5 Things to Know About PBMs’ Influence on Drug Costs and Access

Pharmacy benefit managers (PBMs), which are entities that act as intermediaries between pharmacies, health plan sponsors, pharmaceutical manufacturers, and wholesalers, have been around since the 1960s in the US.¹ In recent decades, their role has evolved along with those of the pharmaceutical and health insurance industries, with PBMs subject to increased scrutiny in recent years for lacking transparency in their dealings and contributing to high drug costs in the US.

Pharmacy benefit managers have been under increased scrutiny in recent years for a lack of transparency and impacts to drug pricing and access. Image credit: goodmanphoto - stock.adobe.com

In July, the Federal Trade Commission (FTC) released a 71-page interim report based on an investigation into PBM practices launched in 2022, with findings showing significant impacts to the health care delivery system and to patients.²

Here are 5 things to know about PBMs’ influence on medication access and pricing.

1. The evolution of PBMs’ role in the market

The core purpose of PBMs—including negotiating drug prices, creating and maintaining a drug formulary of covered medications, managing drug utilization, and creating and managing a pharmacy network—has largely remained the same.¹ However, vertical and horizontal integration of PBMs in the pharmaceutical supply chain starting in the 1970s has been scrutinized by federal antitrust authorities more recently, including in the ongoing FTC investigation and interim report. Today, the 3 largest PBMs manage 79% of prescription drug claims for an estimated 270 million people, and the 6 largest collectively control 94% of US prescription drug claims. In 2004, the top 3 managed 52% of prescription drug claims and served 190 million people.³

2. PBMs negotiate drug prices, but savings seemingly don’t carry over

A key function of PBMs is price negotiation, with the aim on paper being savings for payers and patients as drug prices in the US soar. Despite PBMs pointing to drug manufacturers as the culprits when it comes to high prescription drug costs in recent years, a report issued by House Committee on Oversight and Accountability chairman Rep James Comer (R, Kentucky) presented evidence that PBMs inflate drug costs.⁴ According to the report, PBMs have been found to overcharge health plans and payers by using unclear pricing and utilization schemes.

Opaque pricing practices surrounding rebates also impact patients, as PBMs have been found to negotiate large rebates on more expensive drugs, while patients often pay cost sharing based on drug list prices.⁵

3. Formulary development and coverage policies influence patient access

PBMs develop and maintain health plan formularies, determining which drugs are covered by an insurance plan and under what circumstances. Recent investigations have found that the most influential PBMs often place manufacturers’ drugs in more favorable tiers within formularies in exchange for deeper rebates.⁴ The highest rebates tend to be on the most expensive drugs, fueling high out-of-pocket costs among patients who pay cost sharing based on list price, such as those covered by Medicare.⁶

While savings via rebates are intended to be passed on from PBMs to health plans, which can then pass those savings on to members, patients who need expensive medications for health conditions such as cancer shoulder substantial cost-sharing burdens. In oncology, providers have criticized PBMs for the use of processes such as prior authorization to prevent the use of less expensive generics and biosimilars due to higher rebates for brand-name drugs.⁶

4. PBMs’ preferred pharmacy networks impact cost and access

Many Americans rely on independent pharmacies for care, but the FTC’s interim report outlined how PBMs’ increasing consolidation and vertical integration has allowed them to steer prescriptions to affiliated pharmacies and squeeze independent businesses.³ The preferred pharmacy networks established by PBMs regularly exclude rivals, reducing competition. PBM contracts also may require providers to use affiliated pharmacies instead of their usual pharmacies or require patients to obtain the drug and bring it to the provider for administration—practices known as white bagging and brown bagging, respectively.

The contractual terms PBMs utilize can be arbitrary, confusing, and even harmful to local pharmacies’ business, which becomes a particularly significant issue in areas where patients depend on local community pharmacies for care. Approximately 10% of independent retail pharmacies in rural locales closed between 2013 and 2022, impacting both business owners and patients.³

5. A lack of transparency makes defining their full impact difficult

PBMs’ lack of transparency in their dealings has increasingly come under fire, with regulatory agencies and other stakeholders facing this barrier as they aim to determine the full scope of PBM tactics and their impacts on the pharmaceutical market, health plans, and patients. Therefore, transparency has been a major talking point in discussions of reform.

The Committee on Oversight and Accountability found that the largest PBMs have started moving operations and creating foreign corporations, likely to skirt proposed reforms and continue evading transparency.⁴ The locations where PBMs have created companies are known for lacking financial transparency, and the committee raised concerns that these strategies are an effort to avoid additional transparency.

References

1. Mattingly TJ II, Hyman DA, Bai G. Pharmacy benefit managers: history, business practices, economics, and policy. JAMA Health Forum. 2023;4(11):e233804. doi:10.1001/jamahealthforum.2023.3804

2. Caffrey M. FTC finds PBMs drive up drug costs, squeeze out competitors. AJMC^®. July 9, 2024. Accessed August 1, 2024. https://www.ajmc.com/view/ftc-finds-pbms-drive-up-drug-costs-squeeze-out-competitors

3. Federal Trade Commission. Pharmacy benefit managers: the powerful middlemen inflating drug costs and squeezing Main Street pharmacies. July 2024. Accessed August 1, 2024. https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf

4. Comer releases report on PBMs’ harmful pricing tactics and role in rising health care costs. News release. House Committee on Oversight and Accountability. July 23, 2024. Accessed August 1, 2024. https://oversight.house.gov/release/comer-releases-report-on-pbms-harmful-pricing-tactics-and-role-in-rising-health-care-costs%EF%BF%BC/

5. McNulty R. PBMs: when competition does not benefit consumers. AJMC. February 14, 2024. Accessed August 1, 2024. https://www.ajmc.com/view/pbms-when-competition-does-not-benefit-consumers

6. Caffrey M, Bonavitacola J. In the PBM wars, it’s the consumers’ day in court. AJMC. April 15, 2024. Accessed August 1, 2024. https://www.ajmc.com/view/in-the-pbm-wars-it-s-the-consumers-day-in-court