BioRationality: Time to Get Rid of PBMs if Biosimilars Are to Succeed

A scathing article in the New York Times on June 21, 2024 did an excellent service to Americans facing the highest price of drugs in the world. While the social media and the stakeholders blame drug companies, insurers, or a dysfunctional federal government, the real culprits are the 3 big pharmacy benefits managers (PBMs; CVS Health, Cigna, and UnitedHealth Group), hired by employers and governments. If they were stand-alone companies, the 3 biggest PBMs would each rank among the top 40 US companies by revenue. The largest, Caremark, generates more revenue than Ford or Home Depot.

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PBMs have been around since the late 1950s. They initially handled requests mailed in by pharmacies and patients seeking reimbursement for the costs of prescription drugs. Over the decades, PBMs have had different owners, including drug makers and large chains of pharmacies. They were often credited with saving money for patients and employers, including in the early 2010s when they embraced a new wave of generic drugs. They kept a slice of the savings for themselves. The modern PBM emerged in 2018. The giant health insurers Aetna and Cigna were trying to achieve the growth demanded by Wall Street. They sought to merge with the PBMs, whose profits were soaring. Aetna and CVS combined. Cigna bought Express Scripts (UnitedHealth had built its PBM).

The job of the PBMs is supposedly to reduce drug costs. Instead, they frequently do the opposite. A New York State investigation found that they steer patients toward pricier drugs, charge steep markups on what would otherwise be inexpensive medicines, and extract billions of dollars in hidden fees, a New York State investigation found.

Most Americans get their health insurance through a government program like Medicare or through an employer, which pays for 2 different types of insurance for each person. One type covers visits to doctors and hospitals, handled by an insurance company. The other pays for prescriptions. That is overseen by a PBM who negotiates with drug companies, pays pharmacies, and helps decide which drugs patients can get at what price. In theory, everyone saves money. But the PBMs have excellent public relations campaigns: “We’re good at what we do,” Jon Mahrt, president of UnitedHealth’s PBM, Optum Rx, said in an interview. The leading lobbying group for the PBMs says that in 2022, they saved their clients and patients $286 billion. But those savings appear to be primarily a mirage, a product of a system where prices have been artificially inflated so that major PBMs and drug companies can boost their profits while taking credit for reducing prices. This is how the system works:

• PBMs sometimes push patients toward drugs with higher out-of-pocket costs, shunning cheaper alternatives.
• They often charge employers and government programs like Medicare multiple times the wholesale price of a drug, keeping most of the difference for themselves. That overcharging goes far beyond the markups pharmacies, like other retailers, typically tack on when they sell products.
• The largest PBMs recently established subsidiaries that harvest billions of dollars in fees from drug companies, money that flows straight to their bottom line and does nothing to reduce health care costs.
• The PBMs, responsible for paying pharmacies on behalf of employers, are driving independent drugstores out of business by not paying them enough to cover their costs. Small pharmacies have little choice but to accept these lowball rates because the largest PBMs control most prescriptions. The disappearance of local pharmacies limits health care access for poorer communities but ultimately enriches the PBMs’ parent companies, which own drugstores or mail-order pharmacies.
• PBMs sometimes delay or even prevent patients from getting their prescriptions. In the worst cases, patients suffer serious health consequences.

Many patients learn about the existence of PBMs only when they have a problem getting medications and spend hours navigating a byzantine system of approvals and restrictions. However, the PBMs’ business practices touch virtually every American family. Even people who don’t take prescription drugs end up paying higher insurance premiums and taxes because of inflated drug costs.

In Washington and state capitals, lawmakers, regulators, and attorneys have suggested that the benefit managers may be inflating drug prices and engaging in anticompetitive behavior.

The Senate bill S127—Pharmacy Benefit Manager Transparency Act of 2023 in 118th Congress (2023-2024—would generally prohibits PBMs from engaging in certain practices when managing prescription drug benefits under a health insurance plan, including charging the plan a different amount than the PBM reimburses the pharmacy. The bill also prohibits PBMs from arbitrarily, unfairly, or deceptively (1) clawing back reimbursement payments or (2) increasing fees or lowering reimbursements to pharmacies to offset changes to federally funded health plans. PBMs are not subject to these prohibitions if they (1) pass along 100% of any price concession or discount to the health plan and (2) disclose specified costs, prices, reimbursements, fees, markups, discounts, and aggregate payments received concerning their PBM services. Further, PBMs must report annually to the Federal Trade Commission (FTC) specific information about payments received from health plans and fees charged to pharmacies. The FTC and state attorneys general are authorized to enforce the bill's provisions.

It would turn out to be a seminal moment, one that would rapidly and radically change the American health care system by further shifting power into the hands of giant conglomerates and away from employers and patients, but dozens of such bills in Congress have come and sat there for years; the lobby of PBMs is indeed influential and why not when they have the resources to lobby. Only the US Congress can do something to alleviate the cost of drugs.

Biosimilars are supposed to reduce the cost to patients substantially, but so far, the prices for biosimilars are typically 15% to 35% lower than their respective brand-name reference biologic. One of the causes of this minor change is the role of PBMs. What good are the biosimilars if the PBM maintains them unaffordable?