A recent Op-Ed about the role that Pharmacy Benefit Managers (PBMs) play in negotiating drug prices complains that the bipartisan reforms being considered by Congress will remove the incentive for PBMs to negotiate lower prices. Not true. Nothing in the proposed reform limits the ability of PBMs to negotiate drug prices.
But the author did get one thing right. The issue hinges on incentives. And today the incentives in the system promote PBM profits over cost savings to seniors. Ironically, the incentives in the system today drive PBMs to favor more expensive drugs over equally effective lower cost drugs.
The Missouri Pharmacy Association has long been the leading organization for local pharmacists here in the state. We work to put patients first and protect local pharmacists in their role as medication experts in patient care relationships. At our core, we have the mission of being a trusted partner to patients and providers in ensuring the best health outcomes for Missouri patients. It is for this reason that I feel compelled to address the recent Op-Ed touting the benefits of Pharmacy Benefits Managers (PBMs).
Let’s begin by understanding what PBMs do because they are powerful middlemen who take an increasingly large piece of our health care dollars. PBMs are hired by insurance plans to negotiate drug prices with manufacturers. They also set the rules for insurance plans including deciding what drugs your plan will cover. Thus, in effect, they tell your doctor what drugs can be prescribed to you.
Negotiating prices is an important part of any free market. But the problem is how the PBMs get paid for their service. Instead of paying them a flat fair market fee for their negotiating service, they get paid a percentage of the dollars they knock off the list price. The higher the drug price, the more they can knock it down and the more they make. As a result, the incentive is for PBMs to work for themselves and not the consumer. Let’s look at a hypothetical to see how it works.
If expensive drug A lists at $100 and the PBM negotiates a 50% reduction to $50, and the PBM is rewarded with 10% of that savings, the PBM makes $5. If equally effective drug B lists at $10 and the PBM negotiates the same 50% reduction to $5 and they are rewarded with 10% of that savings, the PBM makes 50 cents.
If you were the PBM, would you prefer the consumer was buying the $100 drug where you make $5 or the $10 dollar drug where you make 50 cents? The answer is obvious. And because the PBMs control what drugs your plans covers, they can deny access in your plan to cheaper drugs thereby forcing your doctor to prescribe the more expensive drug. Since most insurance co-pays are a percentage of the drug price, consumers pay more out-of-pocket when they are denied cheaper, equally effective drugs.
The op-ed claims PBMs are “an essential element of the free-market health care system.” The author would have you believe PBMs are independent free-market agents working for consumers. But just how independent and consumer oriented are PBMs? The three largest PBMs control 80% of the market. And the five largest PBMs are also directly owned or integrated with large insurers and large chain pharmacies. There is very little “free market” about that arrangement.
PBM integration with large chain pharmacies is especially harmful to patients. PBMs often require consumers to use the pharmacy chain with which they are associated. As a result, PBMs push out independent, family-owned pharmacies which serve so many of Missouri’s smaller communities. Consumers are often left without any personal service, relegated to mail order drugs.
Delinking PBM compensation from drug prices is not a matter of left versus right. Delinking reform is a bi-partisan effort to get the incentives right so that PBMs work for patients and not themselves. It is also about ensuring that pharmacists and doctors remain the medication experts at the core of patient care. Congress has an opportunity before it adjourns this year to take a stand against the abuses of PBMs. We will not see drug prices controlled until we do. Delinking PBM profits from high drug prices is common sense. It is a good place to start.
Chief Executive Officer of the Missouri Pharmacy Association
