New Paper Observes That PBMs Are Middlemen That Obtain Huge Profits But Don't Actually Make Anyt

The evidence against pharmacy benefit managers (PBMs) just keeps piling up. A new report by Merrill Matthews and Peter Pitts of the Institute for Policy Innovation examines price transparency in the health care market, and concludes that PBMs reap gigantic profits and are a major contributor to higher drug costs. The authors point out that “a lot of money is made in the health care system by middlemen who don’t actually treat patients” and that PBMs “don’t actually make anything.”

The American health care system is incredibly complex and famously opaque. Over the last fifty years, middleman-related administrative costs as a percentage of health care spending have skyrocketed. At the same time, premiums have increased, health care spending has increased, and most all drug prices have increased. Matthews and Pitts observe that when ordinary consumers discuss drug prices, they usually mean their co-pays are too high (which is very true). But co-pays aren’t set by drug companies; rather they are set by insurance companies and PBMs. Both PBMs and insurance companies act as middlemen and negotiate discounts, but they often keep most or all of their discounts instead of passing them on to consumers.

PBMs further engage in “claw backs.” When people with health insurance go to pharmacies and pick up prescription drugs, they usually get their co-pay or co-insurance price. But often the cash price for the drug is much less than the patient’s co-pay. Moreover, many PBM written contracts prohibit pharmacists from voluntarily providing people with information about those lower prices. PBM profits also come from getting rebates from drug manufacturers that they don’t pass on to pharmacies or patients, and they have started restricting access to certain medicines by announcing they will exclude them from their lists of covered drugs.

And PBMs are reaping enormous profits. Express Scripts, the nation’s third largest PBM, had revenues of $101.6 billion in 2016. CVS Health, another PBM, got $153 billion. And OptumRx, the largest PBM, received $157 billion. The report notes that “Express Scripts took in about twice as much money as the largest drug manufacturer and yet it doesn’t cure any diseases.”

No one is opposed to companies making an honest living. But the PBMs are making such vast sums of money, and for what? They don’t fund the research that lays the foundation for new breakthroughs and life saving treatments. They don’t engage in years of hard work to develop new drugs. Instead they operate as intermediaries under the guise of saving money. But the evidence indicates they aren’t doing that; prices are going up.

The authors conclude that “it’s a fair question to ask whether consumer health spending would be less if billions of dollars weren’t absorbed by middlemen.” It is also a fair question to ask if drug prices would be less if PBMs were better regulated and consumers had access to basic information about them. We think everyone knows the answer—they would.