Regulatory and Legal Reform

Policy and Legal

NYT Investigation: Pharmacy Benefit Managers Drive Up Costs for Employers

Although they were created to keep prescription drug prices down, pharmacy benefit managers “frequently do the opposite” (The New York Times, subscription)—and that’s one of the main reasons the NAM has long advocated for their reform.

What’s going on: “The job of the P.B.M.s is to reduce drug costs. Instead, they …
steer patients toward pricier drugs, charge steep markups on what would otherwise be inexpensive medicines and extract billions of dollars in hidden fees, a New York Times investigation found.”

Why it’s important: PBMs frequently charge employers and government programs, such as Medicare, many times the wholesale cost of a medication and keep the difference, according to the Times.

  • And it’s not just those taking prescriptions who pay; when drug costs are inflated, everyone ends up paying higher insurance premiums.
  • What’s more, “[b]ecause of recent mergers, [the big three PBMs] are becoming more dominant, collectively processing roughly 80 percent of prescriptions in the United States.” That’s up more than 30% from just 12 years ago.

Working around a workaround: In 2018, in response to growing pressure from employers to get PBMs to share more of the discounts from drug manufacturers, PBMs set up entities known as group purchasing organizations.

  • These GPOs pass savings to employers—but they “also began imposing new fees on drug manufacturers,” money they were not contractually bound to pass on to clients.
  • The result: “Employers are none the wiser. They receive rebates. But they can’t see the billions of dollars in fees that the G.P.O.s take for themselves.”

Congress makes moves: Since the beginning of last year, seven House and Senate committees have passed PBM-reform legislation, including policies to increase transparency into PBMs’ business practices, delink PBM compensation from medications’ list prices and ensure that rebates are fully passed through to the plan sponsor or patient.

  • The NAM has been crucial in educating lawmakers on the need for these reforms and continues to advocate for PBM reform to be signed into law this year.

The last word: “PBMs drive up health care costs for manufacturers and manufacturing workers,” said NAM Vice President of Domestic Policy Charles Crain. “Congress must act as soon as possible to enact comprehensive PBM reform that benefits employers by making PBM contracts more straightforward, transparent and predictable—and benefits workers by reducing the prices they pay out of pocket for their prescriptions.”

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