clients to change PBMs every two years. If one PBM does not address the health needs of a client’s patient population, other PBMs are waiting to step in and do so. PBMs differentiate themselves through product innovation and customer service.

Monson: Some of the criticisms of PBMs include: (1) Negotiated rebates and discounts do not get passed onto patients, (2) rebates can lead to higher manufacturer list prices, with higher patient costs through co-insurance, and (3) large PBMs treat independent pharmacies unfavorably relative to the chain pharmacies they are integrated with. Are these criticisms fair, and what are PBMs doing to address them?

Mack: The core mission for PBMs is to reduce prescription drug costs for patients. In fact, PBMs are the only part of the prescription drug supply chain that actually lower drug costs. While drug manufacturers alone set drug prices, once those prices are set, PBMs negotiate directly with them for rebates. This is an important tool to reduce prescription drug costs for patients. It should be noted that rebates are only given on brand-named drugs that have therapeutic competition, or approximately 6% of prescription drugs. The manufacturers determine which drugs they might offer a rebate on and how much that rebate is. Our clients determine what should be done with the rebate.

Any notion that PBMs are padding their bottom line through rebates is false. Independent research funded in part by a multinational drug manufacturer shows that for every $100 spent in the supply chain on branded drugs, PBMs retain about two dollars, compared with $58 for manufacturers.

The fact of the matter is that despite consistently higher drug prices, when PBMs are able to leverage competition and negotiate, we have been able to achieve an overall stable cost trend for prescription drugs – and out-of-pocket costs are very affordable and have not changed much over time.  

When it comes to PBMs treating independent pharmacies unfavorably relative to chain pharmacies they are integrated with – that could not be further from the truth. Our clients require us to maintain network adequacy standards, and oftentimes the reimbursement rate for smaller, independent pharmacies is higher than it is for larger pharmacies and chain drug stores. In addition, the U.S. Department of Justice Antitrust Division has said that vertically integrated PBMs are “unlikely to result in harm to competition or consumers”.

Monson: In your view, what state policy reforms are needed to improve affordability and access to prescription drugs in the U.S.?

Mack: The key to lowering drug costs is increasing competition and not imposing laws or regulations that can have unintended consequences, including higher costs to patients. Our shared goal is lower drug costs for patients, so any proposal should be closely analyzed with that in mind.

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