The Economic Costs of Pharmacy Benefit Managers

Report calls for increased transparency and simplified drug-pricing structure

Only Lewis Carroll could appreciate how pharmaceuticals are currently priced in the United States, according to a new issue brief from the Pacific Research Institute (PRI) in San Francisco, California. The PRI conducted a literature review of studies that examined the influence of pharmacy benefit managers (PBMs) on individual patients and on the pharmaceutical market as a whole. Most of these studies found that PBMs are having an adverse effect on the overall costs and prices of drugs and that PBMs encourage an overly complicated pricing structure.

The institute’s report describes how, because of current regulatory inefficiencies, PBMs:

  • Create pricing uncertainty by incentivizing higher list prices for medications that enable large rebates and discounts (which are particularly valuable for PBMs).
  • Cause higher patient copays than necessary because of the large discrepancy between list prices and transaction prices.
  • Push Medicare Part D patients into the coverage gap (donut hole) faster because of the higher list prices and higher copays.
  • Impose large and often unknown fees that create substantial revenue uncertainty and volatility, which are particularly problematic for small, long-term care, and specialty pharmacies.
  • Increase their own share of gross expenditures at the expense of pharmacies and manufacturers.
  • Impose undue influence on the medications patients can access because of their control of drug formularies.

The best way to address these problems, the report says, is to create greater transparency and to simplify the drug-pricing structure, with the goal of fostering greater competition.

Recently, suggested reforms have focused on reducing informational constraints; on connecting patient copays to actual transaction prices, not to artificially inflated list prices; and on enabling pharmacists and medical professionals to communicate with patients regarding all drug and payment options.

Moreover, the Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act, if it became law, would require the Centers for Medicare and Medicaid Services to post the rebates that PBMs receive, as well as the proportion of those rebates that go to Medicare Part D.

Source: Pacific Research Institute; May 2017.