Topline
The Federal Trade Commission released a critical report detailing how pharmacy benefit managers—like CVS Health’s Caremark, Cigna’s Express Scripts and UnitedHealth’s Group OptumRx, which manage 80% of American prescriptions—could be driving up the costs of some medications and favoring their own pharmacies at the expense of independent drug stores.
Americans struggling to pay for their prescriptions may have a new party to blame.
Key Facts
Pharmacy benefit managers are responsible for negotiating the terms and conditions for access to prescription drugs for hundreds of millions of Americans.
The FTC report said the market has become highly concentrated, as smaller companies were taken over by the nation’s largest health insurers and retail pharmacies, giving the managers significant power over access and pricing.
Consolidating multiple parts of a supply chain under one parent company also means managers could be incentivized to favor their parent company’s pharmacies, disadvantaging independent ones, which are particularly important for healthcare in rural areas, according to the report.
Key Background
In many other countries, the federal government takes charge of keeping drug prices low, but because the U.S. lacks such protection, pharmacy benefit managers emerged in the late 1960s. They were able to fast-track administrative tasks like claims processing, mailing, and relationships with individual pharmacies, saving costs. The companies also exist as negotiators between different parts of the drug supply chain, from design to retail. For example, they can negotiate a lower price from a manufacturer, then either pass the reduction on to a patient’s insurer or keep the benefits for themselves. Because discounts are on a percentage-basis, pharmacy benefit managers also stand to make more money when drug prices go up and when people are given more expensive drugs. A lack of transparency within the industry is a sticking point for reformers and critics alike, who say that companies are putting profit before patients.
Big Number
30%. That’s how many Americans report rationing or skipping doses of their prescribed medication due to costs, according to the FTC.
Crucial Quote
“PBMs say that they help bring down drug costs,” FTC Chair Lina Khan said in March. “But the stories we hear from patients and healthcare workers instead describe PBMs as dominant gatekeepers who have outsized power to decide how people do or don’t receive the life-saving prescription drugs they depend on. Too often, Americans are price gouged for these medications. As PBMs have consolidated and vertically integrated, we hear of a system where corporate red tape and bureaucracy obstruct patients from getting their medications, sometimes with devastating results.”
Tangent
Pharmacies play a critical role in rural health systems, as they are often the first point of contact for patients when it comes to guidance on medication and physical health. This connection is particularly important as CDC data shows those in rural communities are at greater risk for heart disease, cancer, chronic respiratory disease, stroke, and unintentional injuries, and more likely to die of a drug overdose. Compounded with rural hospital closures and financial woes, those living outside of cities and suburbs can face a predicament if their medical costs are too high: by foregoing medication because of cost, they risk more severe health issues later on.
Further Reading
The Evolution and Future of Pharmacy Benefits Managers
F.T.C. Slams Middlemen for High Drug Prices, Reversing Hands-Off Approach
To Reduce Drug Prices, Issue Fewer Weak Patents
$2,000 Cap On Out-Of-Pocket Drug Costs To Help Millions Of Medicare Beneficiaries
