Prescription drugs are the difference between life and death for millions of Americans each day, yet their costs are far too often unaffordable. Heavily influencing these prices are Pharmacy Benefit Managers (PBMs). These are the third-party middlemen who negotiate prescription drug rates with pharmaceutical manufacturers on behalf of insurance companies.
Earlier this month, the Federal Trade Commission launched an investigation into the practices of the six largest PBMs in the nation—CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems—and the impact they have on the health care industry as a whole. In the announcement of this study, the FTC provided that their inquiry would focus on revealing the efficacy and necessity of the following practices of PBMs:
- “fees and clawbacks charged to unaffiliated pharmacies;
- methods to steer patients towards pharmacy benefit manager-owned pharmacies;
- potentially unfair audits of independent pharmacies;
- complicated and opaque methods to determine pharmacy reimbursement;
- the prevalence of prior authorizations and other administrative restrictions;
- the use of specialty drug lists and surrounding specialty drug policies;
- the impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.” (source: FTC)
While the original release of the launch of the investigation sent an initial shock through the health care field—one that induced hope for most but likely great apprehension for those six targeted entities and their parent organizations— the FTC has since doubled down on their promises.
Recently, the FTC released a second notice targeting the middlemen in drug sales. This notice reiterates to the PBMs and all drug distribution companies that they are in violation of competition and consumer protection laws if, in an effort to eliminate competition offering a lower price alternative, their practices include compensable rebates and fees.
FTC Chair Lina Khan affirmed the priority of this investigation in this notice as well:
“Today’s actions should put the entire prescription drug industry on notice; when we see illegal rebate practices that forecast competition and raise prescription drug costs for families, we won’t hesitate to bring our full authorities to bear. Protecting Americans from unlawful business practices that are raising drug prices is a top priority for the Commission.”
Ultimately, we know what this inquiry will expose.
The FTC is fully prepared to pull the curtain back on PBMs to reveal their tactics that result in unaffordable drug prices and dangerous drug accessibility issues, among other harmful effects.
But what do these practices entail?
There are two key components to understanding the control exercised by a PBM: formularies and rebates.
PBMs have the ability to place priority on certain drugs due to their control over a health plans formulary—the list of drugs a particular plan may offer. These formularies are then conveyed to drug manufacturers and negotiated rates for each drug are attached.
This practice actively limits the drugs you have access to, not because of potential harm a drug could inflict or any other logical reason, but because the PBMs simply make more money on more expensive drugs.
How are they making money?
After a drug purchase is made, the PBM gets a rebate from the manufactures amounting to 40% or more of the drug cost. When implemented, rebates were intended to go back to the health plan or the payer; however, PBMs now rest in the middle of this currency exchange and pocket a portion in the process. The potential of a larger share incentivizes the PBMs to prioritize the sale of high-priced drugs over those that are more cost effective.
But here’s the kicker; the largest PBMs are now vertically integrated with the largest health insurance companies. The interest of their negotiations, then, are not you, the patient, but one another, the powerful health care giants. And their ability to negotiate for personal gain is made all the easier when it can be done in the dark. That is, until the FTC decided to shine a light directly on these practices.
Thankfully, the FTC is not the only Washington entity that has caught wind of the detriment these PBMs have on the lives of everyday Americans. Their investigation was prompted by a charge made by two senators this past month. On May 24, 2022, Sen. Maria Cantwell (D-Washington) and Sen. Chuck Grassley (R-Iowa) filed the bipartisan bill that will, if enacted, expose the gross practices of PBMs. The Pharmacy Benefit Manager Transparency Act of 2022 would require PBMs to fully and completely disclose:
- “the cost, price, and reimbursement of prescription drugs to the health plans and pharmacies;
- all fees, markups, and discounts the PBM charges or imposes on health plans and pharmacies; or
- the aggregate remuneration fees it receives from drug makers to health plans, payers, and any federal agency.” (Senate Commerce)
In addition to exposing these practices, this bill would require that 100% of all rebates is given to the health plan or payer, not pocketed in inexplainable portions by the PBMs.
This Act has the potential to be a catalyst for great change not only in the sale of prescription drugs but in the health care industry as a whole.
It is no secret that the cost of care in America is far too high, but pointing the finger at the outward facing health care providers as sole arbiters of these prices is foolish. We must look behind the curtain that has kept hidden the crooked practices of the middlemen to unmask the full picture of the broken health care system. Then, through congressional bills and agency investigations like these, we can begin to fix it.