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Rein In Profiteering by Drug-Industry Middlemen

Inside Sources


The Federal Trade Commission recently requested public comments on the effect of drug-industry middlemen on drug affordability and access. Unfortunately, commissioners missed an opportunity to rein in these bad actors, even though they’re denying access to vital treatments and inflating the cost of drugs.


Better known as pharmacy benefit manners, or PBMs, these are the unknown middlemen that manage prescription drug benefits for insurers and large employers. As part of their role, PBMs negotiate for discounts with drugmakers and decide what medicines insurance companies will make available. They also reimburse pharmacies for dispensing drugs to patients. Some PBMs even own insurance companies or pharmacy chains themselves.


Just three large PBMs control about 85 percent of the market, giving them enormous control over what medications you can buy, where you can get them and how much you pay.


Middlemen are supposed to act as simple go-betweens and operate on razor-thin margins. But PBMs have figured out how to game the marketplace. From the consumer’s perspective, the problem is that PBMs inflate out-of-pocket costs. With millions of Americans struggling to afford prescription medication, the discounts PBMs extract from drugmakers should, in theory, go to patients. Instead, they pocket most of the savings and pass the rest to insurers, with consumers rarely seeing a dime. An insurer can even charge a patient more for a given drug than it paid the PBM — a practice that, bizarrely, remains perfectly legal.


As bad as PBMs are for consumers, they’re also squeezing the independent, non-chain pharmacies that are the lifeblood of so many communities — and in some cases driving them out of business.


Independent pharmacies take on the cost of stocking medicine and dispensing it to patients, but have little control over their own earnings because PBMs determine patient co-pays and decide how much to reimburse pharmacies for insurance-covered medication. The difference between what a PBM bills the insurance plan for a drug and what it charges the pharmacy is called the “spread.” Spreads are growing so fast that PBM profits have nearly doubled in the last 10 years, increasing by more than $10 billion.


Often, PBMs reimburse pharmacies below cost, forcing them to take a loss. And of course, PBMs reimburse their own pharmacies at better rates than those outside their networks — an anti-competitive, anti-small-business, anti-consumer practice.

Communities are seeing the effect. In the 16 years that ended in 2018, 16 percent of independently owned rural pharmacies in the United States closed, according to a study from the Rural Policy Research Institute at the University of Iowa. Meanwhile, PBM pressure has resulted in “pharmacy deserts” in many urban areas, which especially affects Black and Latino neighborhoods.


To repair this situation, we urgently need a study of PBMs that compels them to turn over information about their pricing and reimbursement practices. Previous studies of PBMs have looked at how they affect big payors, like insurance companies, but we need to know more about how these murky, unregulated businesses are affecting American households.


As Federal Trade Commission chair Lina Khan said after the motion for a new study failed to pass, the agency has “a real moral imperative” to rein in PBMs. It’s time to stop letting their profiteering trump our health.


About the Author: David Balto is a former policy director of the Federal Trade Commission and a public interest antitrust attorney. He wrote this for InsideSources.com.

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