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Legislators Should Act Now to Lower Drug Costs for Patients. Here’s How

As we begin to move past the pandemic and its fallout, the need to lower out-of-pocket costs for patients at the pharmacy counter remains critical. Fortunately, there are steps that can be taken right now to make changes that directly benefit patients. We simply need to address the financial obstacles in the drug supply chain created by little-known corporate middlemen known as pharmacy benefit managers (PBMs). It’s important to address their role in driving up the cost of essential prescription medicines, enriching themselves in the process.

PBMs arose out of the need for health insurers to manage their prescription drug benefits. While first acting as billing administrators, the scope of PBMs has expanded over the years. Today they manage the list of medications available to health plan members – known as drug formularies – and secure prescription drug rebates from manufacturers who need access to drug formularies. Although rebates sound encouraging and in other instances would result in consumers receiving money back when purchasing prescriptions, these “rebates” do nothing of the sort. In reality, PBMs keep these savings to increase their bottom line and effectively limit patient access to medications.

Here’s how: PBMs use their market power to control which drugs get on formularies and which don’t. The three largest PBMs, which control a combined 76 percent of the market, use their size to negotiate discounts and rebates from drug manufacturers by threatening to keep medicines off of formularies[1]. But these discounts and rebates don’t reach patients – the middlemen enrich themselves.

Instead of passing the rebates onto patients, PBMs and health plans keep the rebate dollars. Patients often see little or no discount on their medications at the pharmacy counter, and in some cases, they do not even have access to the medications they need. That’s because PBMs may not include the medication a patient’s doctor prescribed on their health plans drug formulary. Patients who need specific medications must pay a higher price out-of-pocket or go without. When it comes to patients with chronic illness, and for critical and widely used medications like insulin, many are forced to carry a burden of thousands of dollars out of pocket per month.

Prescription drug rebates bring big money to PBMs. In 2019 alone, PBMs in the U.S. negotiated $89.5 billion in rebates.[2] At a time when a third of Americans say they do not fill their prescriptions or have to ration their medications due to cost[3][4], billions in health care dollars that should be helping patients afford their medications and stay well are going directly into corporate PBM pockets.

PBMs and health insurers claim that rebate dollars are used to lower patient premiums, but because there is no transparency around rebates, it’s anyone’s guess if this happens at all.

Now is the time for policymakers to address the role of PBMs in our health care. Policymakers should look to and emulate legislation around the country that is calling for the majority of PBM rebate dollars to go directly back into patient care, including efforts toward lowering the costs of patient medications at the pharmacy counter.

At the state level, an increasing number of legislatures are embracing the “PBM Reverse Auction,” a competitive bidding process for PBMs selected to administer public sector prescription benefits. New Jersey instituted this reverse auction process and saw drug costs reduced by 20 percent, or $2.5 billion, over five years. Maryland and New Hampshire have since enacted similar programs.

Ensuring patients can afford the medications they need so they can get and stay well and participate in their communities and in life must be at the top of the list of priorities. Reforming the role of PBMs in our health care system will be an effective step in this direction and should begin today.