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March 20, 2023 Other Voices

More transparency needed on pharmacy benefit managers — the health insurance middlemen

Tony Sheridan

Escalating healthcare costs affect the budgets of everyone — from young families with children to senior citizens and business owners.

And in today’s labor market, healthcare benefits are playing an increased role in the recruitment process for businesses of all sizes.

The search for answers to healthcare cost increases often turns up the usual suspects: insurance companies, pharmaceutical companies, physicians, hospitals — even patients who ignore opportunities to improve their health.

Missing from this list, however, is a significant suspect who is right in the middle of healthcare providers and patients: pharmacy benefit managers, or PBMs.

What is a PBM?

PBMs are the middlemen hired by insurance companies to negotiate prices for prescription drugs with pharmaceutical manufacturers and pharmacies. Long criticized by health economists, the six largest PBMs are now the target of a Federal Trade Commission inquiry launched in June.

The stated goal of PBMs is to create cost savings, but the reality is far different. Instead, they find ways to drive smaller pharmacies out of business and put costs back on patients while raking in billions of dollars in profit.

PBMs are known for cashing in on almost every facet of the pharmaceutical supply chain, and their power has grown as mergers and acquisitions consolidate the industry.

The FTC inquiry is focusing on the role of pharmacy benefit managers as they negotiate rebates and fees with drug manufacturers, create drug formularies and policies, and reimburse pharmacies for patients’ prescriptions.

In this role, and over time, they have inserted themselves into the operations of the biggest health insurance companies and mail-order pharmacies as key players in the development of your workplace health benefit.

PBMs have significant influence over which drugs are prescribed, which pharmacies patients can use, and how much patients ultimately pay at the counter.

These middlemen shape health-benefit plans while operating in an unregulated environment that includes complex business relationships that are largely hidden from public view — and would be virtually impossible to understand if there were any level of transparency.

In other words, employers likely are unaware that a good deal of their healthcare-benefit expense is not benefiting the health of their employees at all, but rather the bottom line of PBMs because of a lack of transparency and regulation.

If you’re wondering at this point who these PBMs are, the six largest include some familiar names: CVS Caremark; Express Scripts Inc.; OptumRx Inc.; Humana Inc.; Prime Therapeutics LLC; and Med Impact Healthcare Systems Inc.

The FTC’s June inquiry was launched following its February 2022 request for information about PBMs and the 24,000 public comments it received as of June. The inquiry is looking into PBM practices that have been raised in recent years, including:

• Methods to steer patients toward PBM-owned pharmacies.

• Fees charged to unaffiliated pharmacies.

• Complex methods to determine pharmacy reimbursement.

• The impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.

• The use of specialty drug lists and specialty drug policies.

• The prevalence of prior authorizations and other administrative restrictions.

• Potentially unfair audits of independent pharmacies.

This lack of transparency — and questionable pricing schemes — in the world of PBMs is increasing the cost of generic medications rather than saving money for patients, governments and employers, according to research by the University of Southern California’s Schaeffer Center for Health Policy and Economics.

In some cases, patients and doctors have been denied access to less expensive generic medications and forced into higher-cost treatments that make a bigger profit for the PBM.

According to the USC research, these tactics have led to billions in overpayment. When patients — a business owner’s staff — pay more than $100 for a medication they are more likely to abandon or delay needed treatment.

Connecticut has been a leader in passing policies that address some of the most blatant PBM issues. But there’s more work to do — the industry needs to be held accountable because just as states and the federal government find ways to combat these practices, a new one pops up.

As the FTC effort unfolds, employers should support changes that prioritize transparency from the PBMs and demand that they use their negotiated savings to lower costs for beneficiaries.

Doing so could have an impact on a company’s bottom line both now and in the future.

Tony Sheridan is president and CEO of the Chamber of Commerce of Eastern Connecticut.

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