As employers’ health care costs increase year after year, obscure middlemen known as pharmacy benefit managers (PBMs) line their own pockets by exploiting America’s opaque and anti-competitive prescription drug distribution system. In healthy, truly competitive markets, buyers and sellers can assess the value of a good or service and once armed with transparent pricing information, they can work to find common ground between access and affordability. However, PBMs routinely prevent these essential market functions from yielding the needed savings and efficiencies that can and should accrue to plan sponsors and patients. Read more in our Policy Brief below.
In addition, we are promoting this set of policy solutions across the country:
How Pharmacy Benefit Managers Undermine Employer Health Benefits
At the American Free Enterprise Chamber of Commerce, we stand for free, fair and open markets – this means ensuring there’s a level playing field with a fair set of standards for everyone.
Health care should be no different. We believe in a competitive marketplace for health care coverage that empowers businesses to offer their employees the best benefits possible, at an affordable cost.
Yet, as employers’ health care costs increase year after year, obscure middlemen known as pharmacy benefit managers (PBMs) line their own pockets by exploiting America’s opaque and anti-competitive prescription drug distribution system.
In healthy, truly competitive markets, buyers and sellers can assess the value of a good or service and once armed with transparent pricing information, they can work to find common ground between access and affordability. However, PBMs routinely prevent these essential market functions from yielding the needed savings and efficiencies that can and should accrue to plan sponsors and patients.
These monopolistic PBM business practices raise costs for businesses and consumers and undermine the merits of employer-sponsored health care.
What are PBMs?
PBMs are companies hired by insurers and plan sponsors to administer prescription drug benefits. Their original purpose was to negotiate drug prices with manufacturers and process drug claims on the behalf of employers, health plans and public insurance programs like Medicaid.
As a small or medium business owner or operator, you’ve probably worked with one before through your insurance company.
Over the last few decades, PBMs’ market power has dramatically increased due to extensive consolidation within the industry. The three largest PBMs (CVS Caremark, OptumRx and Express Scripts) now process more than 80% of prescriptions – and each is a wholly owned subsidiary of three of the largest health insurance companies in the country.
How do PBM practices harm employers?
PBMs claim to be working on the behalf of plan sponsors – and ultimately the businesses and consumers who pay for insurance. But it often doesn’t work out that way. PBMs often extract “rebates” or discounts from drug manufacturers in exchange for favorable inclusion on their formularies. Instead of passing these savings on to plan sponsors, the PBMs will deploy a variety of secretive methods as a means to keep those discounts for themselves. These rebate schemes end up inflating the prices of many medicines – as the thirst for higher rebates create perverse incentives to raise prices for the sake of generating bigger discounts that can be partially retained by the PBM.
PBMs also operate with little to no transparency. How much they pay for prescriptions are kept as a closely guarded secret, as are the fees they charge lower down on the supply chain. Without price transparency – one of the hallmarks of a free market – employers aren’t able to tell whether they’re being overcharged or getting the best deal. And they certainly have no way of knowing if overpriced claims create further incentives for PBMs to drive more sales of their most profitable medicines.
Further, employers often use brokers and consultants to manage their employee health benefits and guide their decision-making processes. But the contracts and compensation mechanisms between these firms and PBMs are often secretive, raising serious questions about conflicts of interest.
What can employers do about PBMs to protect themselves and employees
Policymakers have begun to tackle this issue – several policy approaches could bring price relief to consumers, increase transparency and shift the balance of power from large corporations to patients who need affordable medicines.
Here are some examples of states and regulatory agencies taking action:
Several states have passed legislation to ban some of PBMs’ worst business practices such as “spread pricing” and have required them to open up their books to independent auditors. In Florida, Governor Ron DeSantis recently introduced a plan to increase transparency and accountability.
PBM business practices have also attracted bipartisan scrutiny in Congress. Lawmakers have recently introduced legislation to ban unfair pricing schemes.
The Federal Trade Commission is also conducting an investigation into PBMs abusive business practices.
States made significant changes to the way they work with PBMs, creating a groundbreaking competitive marketplace for contracting of prescription drug benefits. The online reverse auction model has enabled states to reduce spending on prescription medicines, without any reduction in benefits, including:
New Jersey saved an unprecedented $2.5 billion over five years due to a reverse auction initiated by Governor Chris Christie.
Under Governor Chris Sununu’s leadership New Hampshire is expected to save as much as $22 million annually.
West Virginia passed legislation mandating that insurers and PBMs pass negotiated savings on to patients. The state also “carved out” PBMs from its Medicaid managed-care program and is expected to save $30 million a year.
Take Action – Protect Your Employees
Look into fee-based PBM models. This is often your best bet to eliminate PBM conflicts of interest and to get the return on investment in employee benefits you deserve.
When shopping for insurance plans, demand conflict of interest disclosures from your health benefit broker and consultants.
Ask your PBM to disclose detailed drug pricing data so you understand how your funds are being used and what incentives are driving PBM behaviors.
Urge lawmakers to hold PBMs accountable.