Foremost among those middlemen are the “pharmacy benefit managers” — huge companies hired by health insurers to oversee prescription drug plans. These PBMs decide which drugs to include and exclude from plans, determine what level of co-pays or co-insurance (a percentage of a drug’s total cost that patients must pay out-of-pocket) that beneficiaries owe on any given medicine, and negotiate with drug manufacturers for discounts and rebates that largely never make it into the hands of patients. As a result, PBMs have accrued enormous power and they’re using it to make tens of billions of dollars off the backs of patients, pharmacists, drug manufacturers, and even the insurers themselves.
How? Well, PBMs negotiate convoluted, secret rebate agreements with drug companies. The system is essentially a black box — pharmacist and insurers and patients rarely know how much the PBMs are actually paying for any given medicine. Rebates are thought to lop about 30% off the typical medicine’s nominal “list” price. But on certain drugs, rebates of as much as 70% have been reported. Instead of passing these rebates along to patients as savings, PBMs often pocket the difference and charge the rest of us full price.
A recent study found that PBM gross profit (defined as revenue minus the cost of goods sold) increased by 12% in two years, from $25 billion to $28 billion. They derive much of their revenue from collecting a range of service fees and other charges from manufacturers, pharmacies, and other supply chain entities.
This convoluted and opaque system forces patients to pay more for their medicines at the pharmacy counter. That’s because PBMs keep these rebates a secret. Not even insurers — the companies that hired the PBMs — know exactly what the true net cost of drugs are, after rebates and discounts are applied. This system incentivizes PBMs to favor drugs with higher prices because they yield higher rebates. This, along with a myriad of destructive PBM practices leads to higher drug costs for patients and the entire healthcare system while the PBM continues to make record profits.
For patients on low or fixed incomes, or those who need multiple prescriptions, the extra out-of-pocket spending can add up to thousands of dollars annually. For patients taking specialty medications, like those used to treat certain cancers, the cost can be thousands of dollars each month.
Fortunately, Ohio’s own Senator Sherrod Brown has been a leading voice calling for prescription drug access and affordability. He’s called for meaningful PBM reforms and cosponsored the C-THRU Act in 2019 which would require PBMs to share the savings with patients. If we’re going to address rising out-of-pocket prescription drug costs, we need to advance these types of PBM reforms that improve transparency and affordability
PBMs have been permitted to grow in power and manipulate the drug channel long enough. It’s time to pass meaningful and comprehensive reforms that will displant PBMs from the middle of our drug channel and make medications more affordable for all Buckeyes.
Joshua Cox is a board-certified Pharmacotherapy Specialist and is currently the Director of Pharmacy Services for Dayton Physicians Network.
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