Pharmacy benefit managers increase costs to patients and healthcare system, new report shows

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WASHINGTON–(COMMERCIAL THREAD) – The PBM Accountability Project today released a new report that sheds light on how pharmacy benefit managers (PBMs) are finding new and hidden ways to leverage their role in benefit management pharmaceuticals for consumers, businesses, unions, government and other payers. The report, “Understanding the Changing Business Models and Revenues of Pharmacy Benefit Managers,” shows that between 2017 and 2019, PBM’s gross margin increased 12% from $ 25 billion to $ 28 billion. dollars, but the sources of those profits have changed dramatically over the same period. period. He concludes by considering the impact of PBM incentive structures and the need to include PBM reforms in prescription drug policy discussions.

The PBM Accountability Project report, based on research conducted in conjunction with data analytics firm 3 Axis Advisors, found that despite the decrease in PBM retention of manufacturer discounts between 2017 and 2019, the overall gross margin of PBM increased. During the study period:

  • Gross profit of PBMs from withheld administrative fees paid by manufacturers for services provided by PBMs increased 51%, from $ 3.8 billion to $ 5.7 billion.

  • Gross profit of mail-order and specialty pharmacies owned by PBM increased by more than 13%, from $ 8.9 billion in 2017 to $ 10.1 billion in 2019.

  • Gross profit from ‘other sources’ including price differentials, pharmacy fees and recoveries, fees collected from payers and other non-administrative fees collected from manufacturers increased by almost 26%, rising from $ 8.5 billion in 2017 to $ 10.7 billion in 2019. Although these “other sources” constitute nearly 40% of all gross profits of PBM, analysis of the financial data available to the public gives little light on the amount of gross profit from specific components.

“This report highlights a PBM business model that has truly been a black box for working families, employers, unions and taxpayers who are grappling with rising prescription drug costs,” said Mark Blum, Executive Director of America’s Agenda, a founding member of the PBM Accountability Project. “PBMs have been remarkably adept at creating clever ways to divert prescription drug savings from plan sponsors and patients to their own growing profit. The findings of this report take us all out of obscurity to see clearly the kinds of reforms that are needed to return prescription drug savings to the American workers, employers, patients, and taxpayers who ultimately foot the bill. ”

Antonio Ciaccia, President of 3 Axis Advisorsadded, “With PBMs being essentially the center of the United States drug supply chain, it requires careful consideration of how their business practices can exacerbate drug dysfunction and price overruns. As PBMs claim to be the only entity working to control drug prices, we believe analyzes like this report can shed light on the incentives and opportunities that PBMs have to inflate costs rather than providing savings to sponsors. plans and patients. ”

The report also reveals that while the total gross margin of PBM increased during the study period, the sources of the gross margin of PBM changed due to changes in procurement practices, competitive pressures. and public scrutiny.

“In this context, PBMs continue to operate under a veil of relative secrecy,” Ciaccia said. “The report confirms much of our previous research: As PBMs change the sources of their income, they also find significant growth opportunities along the way – often at the expense of payers, health plans, pharmacies. , patients and even manufacturers. Going forward, we can expect PBMs revenue streams to continue to evolve in response to changing market dynamics.

The report discusses the market dynamics and misaligned incentives that have resulted in system-wide inefficiencies and allowed PBMs to increase costs for patients, employers, and the healthcare system as a whole:

  • PBMs benefit directly from the growth in list prices of prescription drugs, resulting in misaligned incentives in the system. Several sources of PBM revenue for drugs are directly linked to the list price of the drug. When the list price of a drug increases, the PBM often receives more revenue. These misaligned incentives can increase costs for plans and patients.
  • The excessive complexity and asymmetry of market information make it difficult for payers and patients to properly assess PBM decisions or drug costs. Price complexity and lack of transparency allow PBMs to buy products or services from one stakeholder in the system and sell the same products or services to other stakeholders at higher prices, without the payer understands the true cost or inflationary nature of the services purchased.
  • The absence of significant PBM industry standards, limited transparency, and lack of regulatory oversight enables PBM revenue growth. Many PBM procurement mechanisms and revenue sources lack agreed definitions, giving PBMs wide discretion to craft the terms of a complex contract in their favor.

These findings underscore the need to consider new approaches to realign PBM incentive structures in prescription drug policy discussions, including decoupling PBM remuneration from the list price of drugs, requiring that discounts and rebates are shared with plans and patients at the pharmacy counter, ensure patient choice of pharmacies, limit price gaps within Medicaid, and establish disclosure requirements for employers and health plans commercial.

The full report is available on the PBM Accountability Project website. The PBM Accountability Project, a coalition of stakeholders in the fields of health, labor, business, pharmacy and consumer / patient advocacy, strives to educate the public and provide solutions for help redirect prescription drug savings from PBMs to patients, employers and health plans. and taxpayers.

Health and policy experts weighed in on the report:

Sally Greenberg, Executive Director of the National Consumers League: “Over time, PBMs have found ways to take advantage of a lack of transparency and oversight to increase their profits. This report not only shows the many ways they do it, but also how much money they make from these tactics. We need to find political solutions to get that money – those savings – back to consumers as planned. ”

Rebecca Snead, Executive Vice President and CEO of the National Alliance of State Pharmacy Associations: “We have seen first-hand the negative impact of PBMs on pharmacies across the country, which also has an impact on access to care. These multibillion dollar middlemen put profit first – to the detriment of community pharmacies with their arbitrary and retroactive fees. We need to reform the system to help pharmacists serve their patients better.

David Balto, former Federal Trade Commission policy director and antitrust lawyer: “PBMs engage in a variety of tactics to increase costs and deprive consumers of needed drugs. This report reinforces the way they maintain a grip on the prices and distribution of prescription drugs. Ultimately, consumers pay more for life-sustaining drugs to drive up drug costs through complex PBM programs. Something needs to be done to tackle the anti-competitive practices of intermediaries who control the supply chain so much. ”

About the PBM Responsibility Project

The PBM Accountability Project brings together leaders and stakeholders from healthcare, labor, business, pharmacy, and patient advocacy to help ensure that patients and our private and public health plans do not pay too expensive for the prescription drugs we need. Our organization strives to educate the public and provide solutions to help redirect prescription drug savings from very high PBM profits to patients, employee health plans and taxpayers. To learn more about the PBM Accountability Project, visit pbmaccountability.org.


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