Through its blueprint to reduce drug spending—called American Patients First—the administration has invited public comment on the role and responsibilities of pharmacy benefit managers, or PBMs. These are the mega-corporations that health insurers hire to administer their drug benefits.
Officials surely got an earful. In their role as go-betweens, PBMs negotiate big discounts from drugmakers. But rather than passing those savings on to insurers and consumers, they have found ways to pocket many of the proceeds for themselves.
The sums involved are huge. If just one-third of the total discounts PBMs negotiate for Medicare’s drug benefit were passed on to patients at the pharmacy counter, seniors and others in Medicare would have nearly $20 billion more in their pockets over the next decade. Indeed, the top three PBMs—Express Scripts, CVS Caremark, and OptumRx, who together control 75% of the market—collected more than $10 billion in profits in 2015.
How are PBMs generating such profits?
A recently leaked contract reveals the sordid details of the tactics PBMs use to secure savings for themselves.
First, PBMs tend to hog rebates. Drug manufacturers offer PBMs a percentage discount or negotiated “rebate” off a drug’s list price. In exchange, the PBM agrees to cover the drug under its affiliated insurance plans, thus making it available to more consumers.
The majority of rebate dollars should, in theory, flow back to health plans. Then the plans can pass those savings to patients in the form of lower premiums or out-of-pocket expenses.