This is a summary of the June 21, 2024 NY Times article ‘The Opaque Industry Secretly Inflating Prices for Prescription Drugs‘ written by Rebecca Robbins and Reed Abelson.

Prescription drug prices in the United States are exorbitant, a well-known issue often attributed to drug companies, insurers, and government inefficiencies. However, another significant factor contributing to these high costs is pharmacy benefit managers (P.B.M.s), powerful entities within the healthcare system whose operations are shrouded in complexity and lack transparency.

P.B.M.s serve as intermediaries overseeing prescriptions for over 200 million Americans. The largest P.B.M.s are CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealth Group’s Optum Rx. Although these P.B.M.s are supposed to lower drug costs, they frequently do the opposite, steering patients toward more expensive medications, charging high markups on affordable drugs, and extracting billions in hidden fees.

Pharmacy benefit managers are driving up drug costs for millions of people, employers and the government.

Market Dominance and Rising Costs

The influence of P.B.M.s has grown significantly. In 2023, the top three P.B.M.s controlled approximately 80% of prescriptions, a substantial increase from less than 50% in 2012. Their dominance has led to practices that prioritize their profits over patients’ needs and employers’ interests.

P.B.M.s negotiate discounts and rebates with drug manufacturers, but these discounts do not necessarily benefit patients. Often, the higher the drug’s list price, the greater the rebate the P.B.M.s can secure, which they partially keep. This system incentivizes higher list prices, which translate to higher out-of-pocket costs for patients, even as P.B.M.s claim to save money.

Opaque Fee Structures and Self-Interest

To retain more profits, P.B.M.s have established subsidiaries, known as group purchasing organizations (G.P.O.s), which negotiate additional fees from drug manufacturers. These fees are not shared with employers, allowing P.B.M.s to claim they are returning the bulk of the rebates while retaining substantial earnings through these less transparent charges.

P.B.M.s also own pharmacies, including mail-order services, and often push patients to use these services through restrictive measures, limiting their choices and sometimes delaying access to medications. This vertical integration and control over distribution channels further their financial interests at the expense of patient care and market competition.

Inflated Charges and Employer Challenges

Instances of excessive pricing are common. For example, in Oklahoma, CVS Caremark charged the state’s employee health plan $138,000 annually for a cancer drug that could be purchased for $14,000 wholesale. This markup represents a significant profit margin that ultimately burdens taxpayers and patients.

Employers, often unaware of these practices, struggle to manage and understand the true costs of their pharmacy benefits. P.B.M.s’ complex and opaque systems make it difficult for employers to ensure they are not overpaying, leading to significant financial inefficiencies within the healthcare system.

Regulatory and Legislative Scrutiny

The practices of P.B.M.s have drawn the attention of lawmakers and regulators. There are concerns about the legality and fairness of the rebate and fee structures that P.B.M.s employ. Some state attorneys general have sued P.B.M.s for anticompetitive behavior and overcharging, highlighting the need for greater oversight and transparency.

Conclusion

Pharmacy benefit managers, designed to reduce drug costs, often contribute to the high prices Americans pay for prescription medications. Their complex, opaque practices prioritize profits over patient care, driving up costs for employers, government programs, and ultimately, patients. As scrutiny increases, there is a pressing need for reforms to ensure that P.B.M.s serve the interests of the healthcare system and its beneficiaries, rather than exploiting their pivotal role for financial gain.

Three things you can do to help address these issues caused by P.B.M.s and to help advocate for reform:

Ask for Price Transparency: Inquire about the cost of medications and any available discounts or generics.

Support Local Pharmacies: Choose independent or local pharmacies that may offer better prices and personalized service.

Advocate for Change: Contact lawmakers to express concerns about PBM practices and support transparency and reform initiatives.