February 23, 2023
By Reid Porter
State legislative sessions across the country are in full swing, and many state officials have made lowering the cost of medicine for patients a top priority. If policymakers are serious about addressing high out-of-pocket costs for patients, they should start by taking steps to finally hold pharmacy benefit managers (PBMs) accountable.
PBMs serve as middlemen for health insurance companies
Health insurance companies use middlemen, also known as PBMs, to negotiate prescription drug prices and develop the formularies that determine what medicines people can get and how much they pay. While PBMs claim they help lower costs for medicines, the commercial health care system lacks protections to safeguard patients over the PBMs’ financial interests.
PBMs hold enormous influence over how much patients pay for medicine
PBMs hold enormous influence over what patients pay for medicines, often to the detriment of the patients they are supposed to benefit. There are several reasons for this:
- Just three PBMs control 80% of the entire prescription drug market in the United States. This market concentration gives these entities almost complete control over what medicines people can get and how much they pay.
- PBMs develop lists, called formularies, to determine what medicines are covered by insurance and how much cost sharing is required by patients. They use the threat of formulary exclusion to extract huge sums of money from manufacturers in the form of rebates and discounts. PBMs have even excluded lower-priced medicines from their formularies in favor of profiting from the discounts and fees accompanying higher-priced medicines.
- PBMs also create policies that require patients to get pre-approval before receiving a medicine or failing first on one medicine before getting the one their doctor prescribed. These practices create barriers and can prevent or delay patients from getting the medicines they need.
Because PBMs operate almost entirely in a black box and with little regulation, most patients are completely unaware about these conflicts of interest. For example, the three largest PBMs often require patients to use a pharmacy with which the PBM has a financial relationship or owns outright. This means patients must go to the PBMs’ choice of pharmacies, even if there may be another pharmacy they prefer to use.
State lawmakers and governors must hold PBMs accountable
There are only limited protections in place today to hold PBMs accountable when their financial interests conflict with the interests of patients or other entities the PBMs claim to serve. And, even where these protections do exist, few have clear enforcement mechanisms to support them.
State policymakers can — and should — take an important step by requiring PBMs to act in the best interest of their patients and health insurance clients. Ensuring that PBMs act in the best interests of those they should serve, not their own bottom line, protects patients and puts them before PBMs’ financial interests.
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