The discourse surrounding pharmacy benefit managers (PBMs) has intensified following the Federal Trade Commission's (FTC) September 20th administrative complaint against the 3 major PBMs (Caremark Rx, Express Scripts, and OptumRx) for allegedly inflating prescription drug prices. The FTC claims that PBM practices are contributing to higher drug costs, particularly for insulin, which is essential for millions of Americans with diabetes. This legal action underscores the growing scrutiny of the role PBMs play in the pharmaceutical supply chain, as their pricing strategies and lack of transparency come under question.
However, in early October the report PBMs and Prescription Drug Distribution: An Economic Consideration of Criticisms Levied Against Pharmacy Benefit Managers was released. This study was sponsored by CVS Caremark, Express Scripts Inc., and OptumRx. The leading economist on this study was Professor Dennis W. Carlton, from the University of Chicago, former chief economist at the U.S. Department of Justice (DOJ) Antitrust Division, and Senior Managing Director of Compass Lexecon.
This analysis includes approximately 20 billion, 30-day equivalent prescriptions and concludes that PBMs negotiate discounts and rebates with drug manufacturers that help lower overall drug costs. PBMs are passing through the majority of manufacturer rebates and fees, the study states, “...well over 95% of rebates and fees received from manufacturers are passed through, and in 2020 and 2021, this number has neared 100%”. They argue that the efficiencies created by PBMs enable health plans to offer better coverage options to consumers. This perspective challenges the FTC's findings, suggesting that rather than being the source of inflated prices, PBMs play a crucial role in managing drug costs.
The FTC’s lawsuit exposes the complexities and perceived shortcomings of the PBM model, pointing out that patients are often left paying more than they should due to anticompetitive and unfair rebating practices. PBMs generate a portion of their revenue through drug rebates and fees, which are based on a percentage of a drug’s list price.
Insulin is a prime example of the broken drug pricing model. Diabetes is one of the most prevalent diseases in the United States, afflicting an estimated 38.4 million Americans and was named the eighth leading cause of death in the US. Today over 8 million Americans depend on insulin as treatment for their diabetes. Insulin list prices began rising in 2012 with the PBMs’ creation of exclusionary drug formularies, the FTC’s complaint alleges.
In 2023, the Centers for Disease Control and Prevention (CDC) determined that the number of adult diabetes diagnoses has more than doubled in the past two decades. Before 2012, formularies were more open, covering many drugs, but this shifted when the PBMs began threatening to exclude certain drugs from the formulary to extract higher rebates from drug manufacturers in exchange for favorable formulary placement. The FTC's action seeks to promote accountability and transparency in the PBM industry, with the goal of ensuring that consumers benefit from lower prices rather than facing inflated costs driven by profit motives.
While there are legitimate concerns regarding transparency, it is important to consider the overall positive impact of PBMs. Economists argue that PBMs help streamline the medication purchasing process and negotiate better prices on behalf of health plans and consumers. Dr. Carlton concludes “Our year-long, comprehensive research—reviewing data on billions of prescriptions, including what was provided to the FTC—shows that PBMs distribute the vast majority of rebates to plan sponsors and should not be characterized as being ‘responsible’ for high drug costs … Many of the broad-brush claims against the PBM industry—including those of the FTC—are not based on systematic analysis of the evidence.” This perspective highlights the potential for constructive dialogue between regulators and industry stakeholders to address concerns while recognizing the value that PBMs can provide.
The debate over PBMs is just “one cog” of a broader discussion about healthcare costs and access. It is important to further study the practices of PBMs and their effect on drug pricing, particularly for essential medications like insulin. Moving forward, a balanced approach that considers both the need for reform and the value provided by PBMs is essential for achieving a more equitable healthcare system to propel Better Healthcare Tomorrow™.
Comments