Drug costs are rising at an alarming rate and there is no end in sight—or at least that’s what a recent study finds. The past six years has seen a substantial increase in the cost of many prescription drugs, especially those used to treat major health conditions like diabetes and cancer.

According to a study published in the journal JAMA Network Open, one of the biggest culprits for this seemingly unending problem is the lack of regulation in the price increases happening in the pharmaceuticals market.

The study conducted by researchers from the Scripps Research Transitional Institute assessed claims from Blue Cross Blue Shield Pharmacy from 2012 to 2017 and they discovered that almost all of the drugs included in the study had an annual or biannual cost increase. 36 of the drugs included in the study increased in cost by as much as 50% over a six-year period.

The median cost of these drugs increased by up to 76%, which is a lot for patients who are suffering from chronic health conditions that demand long-term medication compliance.

Pharmacy benefit managers and their role in rising drug costs

 According to the researchers, “given the median annual cost increase of 9.5%, our results suggest the costs for popular brand-name drugs would double every 7 to 8 years.”

With these findings affecting the quality of healthcare that’s provided to patients in the United States, 33 states across the country have passed laws that will somehow help control the rising costs of prescription drugs and they are setting their eyes on pharmacy benefit managers or PBMs who have a big role to play in addressing the issue.

What are pharmacy benefit managers?

A pharmacy benefit manager is essentially a professional who serves as an intermediary between employers, insurers and other members of the healthcare system. PBMs offer services that aid patients including educational programs, counseling and administering drug coverage.

Medicare Part D drug plans, health insurance companies, large employers and other businesses usually hire pharmacy benefit managers to help them control and manage different prescription benefits. PBMs play an important role in the distribution of drugs because they close deals with pharmaceutical companies that affect the prices and availability of prescription medication for more than 266 million Americans, according to the Pew Charitable Trusts.

Major payers like Medicaid and Medicare also work closely with pharmacy benefit managers and rely on them for drug procurement rather than do the task themselves.

In fact, the deals made by PBMs will help consumers and health plans save at least $654 billion between 2016 and 2025, according to the Pharmaceutical Care Management Association, which is a national advocacy group for PBMs.

What are the responsibilities of pharmacy benefit managers?

Being the middleman between consumers and healthcare providers, PBMs have the responsibility to ensure patient’s compliance to prescription medications, operate mail order so drugs are delivered to the right patients and negotiate rebates with pharmaceutical companies so consumers can have the most affordable options.

PBMs also have the responsibility to manage formularies to help consumers know what drugs are covered by their health plans and they help ensure the accessibility of prescription drugs through proper distribution across a network of pharmacies.

Some pharmacy benefit managers also offer specialty services where they connect consumers or pharmacists with biologic manufacturers and orphan drug suppliers.

Who are the three biggest PBM companies in the US?

These three largest PBM companies in the United States cover a good chunk of patients with pharmacy benefits:

• • ExpressScripts

ExpressScripts is not linked to or owned by any pharmaceuticals company, which is why it’s the most reliable when it comes to consumer benefits. The company offers novel solutions for improving patient care and managing pharmacy costs.

• • CVS Caremark

A growing PBM, CVS Caremark offers a comprehensive drug benefit service to more than 2,000 healthcare plan beneficiaries and sponsors all over the country.

• • Argus

Being one of the last independent providers of healthcare information and services that support Medicare Part D and Medicaid, Argus has a wide range of clients and the company serves some of America’s most vulnerable populations.

What are the roles of PBMs in effecting drug prices?

Pharmacy benefit managers effect the availability and price of prescription drugs in three ways:

• • Formularies

PBMs have a list of prescription drugs that are covered by health plans known as formularies. These formularies will determine which medications can consumers under Medicaid and other health plans use and how much they need to may for them.

• • Purchasing power

Because pharmacy benefit managers procure drugs in bulk, they have the purchasing power to negotiate discounts and rebates from drug manufacturers, especially those who want their drugs to be added to the PBMs’ formularies.

• • Reimbursement

As part of their job pharmacy benefit managers work with pharmacies in reimbursing drugs that were sold and dispensed to consumers.

What are the issues thrown at PBMs?

Over the last few years, PBMs have faced scrutiny over consumer complaints and issues on rising drug prices.

• • Lack of transparency

Pharmacy benefit managers have been called out for not having enough transparency in their operations where both consumers and regulators are not aware of how deals are closed and if rebates and savings are really passed down to consumers.

A recent study conducted by the Pew Charitable Trusts found out that “PBMs passed through 78% of manufacturer rebates to health plans in 2012 and 91% in 2016.”

The United States Government Accountability Office also said that pharmacy benefit managers passed nearly all of their Medicaid and Medicare Part D rebates on to consumers in 2016, but there are still questions on whether this is applied to the entire health care market.

• • Rising drug costs

Politicians have also started pointing their fingers at PBMs regarding issues of rising prescription drug costs. In fact, 33 states across the country have passed laws targeting pharmacy benefit managers.

