AP Photo/Julio Cortez, File All too often, Americans go to the pharmacy and are stunned by what they’re asked to pay. The question is simple: “Isn’t there a cheaper option?”
Frequently, there is. But patients aren’t making the final call and neither are their doctors.
Today’s system is dominated by a handful of vertically integrated health care conglomerates that can block patients’ access to more affordable options to boost their own profits.
The chief culprits behind this abuse are pharmacy benefit managers, operating as part of the same corporate structure as the largest health insurers and some pharmacies. Pharmacy benefit managers determine which medicines are included on insurers’ lists of covered drugs, called formularies. That gatekeeping role gives them enormous leverage to negotiate lower prices from manufacturers and, in theory, pass those savings on to patients.
But in practice, they use that leverage to design formularies that maximize their own profits — not patient savings — leaving Americans to face higher out-of-pocket costs.
This is particularly evident when it comes to lower-cost generics and biosimilars. pharmacy benefit managers routinely block access to these affordable medicines in favor of more expensive drugs that often carry larger rebates and discounts, or hidden fees, that they can retain. The three largest pharmacy benefit managers — who control 80 percent of all prescriptions — now exclude nine times as many generic medicines from their standard commercial formularies as they did in 2014.
And if they do cover these medicines, pharmacy benefit managers often own the pharmacies dispensing them and can mark the prices up dramatically. Those markups generated more than $7 billion in revenue for pharmacy benefit managers between 2017 and 2022. The practice leaves patients paying more out-of-pocket while the conglomerate earns far more from each prescription.
Because pharmacy benefit managers own the pharmacies that dispense these medicines, they can mark up private-label drugs by hundreds or even thousands of percent. Those markups generated more than $7 billion in revenue for pharmacy benefit managers between 2017 and 2022.
In pursuit of more affordable options, Americans are increasingly turning to direct purchase programs: a new way for patients to buy medicines directly from individual manufacturers in a more transparent way and often with lower costs. Pharmacy benefit managers and insurers moved quickly to undermine these solutions. They often do not count patient costs for these medicines toward their deductible or maximum out of pocket limit. As a result, patients who seek out more affordable options must choose to either stay trapped within higher-cost channels controlled by pharmacy benefit managers, or give insurers a free ride by seeking more transparent options.
This exclusionary behavior also extends to patient assistance programs. Manufacturers help 10 million Americans every year purchase medicine for a lower cost or even for free. Pharmacy benefit managers and insurers frequently capture those funds through their copay accumulator and maximizer programs that prevent patient assistance from counting toward deductibles and out-of-pocket limits or extract the full value of assistance before benefits kick in. As a result, middlemen collect the savings — to the tune of nearly $5 billion annually — rather than reducing a patient’s out-of-pocket burden.
The throughline is clear: middlemen are profiting again and again from a broken supply chain at the expense of patients.
Fortunately, policymakers in both parties have started cracking down on these abusive practices.
Earlier this year, Congress took a first step and passed bipartisan reform legislation. The Department of Labor proposed a new rule to strengthen disclosure requirements for rebates, fees and overall compensation. And a bipartisan coalition of 45 attorneys general recently urged the federal government to finalize that rule and to work cooperatively with states to enforce it.
Meanwhile, the Federal Trade Commission’s investigation of practices by pharmacy benefit managers resulted in lawsuits against all three major managers. The recently proposed consent decrees to settle those cases could require them to curb some of their harmful business practices and increase transparency and accountability throughout the drug supply chain.
But pharmacy benefit managers’ parent companies have already downplayed the financial impact of those decrees — a sure sign they will seek to exploit every possible loophole and merely rebrand their core policies, rather than reforming them.
Making medicine more affordable requires policymakers to build on these efforts with additional reforms. There are key actions they can take today: prohibit “gag clauses” that prevent employers from knowing about lower-cost drug options, require reporting on how often they delay or deny coverage, and stop insurers from gaming medical loss ratio requirements by paying inflated prices to owned providers and pharmacies.
Whether savings come from generic competition, direct purchase programs or manufacturer assistance, patients — not middlemen — should be the ones benefitting.
Robert Zirkelbach is chief public affairs officer and head of strategic initiatives at PhRMA, the trade organization representing companies in the U.S. pharmaceutical industry.
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