Legislative Hearing Focuses on Pharmacy Benefit Management Practices

The Assembly Select Committee on Biotechnology recently convened a hearing to overview the history and role of Pharmacy Benefit Managers (PBM); the way they intersect with the healthcare system; the interplay with drug manufacturers; and the impact on prescription drug access and pricing for patients.

 Speakers at the hearing included Antonio Ciaccia from 3 Axis Advisors and Erin Trish, Ph.D. from the University of Southern California Schaeffer Center. They highlighted the following points:

• PBMs operate in the middle of the U.S. pharmaceutical supply chain and play an important role in the price patients pay for their medicines. PBMs manage drug benefits on behalf of health insurers and employers, establish drug formularies and pharmacy networks, process drug claims, and leverage their bargaining power to negotiate rebates with drug manufacturers giving status to the companies that give them the best deals.
• Historically, PBMs were independent from health plans and added value by reducing prices, encouraging uptake of generics, and expanding mail-order services. More recently, they have begun merging with major health insurers, creating large, publicly traded Fortune 15 companies with the power to determine where and how billions of dollars are spent within the U.S. health system and at the pharmacy counter.
• PBMs generally make money in one of two ways: Either they earn a percentage of the rebates they negotiate with drug companies on health plans’ behalf, or earn on a per-prescription fee basis paid by the insurer.
• Unfortunately, evidence indicates that PBMs are leveraging their position to extract profits in ways that are detrimental to patients, payers, and drug innovation. Rebates, spread pricing, clawbacks, vertical integration, and other practices allow PBMs to keep cost savings from patients and payers.
• Pharmacy reimbursement by the PBMs is not necessarily aligned with the costs of those medicines from drug manufacturers who offered the PBMs deep discounts in order to be on a preferred formulary. Oftentimes a pharmacy may have paid more to the PBM to get the drug than they’re ultimately reimbursed for. Patients are often stuck making up the difference at the pharmacy counter.

Panel Recommendations Included:

• Structural reforms to address the complex and influential role that intermediaries—especially PBMs—play in the pharmaceutical distribution system.
• Greater transparency in this marketplace.
• PBMs should be required to share savings with consumers and plans.