Assessing Responsibility: Pharmacy Benefit Managers or Their Handlers? The Need for Regulation
PBMs, hired by health plan sponsors to manage prescription drug benefits, have attracted attention from Congress, the media, and the public. A 1,547-page bill proposed by Congress contained regulations for them; The New York Times has a series titled "The Middlemen" criticizing them; and Elon Musk asked, "What is a PBM?" to his 210 million followers on Twitter.
PBMs help keep premiums low by competing with one another. For instance, the annual growth rate of Medicare Part D premiums was only 0.7% from 2010 to 2023, much less than inflation. This stability is due to PBMs.
PBMs are adversaries to drug manufacturers and pharmacies. They control which drugs appear on formularies, leading to high sales volumes for favorably placed drugs. They also decide how much pharmacies are reimbursed.
For branded drugs, PBMs make money through rebate retention. The federal anti-kickback statute exempts drug rebates thanks to safe harbor protections. This means PBMs prefer high-list-price, high-rebate drugs over low-list-price, low-rebate drugs because they can keep larger rebates.
For generic drugs, PBMs profit from spread pricing—charging health plan sponsors more than they pay pharmacies. Generic drugs are hard to insure because of their low costs and predictable nature, so they should be sold directly between patients and pharmacies, like oil changes.
Insurance regulations require the coverage of generic drugs, including some over-the-counter drugs, and limit the use of Health Savings Accounts. These regulations allow PBMs to manage generic drugs and profit from spread pricing, leading to higher premiums for beneficiaries and lower reimbursements to pharmacies. It's not surprising that direct-pay platforms often have lower prices than those involving insurance or just patients' cost-sharing.
Provisions in the Continuing Resolution bill intended to regulate PBMs, such as delinking revenue from drug prices and banning spread pricing, aim to support pharmacies and align incentives between PBMs and health plan sponsors. However, they fail to address the problems causing rebate retention and spread pricing—safe harbor protections and insurance regulations, respectively.
Some provisions would weaken PBMs' ability to contain premiums, leading to higher drug spending. According to Professors Mattingly, Hyman, and myself, discussed in JAMA Health Forum, every player in the drug supply chain seeks to make a profit, and there's no evidence that weakening PBMs would benefit patients, except in cases where insurance and PBMs are bypassed entirely for certain drug transactions.
Questionable behaviors of healthcare players, including PBMs, are often due to flaws in the rules of the game—unintended consequences from well-meaning laws. Our new Congress, starting office Friday, should focus on removing these bad rules to improve the game instead of applying Band-Aid solutions to the players.
- The pharmaceutical industry has voiced concerns about the regulations proposed by Congress, fearing they may impact drug spending and profit margins.
- Despite the criticism, PBMs continue to play a crucial role in the pharmacy benefit management of prescription drugs, ensuring that patients have access to affordable medications.
- In response to the criticism, some pharmacies have implemented patient loyalty programs, offering discounts and rebates on prescription drugs as an alternative to PBMs.
- The proposed regulations in the Continuing Resolution bill could potentially lead to a shift in the pharmaceutical market, with pharmacies and drug manufacturers potentially benefiting at the expense of PBMs.
- Congress and pharmaceutical stakeholders must carefully consider the implications of regulating PBMs, ensuring that patients continue to have access to affordable medications while also addressing concerns about drug spending and rebate retention.
