Pharmacy benefit managers (or PBMs) are in the news again as federal regulators and politicians work to shed light on the questionable and purposefully opaque practices that are resulting in higher drug costs for patients.
On the heels of the Innovation, Data, and Commerce Subcommittee Hearing on April 18 (which covered the commission’s 6(b) study of the contracting practices of PBMs), Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and Chair Ron Wyden (D-Oregon) announced their plan to release legislative framework to address PBMs within the Prescription Drug Supply Chain. The inception of the framework followed a Finance Committee hearing that took place on March 30, which examined PBM practices and the impact on costs for patients and taxpayers.
Hopefully, 2023 will be the year PBMs finally come in check.
Why are PBMs a problem?
As Bio.News has reported, “PBMs are companies that manage prescription drug benefits on behalf of private health insurers, Medicare Part D drug plans, large employers, and other payers,” as explained by the Federal Trade Commission (FTC). “The largest PBMs are vertically integrated with health insurance companies and specialty pharmacies, giving them financial incentives to steer patients to use their affiliated services.”
These companies, which are part and parcel of the insurance companies they represent, negotiate often deep discounts on drugs from manufacturers, only to pocket those savings while pricing many patients out of coverage.
As the Committee’s framework explains, “Ideally, all stakeholders participating in the supply chain, including PBMs, should have an incentive to prefer medications that deliver the best results at the lowest cost. Unfortunately, under the current system, higher drug list prices often translate into higher compensation for intermediaries.”
Also explained in the framework: “Furthermore, intermediaries in the health care system often earn revenue on both sides of the transactions in which they engage. For example, PBMs are paid fees both by health plans and the manufacturers with which they negotiate. These misaligned incentives and the multi-sided nature of the market can create potential conflicts of interest.”
Bipartisan framework to tackle the PBM problem
“Some of the most life-saving medications remain out of reach for far too many working families and seniors,” said Sen. Crapo in his press release. “We need a bipartisan, all-of-the-above approach to modernization and transparency that empowers consumers, plans, providers and pharmacies to make informed, cost-effective and clinically appropriate decisions.”
Sen. Wyden added, “The Finance Committee is responsible for federal health programs that spend billions on prescription drugs each year, and we have a responsibility to seniors, working families and taxpayers to ensure these programs are strengthened and updated to keep up with the health care system of today.”
So what are the goals of the committee? To answer this question, the committee first outlined four key challenges currently facing federal prescription drug programs:
- “Misaligned incentives that drive up prices and costs;
- Insufficient transparency that distorts the market;
- Hurdles to pharmacy access; and
- Behind-the-scenes practices that impede competition and increase costs.”
Based on these challenges, the committee aims to identifies potential policy solutions that will address these challenges, including:
- “Delinking PBM compensation from drug prices to align incentives for lower costs;
- Enhancing PBM accountability to health plan clients to drive cost-cutting competition and produce better choices for beneficiaries;
- Ensuring discounts negotiated by PBMs produce meaningful savings for seniors;
- Addressing and mitigating practices that unfairly inflate the prices patients and government programs pay for prescription drugs;
- Modernizing Medicare’s “Any Willing Pharmacy” requirements to improve options and access for seniors; and
- Increasing transparency to foster a better understanding of how financial flows across the prescription drug supply chain impact government health care programs.”
This is one of many positive steps to address the problems with PBMs in a country where healthcare spending was at $187.6 billion in 2021.
“In 2021, the U.S. spent 17.8 percent of gross domestic product (GDP) on health care, nearly twice as much as the average OECD (Organisation for Economic Co-operation and Development) country,” reported the Commonwealth Foundation. “Health spending per person in the U.S. was nearly two times higher than in the closest country, Germany, and four times higher than in South Korea.”
Neutralizing PBMs will undoubtedly contribute to reducing that trend, but it needs to happen now.