Legislation Urgently Needed to Rein In Pharmacy Benefit Mgrs.

The U.S. House Committee on Oversight and Accountability held a hearing last month with the CEOs of the nation’s three largest pharmacy benefit managers: CVS Caremark, Express Scripts, and OptumRx.

The hearing coincided with a new report from the committee on the outsized role these prescription-drug middlemen play in determining what people pay for their medicines.

Unsurprisingly, the CEO confab revealed little that lawmakers didn’t already know.

PBMs are, in fact, the single biggest reason so many Americans can’t afford their medicines. And while last week’s hearing calling them to account is an encouraging development, what patients really need is legislative action.

PBMs neither invent new medicines nor pay for them directly.

They’re third-party entities employed by insurers to negotiate with pharmaceutical companies over whether a health plan will cover their drug — and at what cost.

They wield placement on a health plan’s formulary, or list of covered drugs, to secure price concessions, rebates, and discounts from drug makers.

As a result, PBMs have massive power to determine what Americans pay at the pharmacy counter for the latest medicines — power which they routinely abuse.

For example, as the House Oversight Committee report notes, PBMs employ “opaque pricing and utilization schemes to overcharge plans and payers by hundreds of millions of dollars.”

They also “regularly place higher cost medications in more preferable positions based on their formularies, even when there are lower-cost and equally safe and effective competing options.”

In other words, PBMs have found increasingly devious methods for extracting money from nearly every party in the drug supply chain — from the manufacturer to the pharmacy, insurer, and patient — while remaining mostly invisible to scrutiny.

Indeed, as the report puts it, “PBMs will do anything to avoid transparency.”

They’re not eager for lawmakers or voters to understand that they’re claiming more and more of the money spent in the prescription drug market.

According to a recent analysis by the Drug Channels Institute, the gap between the value of sales at drugs’ list prices and the value of sales at net prices, after accounting for rebates and discounts, reached $334 billion last year.

Patients don’t see much of those savings.

Their cost-sharing obligations are generally based on the higher, pre-discounted list prices of drugs. Those billions line the pockets of PBMs and insurers.

It’s no wonder that House Oversight Committee Chair Rep. James Comer, R-Ky., said to one PBM CEO, “We hear that you’re the problem.”

Congress isn’t alone in training its eyes on PBMs.

Earlier in July, the Federal Trade Commission (FTC) released a report that lays out in detail how “these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies.”

Unfortunately, it will take more than the harsh words of a few elected officials — or voters, for that matter — to get PBMs to change their ways.

Consider that, at a moment when federal officials from multiple branches of the government are investigating the PBM industry for unfair or exploitative practices, OptumRx — the PBM owned by UnitedHealthcare — announced record second-quarter revenues of $32 billion.

Some $1.4 billion of that figure was booked as earnings, according to Brian Reid of the Cost Curve newsletter.

What’s required are genuine reforms that remove the means, the motive, and the opportunity for PBMs to exploit patients.

Delinking PBM compensation from the price of prescription medicines — so that they’re no longer rewarded for steering patients towards costlier drugs and away from generics — would be one obvious place to start.

Just as needed are policies that crack down on the opaque business practices employed by these firms to disguise their self-dealing behavior.

For years, PBMs have been enriching themselves at the expense of patients.

It’s good to see federal officials taking an interest. But absent legislative action, these middlemen will continue to inflate the prices that patients have to pay for life-saving medicines.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All,” (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes’ Reports — More Here.