What do PBMs do exactly?
PBMs provide largely five services for insurers: negotiating rebates with drug manufacturers, assembling retail pharmacy networks, managing drug formularies, adjudicating pharmacy claims, and designing benefits. Probably most well-known is the PBMs’ negotiating of rebates with pharmaceutical manufacturers. PBMs’ claim that they are saving patients billions of dollars annually through these rebates. PBMs establish so-called ‘formularies’, catalogues of prescribed drugs covered by insurers’ health plans. By paying rebates to the PBMs, on the other hand, drug manufacturers can assure their products are placed on these formularies of preferred drugs.So, where is the problem?
One big issue in the PBM industry is the lack of transparency. While we know that rebates are negotiated with manufacturers, nobody outside the PBMs really knows how big of a portion they are keeping for themselves. But it is sure that the benefit of the rebates is not passed on fully to the patients. Besides several administrative fees and ominous payments (“clawbacks”, “gag clauses”, e.g.) that PBMs keep for themselves, there is also “the spread”. This is the practice of PBMs reimbursing the pharmacies one amount for a drug but charging the health plan sponsor a higher price and pocketing the difference. Another problem is that, today, some of the biggest health insurers own the biggest PBMs (CVS Caremark is part of CVS Health, e.g.), thus amassing the influence over drug pricing and drug accessibility. Through the ownership of pharmacy chains (CVS Pharmacy, e.g.) and exclusions of drugs from formularies, PBMs can steer patients even more into a certain direction. It might also happen that a drug needed by a patient is not on the patient’s health plan formulary, potentially ending in harmful clinical or financial consequences.Is there only one side to blame?
Of course, the whole issue of high drug prices is not a one-way street. Drug manufacturers are also to blame, for example, for relaunching already existing drugs under new patents at higher prices. Through such practices, global bestseller drug Humira had a price increase of 60 percent within only five years (2016-2021). However, several studies and governmental reports show that pharmacy benefit managers indeed play their part in increasing drug prices and scrappy patient care. As a result, the Pharmacy Benefit Manager Transparency Act was introduced in May 2022. With this Act PBMs would be required to disclose rebates, markups, reimbursement, and fees. Recent surveys have also shown that a high percentage of Americans blame the PBMs for overcharging patients for prescription drugs.
