Pharmaceutical Benefit Managers (PBMs) have a poorly understood role in the U.S. health care system. In general, drug manufacturers sell to wholesalers who then sell to pharmacies. In addition, most, if not all, insurance companies use PBMs to negotiate the best pricing from manufacturers. Drug wholesalers and PBMs provide a service, but this comes at an added cost to the consumer.
The three largest PBMs control 80 percent of the retail drug market in the United States. Some of them, for example CVS, actually own pharmacies and direct their contracted insurance patients to their specific drug stores.
PBMs will argue that they obtain better prices from manufacturers, but these contracts and the supposed benefits are not transparent. Actual contract pricing and rebates are usually closely guarded and not readily available to the public. What is known is that PBM companies, in general, have higher profit margins than drug manufacturers. Setting the retail price of pharmaceuticals is difficult enough without the added expense of PBMs.
On average, it takes a drug manufacturer 10 to 15 years to bring a new drug to market at a cost of $2.5 to $5 billion. Drug wholesalers and pharmaceutical benefit managers may have a role in the drug market, but only if they add value for patients. Their contracts and pricing should be transparent, so consumers can decide the amount of value added.
Because of the opaque nature of PBMs pricing and profit margins, federal officials of both political parties have become very concerned about their contribution to high drug costs. The U.S. House Committee on Oversight and Accountability recently released a report that found that PBMs construct formularies of preferred medicines that direct patients to higher-priced drugs and to their PBM-owned pharmacies.
Congress controls taxpayer spending in the Medicare, Medicaid, and Obamacare insurance programs and will undoubtedly look closely at the added benefit of PBMs, especially the Medicare plan. Congress also has the ability to legislate against PBMs in the private insurance market. With bipartisan support, this legislation may very well be forthcoming.