Who are these pharmaceutical benefit managers, and what do they do?

PBM, which stands for "pharmacy benefit managers," are businesses that handle the administration of prescription medication benefits on behalf of health insurers, Medicare Part D drug plans, major employers, and other types of payers. PBMs have a significant behind-the-scenes impact in determining total drug costs for insurers, shaping patients' access to medications, and determining how much pharmacies are paid by negotiating with drug manufacturers and pharmacies to control drug spending. PBMsnegotiateg with drug manufacturers and pharmacies to control drug spending. PBMs have come under increasing scrutiny over their participation in the rising expenses and spending associated with prescription drugs.

What impact does PBMs have on the total amount we spend on prescription medications each year?

PBMs are responsible for operations in the midst of the distribution chain for prescription medications. This is because:

  • Formularies are lists of covered prescriptions that need to be developed and maintained on behalf of health insurers. These formularies impact the drugs that individuals use and help decide out-of-pocket payments.
  • Make advantage of their purchasing power to negotiate rebates and discounts with pharmaceutical companies.
  • Reimbursement for pharmaceuticals given to beneficiaries might be handled through direct contracting with individual pharmacies.

According to research conducted by the federal Centers for Medicare and Medicaid Services, the ability of pharmacy benefit managers (PBMs) to negotiate more significant rebates from pharmaceutical companies has contributed to both the reduction in overall drug prices as well as the slowed growth of spending on pharmaceuticals over the past three years. However, PBMs may also have an incentive to favor expensive medications over those that are more effective in terms of their cost. PBMs earn more significant rebates for expensive pharmaceuticals than those that may give better value at a lower cost since rebates are frequently calculated as a percentage of the manufacturer's list price. This means that PBMs receive a more significant refund for more expensive drugs. Consequently, people with insurance plans with high deductibles or copays that are calculated based on the list price of a prescription may have to pay more significant out-of-pocket expenditures.

Where does the debate lie on the rebates that pharmacy benefit managers (PBMs) get from pharmaceutical companies?

Drug makers claim that increasing the rebates they give to PBMs pushes them to raise the list prices for their medications, forcing consumers to pay more. A recent study found that the amount of money given back to PBMs by manufacturers in the form of rebates climbed from $39.7 billion in 2012 to $89.5 billion in 2016, largely offsetting the effect of higher list prices. PBMs, respond by stating that they have provided insurers with a more significant portion of their rebates.

There is a lot of controversy around whether PBMs should be allowed to keep the rebates they get from drug makers, which are typically kept a secret from the general public. PBMs should be required to "pass along" all of these cost savings, or at least a bigger fraction of them, to health insurers and other payers, according to some people's beliefs. If this became a requirement for PBMs, insurance companies would be able to use the money they saved to lower people's premiums and cost-sharing payments even further. According to the findings of a recent study, the percentage of rebates that pharmacy benefit managers (PBMs) passed on to insurers and payers climbed from 78% in 2012 to 91% in 2016. However, a significant number of smaller insurers and businesses claim that they do not receive this portion of the savings.

PBMs are reimbursed by health plans and employers a higher price for generic pharmaceuticals than what the PBMs actually pay pharmacies for these drugs, which has sparked a separate issue. This practice is known as "spread pricing," and it has been the subject of criticism in recent years. The PBMs then retain the discrepancy. Again, this is possible because there is a lack of transparency: the payment schedules that pharmacy benefit managers (PBMs) produce for pharmacies are kept secret from health plans.

What new approaches to the regulation of PBMs have been suggested?

In order to better regulate PBMS, policymakers have been considering three primary reforms:

Demand more openness and honesty with regard to rebates. It is likely that federal and state authorities require additional data on the rebates PBMs get in order to acquire a more complete knowledge of pharmaceutical spending and the areas in which possible reforms are required.

Put a stop to spread trading. In order to prevent payers and employers from overpaying pharmacy benefit managers (PBMs) for prescription medications, policymakers can decide to outlaw the practice. PBMs would be required to adjust their cost schedules with pharmacies in order to take into account price rises for generic pharmaceuticals under a more circumscribed version of the plan.

Make it mandatory for PBMs to hand over any rebates they get to payers or patients. PBMs could be obliged to pass through 90 percent of their rebate savings to payers in order to maintain some of the incentive they currently have to negotiate price reductions with pharmaceutical manufacturers. There is also the possibility of mandating that PBMs give rebates directly to patients. In point of fact, the federal government has considered the possibility of mandating that PBMs contracted with Medicare Part D plans be required to pass through to patients at least one-third of the rebates and price concessions they obtain.

Some industry professionals believe that pharmacy benefit managers (PBMs) should refocus their primary business strategy away from the acquisition of rebates and more on enhancing the value of the money spent on pharmaceuticals. For instance, health insurance providers and hospice pharmacy benefit managers (PBMs) should do more to encourage doctors to prescribe the prescriptions on their patients' formularies that are the least expensive. PBMs could also base formulary selections and price negotiations on the health benefits of a medicine in addition to how it affects the overall cost of patient care.