Rep. Mary Felzkowski, R-Irma talked about a personal experience that led her to support a bipartisan bill aiming at lowering drug costs in Wisconsin: “I just got a prescription for a generic (drug) and my pharmacy benefit manager will not let me have the generic because they get a kickback on the formulary.

So instead of paying my $5 copay for the generic I paid $35. Now I’m very fortunate. I can afford that. Not everyone can. So this is a real issue.”

• • Spread pricing

Spread pricing has been a longstanding practice for PBMs. This model means that the PBM will charge a payer like an employer or health plan more than what it reimburses the pharmacy for a medication. The PBM then keeps the difference. This has become an issue for some because the exact difference has always been kept confidential from both regulators and health plans.

What changes will Medicaid be implementing for PBMs?

Although pharmacy benefit managers were once thought to help lower down the cost of prescription drugs that benefit patients, many state Medicaid programs are implementing changes to pharmacy benefits due to the different issues faced by PBMs lately.

For instance, the Medicaid program in Michigan is proposing to eliminate all PBMs that negotiate drug prices and handle its prescription drug claims. Beginning December 1, Medicaid will be handling all its drug coverage internally to try to manage the cost of prescription drugs in the state. This was after a study revealed that state Medicaid agencies didn’t really get the dramatic savings that they were promised by outsourcing negotiations and procurement of drugs through pharmacy benefit managers.

According to Michigan officials, the state would save at least $40 million by extracting bigger rebates from pharmaceutical companies and cutting operational costs in handling Medicaid drug benefits. This move could mean that companies like CVS Health, MedImpact and OptumRx could stand to lose business.

Other states are also following suit with bills regulating pharmacy benefit managers in the effort to reduce drug prices. According to the National Academy for State Health Policy, 47 states have already proposed 275 bills to address the issue of increasing drug prices. 123 of these bills were aimed at PBMs. In the state of Wisconsin, small pharmacies continue to push for the oversight of pharmacy benefit managers.

What reforms are being considered to regulate PBMs?

The issues with pharmacy benefit managers and their role in skyrocketing drug prices have resulted in a lot of bills trying to eliminate them as a part of the drug distribution process. But as Rep. Joe Sanfelippo, R-New Berlin pointed out, he is concerned about PBMs but he isn’t dismissing the fact that a lot of employers are relying on these professionals to control the cost of prescription drugs.

To address the issues with the operations of PBMs, there major reform ideas have been formulated by several states that will hopefully ensure that consumers get the best benefits from the deals they make with pharmaceutical companies:

• • Improving transparency

Several federal lawmakers are pushing to add new rules and regulations that would require PBMs to submit more information on how they negotiate prices and rebates. This will help the government determine if consumers get the largest portion of savings from rebates and negotiations.

• • End spread pricing

Several states are looking into creating legislations that would end the longstanding practice of spread pricing in pharmacy benefit managers. Instead of using the spread pricing model, legislators want PBMs to use a pass-through model where they would have to charge payers the same amount they reimburse to pharmacies with the addition of a fixed administrative fee.

The federal government is also now requiring all Medicaid fee-for-service programs to use the pass-through model and ditch the spread pricing model.

• • Rebates

Several policymakers are considering new rules that would require pharmacy benefit managers to pass through a bigger chunk of rebates to consumers. PBMs will still be allowed to keep part of these rebates in order to maintain the benefit of them negotiating for the price reduction of some of the most important prescription drugs in the market.

The Commonwealth Fund has suggested that 90% of all rebate savings should be passed on to payers.

The move to transform the healthcare system in the United States has got different legislators scrambling for rules that will help benefit consumers more. There have been numerous debates on whether there is still a need to hire pharmacy benefit managers or just take control of drug distribution internally. In Ohio, for instance, the legislative committee that manages the state’s $28 billion Medicaid program has conducted a meeting in September to review the progress of addressing the issues regarding pharmacy benefit managers profiting off the distribution of prescription drugs for the poor and disabled.

According to a Pew study this year, the rebates given by manufacturers to PBMs have increased dramatically from $39.7 billion in 2012 to a staggering $89.5 billion in 2016. The U.S. Department of Health and Human Services also stated that the average price difference between the list price of a drug and its cost after a rebate is between 26 to 30%.

Some pharmaceutical companies also admitted that they had to raise the list prices of some of their products due to the increasing rebates imposed by pharmacy benefit managers. If this amount is passed on to consumers, the prices of prescription drugs would definitely be lower than it is today.  There is also the issue of PBMs favoring more costly drugs because they get bigger rebates for them.

The bottomline

Whether there is still a need for pharmacy benefit managers or not is still up for debate. But at the end of the day, it will all boil down to what decision will benefit the consumers best.

After all, prescription drugs should be accessible to everyone because they are an important part of the treatment plan of patients, which will ultimately decide if they get to enjoy excellent prognosis or not.