PBMs Swimming Against Rising Tide of More Drug Pricing Transparency

Amid the public uproar surrounding skyrocketing drug prices, pharmacy benefit managers — the pharmaceutical industry’s primary middlemen — are attracting new scrutiny from key members of Congress increasingly disturbed by benefit managers’ complex array of surreptitious pricing practices and protocols. But it was always just a matter of time until consumers’ growing outrage incentivized lawmakers to shine a spotlight on the systemic reasons behind pricing volatility, and the various players involved in making these determinations.

PBMs, heretofore little-known entities in the drug cost and supply chains, have for years been content to work behind the scenes establishing drug formularies, negotiating discounts and “rebates” with drugmakers, wholesalers and others in the distribution chain — ostensibly to reduce the cost of prescription medications to consumers and the Medicare program — and negotiating contracts with pharmacies or their representatives.

The problem with the PBM-negotiated contracts — and the size of the rebates — is that they are variable and secret. Without a clear picture of the transactions, consumers’ understanding of why prices of prescription drugs continue to spike is limited to what one encounters at the pharmacy counter. These numbers do not come close to telling the whole story.

With PBMs now worriedly preparing for congressional oversight hearings on drug pricing and fending off media questions about opaque pricing methods and other financial abuses that appear to increase drug prices in many cases — the PBMs are mobilizing to play the oldest of Washington games: Point the finger of culpability elsewhere. The problem with this “blame someone else” strategy, however, is that PBMs are running headlong into three specific, major obstacles:

  • First, the PBM industry and its increasingly oligopolistic business model is raising eyebrows on both sides of the aisle from pro-consumer and free market-minded lawmakers. The nation’s three major PBMs — Express Scripts, CVS Caremark and Optum Rx — have consolidated power, and now control more than 80 percent of prescription medications dispensed to patients in long-term care facilities. Still more problematic, these companies are consolidated and integrated; each PBM is owned by, or has a shared parent company aligned with an insurer, large retail, specialty or LTC pharmacy chain, or mail-order pharmacy. Thus, PBMs do not just negotiate drug benefits — they also own and control a large part of the supply and distribution chain. This creates an obvious and glaring conflict of interest.
  • Second, a widely reported January 2017 study from the Centers for Medicare & Medicaid Services focuses on PBMs’ penchant for pocketing rebates themselves. The CMS report finds drug companies and pharmacies are paying increasingly larger rebates to PBMs and insurers — but that PBMs are simply keeping the money rather than converting the proceeds into lower costs for consumers and government health care programs.
  • Third, Congress is mobilizing in a bipartisan manner to investigate PBMs. While the office of Senate Finance Committee member Chuck Grassley (R-Iowa) just said for the first time the Senator is “looking at all factors that might contribute to higher drug prices, including the role of PBMs,” Rep. Doug Collins (R-Ga.) announced he intends to beef up legislation previously co-sponsored with Rep. Dave Loebsack (D-Iowa) to require greater transparency of the negotiated rebates, fees and costs tied to PBMs. Additionally, Senators Shelley Moore Capito (R-W.Va.) and Jon Tester (D-Mont.) along with U.S. Reps. Morgan Griffith (R-Va.) and Peter Welch (D-Vt.) have introduced Senate and House bills, respectively, to eliminate retroactive fees PBMs impose on patients, a variety of pharmacy groups, and the Medicare program itself. Grassley, significantly, is a co-sponsor of the Senate bill.

Collins recently said Congress is turning up the heat on PBMs after the EpiPen pricing backlash brought significant new scrutiny to how PBMs get their cut of rising drug prices. “A lot of people assumed the big drug companies were just jacking up prices and manipulating the system,” the congressman said. “But you have to look at this other issue of the PBMs. It was sort of a hidden issue because they want to stay hidden.”

Indeed. The way PBMs manipulate pricing undermines the strength and viability of America’s long-term care pharmacy sector — an increasingly important part of our broader health care continuum. Different from retail pharmacies, medically compromised seniors and patients facing rehabilitation in skilled nursing, assisted living and other settings benefit significantly from the clinical oversight and medication management that can only be provided by LTC pharmacies and consultant pharmacists under their supervision.

We are now arguing before Congress that an Avalere Health analysis of pricing data from more than 24 million LTC pharmacy claims subject to PBM contracts demonstrates the inequities driven by PBMs’ nontransparent pricing methodology — called maximum allowable cost (MAC) pricing — and other little known post-point-of-sale practices that fill PBMs’ coffers at the expense of LTC pharmacies. Yet, PBMs never touch a drug or treat a single patient. This unique data show MAC prices paid for the same generic drugs, on the same day, by different PBMs and even within each PBM, vary considerably.

This undercuts PBMs’ claim that market conditions determine reimbursement rates. In effect, MAC pricing is not really market driven at all — and wholly inconsistent with the free market principles underlying the Part D program.

One thing is certain: PBMs will soon have an abundance of time and opportunities to explain their questionable actions before Congress, and to defend the way in which they “make their cut” in the drug supply chain. PBMs will surely claim the congressional scrutiny directed their way is all politics, posturing and all just a big misunderstanding. But that is simply not the case.

Earning profits has, will, and always should be a hallmark of our capitalist system – but markets must be vibrant, open, independent and transparent — especially when substantial government resources are involved. The good news for consumers at the outset of 2017 is that the days of PBMs’ ability to simply say, “Trust us,” to lawmakers, regulators and consumers are over.


Alan G. Rosenbloom is president and CEO of the Washington, D.C.-based Senior Care Pharmacy Coalition, the national association for LTC pharmacies.

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Correction: A previous version misspelled Sen. Tester’s first name.

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