For the last few years, both Congress and the White House have attempted to limit the activities of pharmacy benefit managers (PBMs), ostensibly to limit the cost of prescription drugs. There was a fervent, but unsuccessful, push for such government mandates around the most recent government funding deadline in Washington. There have also been nearly twenty Congressional hearings focused on the industry in the last year, and there are a dozen different pieces of legislation currently being considered by a half dozen different committees.
Several states have also attempted to enact legislation that would constrain the actions of PBMs, and the Federal Trade Commission has said that it is also closely studying the industry. (I recently published an analysis that cataloged these efforts).
However, PBMs are not the bogeyman they have been made out to be, and attempts to ascribe high drug prices to them do nothing but help the real culprits keep hiding behind the curtain. Independent pharmacists and pharmaceutical manufacturers want to hamstring PBMs precisely because PBMs' efforts effectively reduce costs to the benefit of consumers, taxpayers, health plan sponsors, and much of the rest of the healthcare system - savings that limit the profits of pharmacists and manufacturers.
Health plan sponsors that provide health coverage for a group of people--such as unions, large and small employers, state or local governments, or insurers--typically engage PBMs to manage their drug formularies and ensure that prescriptions are being dispensed appropriately. Importantly, PBMs negotiate lower prices for those drugs from competing pharmaceutical companies. By helping client health plan sponsors prefer the drugs for a given condition that are offered at the lowest overall net price, PBMs lower costs while ensuring that participants can obtain the drugs they need.
Health plan sponsors employ PBMs because of their extensive experience in drug price negotiations with manufacturers, and this track record of success, along with their breadth and depth of clients, gives them the bargaining leverage to extract substantial savings from pharmaceutical companies. PBMs also help their plan sponsor clients reduce costs and improve health outcomes by negotiating with pharmacies to lower dispensing costs for patients.
PBMs help their clients reduce costs by encouraging the direct delivery of drugs to patients’ homes as well, which is not only more cost effective but also greatly improves drug adherence, which improves patient health.
Most of the regulatory actions currently being proposed would ultimately limit the ability of PBMs to reduce drug benefit costs and improve patient health. While it is clear how these would increase costs for businesses to benefit pharmaceutical companies and pharmacies, it is far from obvious how any of these would benefit patients.
For instance, numerous proposals at the state level would limit the ability of PBMs to help patients utilize lower-cost pharmacy options, restrict preferred pharmacy networks, and remove incentives for patients to have their prescriptions directly delivered to their home. There is no reason to think these policies would reduce costs.
For example, in North Carolina, the General Assembly is considering HB 246, which mandates a uniform per-prescription fee of $10.24. Such a provision undermines home delivery and implements additional regulations that would do nothing to lower drug costs. It would instead limit choices for health plan sponsors and raise health care costs.
Another example can be found in the Illinois legislature, which has proposed banning plan designs that direct patients towards lower-cost pharmacy options and “spread pricing,” effectively taking away the ability of private entities to decide how to design benefits to best serve their employees and members at the most affordable cost. The proposed legislation would also require a new $10.49 dispensing fee on most prescriptions filled--akin to North Carolina--adding hundreds of millions of dollars in additional costs that will be directly paid by patients in many cases.
The bill would also restrict pharmacy-preferred networks, undermine home delivery, and require disclosure of manufacturer rebates and pharmacy contracts that could lead to tacit collusion by competitors.
At the federal level, a primary target for PBM criticism is the fact that PBMs negotiate rebates rather than discounts, as the Robinson-Patman Act effectively prohibits the latter. Rather than amend the law to allow up-front, volume-based discounts, misguided anti-PBM proposals would instead mandate that all rebates be passed onto the health plan sponsor. Such a provision is largely, as most rebates do end up beginning passed through. Proposed legislation would also prohibit PBMs from having their revenue tied to the size of the rebate obtained, which would impact the incentives of PBMs to negotiate discounts altogether.
The last provision inadvertently reveals the unfortunate reality of most efforts to weaken PBMs, which is that these have nothing to do with protecting consumers or managing costs and everything to do with protecting the profits of the other actors in the market for pharmaceutical drugs.
The demonization of PBMs is merely a harmful political sleight-of-hand to direct anger for high drug prices away from pharmaceutical companies and onto an entity that negotiates against drug companies, and others in the supply chain, to reduce costs.
Policymakers would be wise to recognize the perils of unnecessary regulations aimed at PBMs, and the negative implications of regulations for consumers and the health care market.
