Prescription drug middlemen are jacking up prices
The rising cost of prescription drugs continues to be a top concern for many Americans. One of the leading culprits in pushing those costs even higher are pharmacy benefit managers (PBMs) — companies whose behavior is so egregious that Democrats and Republicans are united in trying to reform them.
Yet, in a recent piece for the Washington Examiner, Ashley Herzog, a freelancer for the Heartland Institute, defended PBMs and argued against the PBM Transparency Act, a bipartisan bill that would hold PBMs accountable.
To understand why the PBM Transparency Act is so important, and why Herzog’s argument is misplaced, it’s important to consider the role PBMs play in the healthcare industry, specifically when it comes to drug pricing. The three largest PBMs control 80% of all prescriptions in the U.S. In fact, they own, or are owned by, some of the largest insurance companies in the world. They extract “rebates” from drug companies in exchange for preferential placement on insurance companies’ lists of covered drugs. In other words, it’s pay-to-play. In 2021, they collected $200 billion in rebates from drugmakers. That’s 40% of every dollar spent on pharmaceuticals. Whether or how much any of that is passed on to patients is a mystery.
The two essential elements of a healthy free market are transparency and competition. The PBMs are fighting against both. Two years ago, the PBM lobby (PCMA) sued to block a rule forcing them to disclose historical pricing data. The PBMs argued that patients would be confused by the information on how much their drugs really cost. Now they’re spending millions to defeat the PBM Transparency Act, which is sponsored by Sens. Maria Cantwell (D-WA) and Chuck Grassley (R-IA).
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The bill would force PBMs to answer a few uncomfortable questions: Why do they favor expensive brand name drugs over cheaper generics? How much do they make from spread pricing (when they underpay pharmacies, overcharge states or programs, and keep the difference)? And how much do they charge local pharmacies in retroactive fees called pharmacy DIR? According to the Centers for Medicare & Medicaid Services, those fees rose 91,500% between 2010 and 2019.
Maybe the only thing the PBMs want less than transparency is competition. See if you can guess why: CVS Caremark (the biggest PBM) is owned by CVS Health, the biggest pharmacy chain in the world (which also owns Aetna). The other two giant PBMs, OptumRx (owned by UnitedHealth) and Express Scripts (owned by Cigna), either own or affiliate with mail-order pharmacies too. “Sorry, that medicine you need isn’t available at the corner pharmacy, but you can get it from our mail-order service!” Or, “You can get your medicine at the corner pharmacy, but you’ll pay a lot more for it.”
Anti-competitive practices like this would make the mafia blush. Fortunately, public officials are catching on. Many states have gone after the companies that handle their Medicaid programs for overbilling on drugs. Centene, which uses CVS Caremark, has been forced to pay more than $800 million in legal settlements to at least 14 states so far. Ohio found that PBM spread pricing increased its Medicaid program spending by $224 million. West Virginia saved $54 million by taking control of their Medicaid pharmacy program and stopping PBMs from pocketing tens of millions of taxpayer dollars.
In all 50 states, from deep red to deep blue, legislators have introduced bills or passed laws that crack down on anti-competitive PBM practices such as spread pricing, retroactive fees, patient steering, mandatory mail order, and sweetheart deals for PBM-owned pharmacies. The PBMs are out of control, and everyone knows it.
Ms. Herzog certainly knows this as well, which is why she devoted much of her recent piece to attacking our organization, the National Community Pharmacists Association, instead.
So, let me tell you about the NCPA. We’re the largest association of independently owned and operated pharmacies. We represent owners of mom-and-pop stores, roughly 20,000 of them across the country. Our typical member owns two stores and has about a dozen employees. They fill about 200 prescriptions a day for patients who are mostly elderly or poor. And they lose money on most of them because of the PBMs.
The PBMs would love to see every last independent pharmacy close. When the little guys are gone, the big guys can whack up the whole pie. But that isn’t competition. It’s a rigged system and there’s nothing free or fair about it.
The U.S. pays some of the highest prescription drug prices in the world and it is the only country that has handed prescription drug pricing to PBM middlemen. That’s not a coincidence. An overhaul of PBMs is needed at both the federal and state levels. Taxpayers, small businesses, and patients are depending on it.
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B. Douglas Hoey is a pharmacist and CEO of the National Community Pharmacists Association, which represents roughly 20,000 independent pharmacies across the country.