Picture this next time you visit a restaurant. The kitchen makes the food and a waiter delivers the dish to your table, but with an added complexity: the waiter negotiated the cost of your enchilada plate with the kitchen, and you’ll learn the price when you receive the check.
It’s hard to imagine a scenario where customers would be content with this arrangement. Yet, in the pharmaceutical industry, this takes place daily.
Pharmacy Benefit Managers (PBMs) are hired by health insurers to negotiate prices for prescription drugs and perform other tasks like deciding which drugs a health plan will cover. Rebates and other price concessions from drug manufacturers totaled over $187 billion in 2020 – but these financial savings aren’t making it to patients’ wallets. Operating as middlemen in an opaque system, PBMs are often compensated based on the difference between the rebate they negotiate and the list price of a drug. This practice creates misaligned incentives that could result in PBMs favoring medicines with higher list prices. Collecting honest compensation for services is understandable, but pocketing savings intended for patients and driving up costs is wrong.
A new analysis found nonmanufacturer stakeholders – PBMs, governments, health plans, hospitals and others – received more than half of total spending on brand medicines. A part of a trend, as biopharmaceutical companies that develop and manufacture medicines retain a smaller share of total spending, while the rebates and discounts negotiated with PBMs and other supply chain middlemen are steadily increasing.
Industry consolidations and mergers are making the issue worse; almost 80% of all equivalent prescription claims are processed by the three largest PBMs. Compounding the problem, the biggest PBMs are also affiliated with some of the largest health insurers and pharmacies in the nation. This lack of competition harms one party the most: the consumer; or, in the case of health care, sick patients in need of drugs.
Texas has begun to step up to protect patients and establish transparency among PBMs. Recent legislation added a new chapter to the Texas Health and Safety Code entitled “Drug Cost Transparency.” The code requires PBMs and health benefit plans to submit annual reports on prescription drug costs in Texas, which are then published on the Texas Department of Insurance website. The 2020 report is revealing: according to data from the 2020 calendar year, drug manufacturers paid 24 reporting PBMs a combined $2.3 billion. PBMs kept more than $476 million as revenue (20.6%); $1.8 billion (78.95%) was passed to issuers and the remaining 0.45% was passed to enrollees.
This action is a move in the right direction, but more work can be done – and must be done to help Texans. Patients should not struggle to afford the medicines they need because middlemen have decided patients paying for medicines should not benefit from discounts. PBMs should be required to pass on the discounts and rebates from drug manufacturers to patients – for whom they are intended – at the pharmacy counter.
A law passed in West Virginia provides a solid framework from which Texas can work. The law requires that PBMs pass drug discounts to consumers at the point of sale. Texas has an opportunity to lead here, using the solid starting point provided by the West Virginia law. To further protect patients and correct the misaligned incentives present in today’s supply chain, Texas could also prohibit PBMs from profiting off of the difference between the rebates they negotiate and the list price of a medicine.
With research showing 30% of Americans that have insurance still face a financial barrier to care, like having out-of-pocket costs that are more than they can afford, we must address what is really driving up costs for patients at the pharmacy counter. We are calling on state officials, as well as others in the health care system, to join us in supporting common-sense reforms to ensure that patients can access and afford the medicines their doctors prescribe.
Editor's Note: The above guest column was penned by Victoria Ford, president and CEO of the Texas Healthcare & Bioscience Institute. The column appears in The Rio Grande Guardian International News Service with the permission of the author. Ford, pictured above, can be reached by email via: victoria@thbi.com.
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