As many people express concern over high drug prices, an increasing number of companies have emerged claiming to be their champions against Big Pharma.
Yet pharmacy benefit managers, also known as PBMs, who are tasked with negotiating drug prices with drug manufacturers, have faced bipartisan accusations that they are the ones who contribute to increased list prices for important drugs. PBMs have pushed back against these accusations.
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“There’s a lot of finger-pointing going on, but there’s plenty of blame to go around,” Robin Feldman, professor at UC Hastings College of Law, told the Washington Examiner. “Really, everyone is feeding at the trough, and consumers and taxpayers are paying the bill on all of these things.”
Like many other aspects of the U.S. healthcare system, prescription drugs have wide variations in pricing: Different people pay different prices for the same product or service because of separate deals negotiated in their drug plans. Pharmaceutical companies typically issue a list price. Consumers then purchase a healthcare plan that usually has a lower net price for the product — likely the result of a rebate deal that PBMs negotiated with drug companies on behalf of insurance companies.
“From 2015 to 2020, list prices in medicine are up about 30%. Net prices for medicine are down 9%,” Wayne Winegarden, director of Pacific Research Institute’s Center for Medical Economics and Innovation, told the Washington Examiner. “The problem for the patient is that while these games in the system are occurring, driving up list prices, our out-of-pocket costs are typically tied to the list price.”
One of the accusations against PBMs is that they can benefit from higher list prices from drug companies. Higher list prices can make PBMs appear more valuable to consumers. For example, during a congressional hearing in 2016, Mylan CEO Heather Bresch told Congress that a two-unit pack of its EpiPen injector had a list price of $608, but the company only received $274 due to rebates. Without the rebate savings from a plan that a PBM negotiates, a consumer could be subject to a significantly higher cost for EpiPens.
“Before drug companies give a discount to the PBM brokers, they raise the prices. And then the PBMs can claim to have negotiated a great deal to bring the prices down, and everyone’s happy,” Feldman said.
JC Scott, CEO of the Pharmaceutical Care Management Association, which represents PBMs, said consumers are right to be frustrated with high drug prices and argued that PBMs are the ones fighting to lower those costs. He cited data indicating that PBMs save payers and patients about 40% to 50% on their annual drug costs compared to what they would have saved without a PBM in the mix.
“When it comes to negotiating discounts or rebates on behalf of consumers, our goal is to get the lowest possible net cost for the drug. It’s not about the size of the rebate — it’s about getting the lowest net cost. And once we do that negotiation, it’s up to the sponsor of the health plan to decide how to use those savings,” he told the Washington Examiner.
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A two-year bipartisan investigation by the Senate Committee on Finance on the high cost of insulin prices in the United States cast some of the blame on PBMs. The committee concluded that drug manufacturers had concerns that lower list prices could alienate PBMs and get their products kicked off of the PBMs’ formularies — the lists of drugs approved for reimbursement by the PBM’s clients, often health insurance companies.
“A PBM is going to make more money if they get the list prices up so they can negotiate better discounts. And because they control the formulary, a manufacturer does better by making sure they get on the best spot on the formulary. So they do better if they accommodate that,” Winegarden said.
Scott said drug companies are ultimately responsible for their list prices. He said many of those companies have been gaming the system by taking advantage of U.S. patent laws to make “evergreen” their drug patents and corner the market. He emphasized that the savings PBMs negotiate get passed down to the consumer in various ways, often in their health insurance plans. He noted that there are over 20,000 approved drugs in the U.S. that PBMs help consumers sift through with their formularies.
Linda Cahn, CEO of Pharmacy Benefit Consultants, argued that PBMs often use their formularies to push consumers away from cheaper generics toward more expensive brand name drugs in order to make more money. She argued that PBMs sometimes pocket some of the savings on net prices they get on rebates and that PBMs get “other money” from drug manufacturers in order to stay on the formulary. She said PBMs often have different names for these various transactions, such as data sales fees and health management fees, and said they are often obscure and not transparent.
“A PBM acting in its clients’ interests instead of its own interests would stop secretly collecting payments to retain. Instead, the PBM would create price competition in every therapeutic category where there are at least two drugs with essentially the same efficacy, safety, and side effect profiles,” she told the Washington Examiner.
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Despite all the political attention drug prices attract, total spending on prescription drugs during 2020 was $348.4 billion — roughly 8% of the total $4.1 trillion in U.S. healthcare spending, according to data from the Centers for Medicare and Medicaid Services. Winegarden said there are a lot of “misnomers based on some kernels of truth” about drug prices and healthcare generally in the U.S. He said the “crazy pricing” in the U.S. drug market can lead to skewed statistics because people often conflate list prices with net prices.
“If you compare our healthcare spending in the U.S. per capita to Europe or the OECD countries, and if you compare our drug spending, what you find is that we pay more on healthcare overall relative to those countries than we do on drugs,” he said. “We have a broad healthcare affordability issue that needs to be addressed.”