“PBMs are getting rich by playing the drug market at the expense of patients,” Pipes writes.
Dozens of state and local governments are suing drug companies and pharmacy benefit managers, alleging they are unfairly raising the price of insulin.
The plaintiffs say they are fighting for patients. They are less open about the fact that they have benefited greatly from the system they now despise. For years, these cities and states have insisted on a cut — if not all — of the rebates that pharmacy benefit managers extract from drugmakers when negotiating whether and how to cover specific drugs.
PBMs have come to dominate the prescription drug market. They have used that power to enrich not only themselves, but also those who employed them – including the cities and states that are now suing them. The losers in this dysfunctional market are drug manufacturers and patients.
Lawsuits generally make two claims: that insulin prices are unreasonably high and that drug companies and PBMs are responsible.
The first claim does not stand up to scrutiny. The price of insulin has been falling for years—and it’s hardly a national emergency. A recent report from drugmaker Lilly, for example, reveals that the net price of the company’s Humalog-brand insulin fell from $62 per vial in 2018 to just $26 last year. The company’s biosimilar insulin, Lispro, had a net price of just $17 per vial last year. (A vial usually lasts a month before it expires.)
The lawsuits are more consistent in their claim that PBMs are raising costs for patients. And this problem is not unique to insulin.
PBMs require rebates and other payments from pharmaceutical companies as a condition of favorably placing a drug on the formulary, or list of covered drugs, that they control.
If a drug manufacturer refuses, then the PBM can make it difficult for the beneficiaries it represents to access that drug—say, by requiring more cost-sharing or by stipulating that a person must try other drugs first. And that’s if the PBM puts the drug on the formulary at all.
These discounts and fees are usually calculated in relation to the list price of the drug. This prompts PBMs to prefer drugs with higher list prices. There’s more room to claim a big discount — and thus a big payday for PBM.
These discounts and rebates do not make their way to patients. PBMs and the health plans that employ them depend on them.
In fact, some of the state and local governments now suing insulin manufacturers and PBMs determined that their PBMs had to pass along the rebates they provided for the drugs their beneficiaries received. These state and local health plans chose not to pass those savings on to their beneficiaries.
These tactics have resulted in massive profits for pharmacy benefit managers. Between 2017 and 2019 alone, the industry’s gross profits grew by 12% to $28 billion.
Today, rebates and fees provided by PBMs account for 42% of every dollar spent on brand-name drugs, according to a recent analysis. And the total value of those rebates and fees reached $72 billion in 2022.
Not only are patients on the periphery of this scheme – their cost-sharing obligations are actually based on the undiscounted listed price of a drug.
So PBMs—and the health plans that employ them—benefit twice. They collect huge rebates from drug manufacturers and artificially high payments from beneficiaries.
PBMs are getting rich by playing the drug market at the expense of patients. States and cities don’t seem to have had that in mind when they signed their contracts with the same companies. Now the government prosecutors are acting shocked, just shocked. But they won’t be able to fix the problem until they admit their role in creating it.