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Pharmacy benefit managers can drive up your drug costs

Written by Diane Archer

Pharmacy benefit managers (PBMs) are multi-million dollar businesses established to help insurers manage their pharmacy claims, Kaiser Health News explains. PBMs also decide which drugs will go on a health insurer’s formulary (list of approved drugs) and at what price. But, in the process, they can drive up your drug costs.

PBMs are supposed to generate discounts on drugs for health insurers through bulk purchases. But, there’s a lot we don’t know about where those discounts go and whether they end up saving any money for consumers. PBMs are in the business of deciding which drug companies’ drugs an insurer will cover. They have a powerful incentive to establish formularies that allow them as well as their health insurer and/or pharmacy clients to maximize their profits.

Three PBMs own 80 percent of the market, Caremark/CVS (owned by a pharmacy chain), Optum UnitedHealth (owned by a health insurer) and Express Scripts. They have leverage to bring down drug prices. Because drug companies want their business, the drug companies offer them discounts and rebates. But, who benefits in the process?

PBMs pass on their negotiated prices to health insurers, taking a cut for themselves in the process. But, PBMs also generally receive a rebate for each drug they purchase from pharmaceutical companies, which PBMs may pocket in full or part for themselves. In essence, the drug companies will give PBMs an additional discount–a kickback of sorts–for agreeing to put a particular drug on an insurer’s formulary. No one knows how much that discount is or whether the consumer benefits at all from that rebate.

It seems fair to believe that PBMs may choose to put drugs for which they get the biggest rebates on insurers’ formularies rather than drugs that are equally effective and less costly but for which PBMs get low or no rebates. That means that if the PBM is choosing between two equally effective drugs, it might choose the costlier drug, if the rebate is better on that drug, to the detriment of consumers.

Do insured Americans benefit from PBMs? It’s not clear that they do. In fact, we know that some PBMs set the drug copays at prices higher than the actual cost of the drug and then split the extra money they make from the copay overcharge with insurers and/or pharmacies. And, PBMs impose a gag order on the pharmacists, forbidding them from letting their customers know that the actual price for the drug is lower than their copay.

Why exactly is Congress not stepping in to regulate prices and protect consumers? If you want Congress to rein in drug prices, please sign this petition.

Watch this video from Kaiser Health News to learn more about PBMs.

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