Acting as intermediaries between insurers, manufacturers, and pharmacies, pharmacy benefit managers (PBMs) play a uniquely central role in the prescription drug supply chain, handling everything from negotiating prices with drug manufacturers and setting patient copay amounts to determining which drugs are covered by which insurers.
Yet, despite their undeniable significance, PBMs and their control over drug out-of-pocket costs have managed to go largely unregulated, allowing them to quietly influence drug prices, the amount patients pay for their prescriptions, and which drugs are available and accessible to the public. However, the Federal Trade Commission, Congress, and state legislatures have started paying attention to the considerable role these middlemen play.
The three biggest PBMs —Caremark Rx, Express Scripts (ESI), and OptumRx— control nearly 80% of the prescription drug market, thus holding patients hostage with their abusive and unregulated practices. This vertical integration allows the PBM to control what medication patients can take (through formulary construction), when they can take these medications (through utilization management), where they can purchase their medications (through pharmacy networks), and how much they must pay for their drugs (through cost-sharing). Currently, all of these decision points (what, when, where, and how) are leveraged to maximize PBM profits rather than providing the patient with the best care at the greatest savings. This consolidated healthcare system is not good for patients, and it ultimately decreases competition and increases costs for the federal government.
PBMs create access issues for patients, directing them to higher priced drugs that make the biggest profit for the PBM. Formulary design decisions are disastrous for patients who pay coinsurance because their out-of-pocket cost is based on list price of the medication – not what the PBM actually pays. In doing so, patients pay the inflated list price for their prescription medications instead of the discounted price that is negotiated by PBMs. The rebate that is collected by the PBM is then pocketed. This is a continuous cycle that puts PBM profits over drug efficacy, safety, access, and affordability for patients.
PBMs sit among the top of Forbes Fortune 500 (2024), illustrating their considerable profit and related influence on the industry, supply chain, and market overall:
In comparison, the top three drug manufacturers are considerably lower on the list, including Johnson & Johnson (#42), Merck (#67) and Pfizer (#69).
CSRO advocates for PBM reforms at the state and federal level that enforce true transparency, accountability, and oversight.
Breaking the Connection between PBM Compensation and Drug Prices
CSRO supports policies that break the connection between the PBM’s compensation and the list price of the drug. This disincentivizes PBMs from preferring higher priced medications because they no longer benefit from the size of the rebate. Instead, PBMs are reimbursed on a flat compensation fee – a model currently used by several more transparent PBMs. This approach would improve program stewardship and beneficiary access to affordable, clinically driven coverage. In the employer market, innovative PBMs are successfully using this model and provide fully transparent compensation models that offer savings to employers and patients.
Passing Manufacturer Rebates Directly onto Patients
PBMs claim to negotiate aggressive rebates and discounts that supposedly benefit employers and help keep premiums down. However, patients rarely see the direct benefit of those “savings.” In reality, list prices seem to be fictional for everyone except the patient, whose cost-sharing is often based on the full price. It’s time for rebates and discounts to benefit the patient – not the PBMs, especially as many patients are enrolled in health insurance plans that utilize high deductibles or significant cost sharing.
CSRO supports legislation that requires manufacturer rebates to bypass the PBM and require rebates to go directly to the patient. Given the immense vertical integration of PBMs and health insurance companies, policies that allow rebates to go directly to the health plan may have little impact in reducing patient expenses. Instead, rebates that go directly to the patient allow patients to see immediate savings at the point of sale. By reducing the patient’s out-of-pocket cost, patients can continue to take their prescribed medications and improve adherence and health outcomes.
To support these solutions, CSRO created the Alliance for Transparent and Affordable Prescriptions (ATAP) and is a steering member of the Coalition for PBM Reform, as well as a member of the PBM Accountability Project. Outside of those groups, CSRO drives its own PBM reform campaigns through grassroots advocacy efforts and our in-house expert, Vice President of Advocacy & Government Affairs Dr. Madelaine Feldman. She has testified in numerous state and federal committee hearings as a leading expert in formulary construction, drug pricing reform, and the role PBMs play within the drug supply chain.
Visit our Legislative Map Tool to read about current PBM reform laws or legislation in your state. You can send letters in support of pending legislation and find educational materials.
