DRUG PRICES

Ominous ads about prescription drugs flood the TV airwaves. Perhaps by design, it's not always clear who's sponsoring the ads or why. Here's a primer on what's happening.

What are pharmacy benefit managers?

Known as PBMs, these companies were created in the 1960s to help employers and insurers select and purchase medications for their health plans. The industry mushroomed as prescription drug spending grew about 200fold between 1967 and 2021.

In addition to negotiating discounts with manufacturers, PBMs set payment terms for the pharmacies that buy and dispense the drugs. In effect, they are the dominant middlemen among drugmakers, drugstores, insurers, employers, and patients.

How big is the PBM industry?

There are about 70 PBMs in the U.S. Through mergers, three of them — CVS Caremark, Optum Rx and Express Scripts — control 80% of the prescription drug market, and each brings in tens of billions of dollars in revenue annually.

The big three are part of massive conglomerates in almost every sector of health care; each owns a powerful health insurer — Aetna, UnitedHealth and Cigna, respectively — as well as pharmacies and medical providers.

For example, UnitedHealth contracts with 70,000 doctors, making it the biggest employer of physicians in the country.

Secret price negotiations and hidden corners of each PBM-linked corporation make it hard to track where the money ends up.

Why am I seeing all these ads about PBMs?

Other sectors of health care are alarmed by PBMs' power and are appealing to the Biden administration and Congress to rein them in. Drugmakers, employers, pharmacies, doctors and even patients chafe at PBM practices like "spread pricing," in which the companies pocket money negotiated on behalf of health plans.

Non-PBM-affiliated pharmacists say the PBMs squeeze their businesses by forcing them to sign opaque contracts that include clawbacks of money after sales. PBMs often steer patients using expensive drugs to their affiliated pharmacies, cutting revenue to independents.

Doctors say PBMs act as gatekeepers for insurers, blocking or slowing coverage of necessary drugs.

Finally, the pharmaceutical industry lost a share of sales revenue to PBMs while getting most of the bad publicity for high drug prices. The median launch price for brand-name drugs went from $2,100 to $180,000 a year between 2008 and 2021, yet net revenues for drug companies stagnated in recent years. PBMs in some cases prefer high producer list prices, because rebates drugmakers pay in exchange for favorable health plan coverage of their drugs often are calculated as a percentage of list prices.

Who's paying for the ads?

The Pharmaceutical Research and Manufacturers of America, a trade group for drug companies, is the top driver of the anti-PBM campaign. Some ads are sponsored by the PBM Accountability Project, a lobby funded partly by the drug industry that includes unions and patient advocates. The PBM trade group Pharmaceutical Care Management Association and the health insurance lobby AHIP responded with their own ads.

What's Congress doing about it?

House and Senate members from both parties launched at least nine bills, parts of which may be packaged together this fall. The Senate Finance Committee, which has jurisdiction over Medicare and Medicaid, introduced a bill to prohibit PBMs from collecting rebates and fees calculated as a percentage of a drug's list price. The committee also plans legislation to require PBMs to pass along discounts directly to seniors, allow patients to use the pharmacy they prefer and release more information about where their money ends up.

Sen. Bernie Sanders introduced a bill that bans spread pricing, while measures in the Senate and House would crack down on PBM practices seen as harming independent and rural pharmacies. Other measures require more transparency or limit patient waits for drug approvals.

Meanwhile, several states are using high-tech auctions to lower PBM-related costs.

What's the bottom line?

PBMs generally operate on behalf of their customers, which are insurance plans and employers, whose goal is to hold down prices. The PBMs do that by extracting painful concessions, a double-edged sword.

"PBMs are the only thing we have to lower brand-name drug prices and prevent the drug industry from charging whatever they want," said Benjamin Rome, an internist and health policy researcher at Harvard Medical School.

If those drug prices were 100% covered by insurance, it would further blow up health care spending that is already nearly a fifth of the economy.