The Federal Trade Commission (FTC) announced last week that it would investigate hidden healthcare industry intermediaries, Pharmacy Benefit Managers (PBMs), who helped create a system that compels the rest of the world of health to respect its rules. The FTC will investigate the vertical integration of PBMs and its impact on the price of prescription drugs in America. Crain published a tribune of June 4 affirming that PBMs reduce the cost of prescription drugs and ask the FTC to investigate drug manufacturers instead. The role of pharmacy in costing should be looked at, but we know that PBMs are also part of the problem. PBMs have convinced many people that they reduce the cost of drugs, but closer inspection shows that their profits harm patients.
For example, many people may think of companies like CVS as a neighborhood pharmacy. However, CVS is more than that. They own CVS/Caremark – one of the largest PBMs in the country – as well as Aetna Insurance. Since the insurance company, PBM and the pharmacy are all owned by the same entity – a classic case of vertical integration – one can imagine how the cost of prescription drugs could be influenced by their mutual interests. Moreover, only a handful of PBMs have a monopoly on the entire prescription drug market in the United States. This not only allows them to rig the rules of the game, but also to serve as referees and scorekeepers, making sure they always win.
It is important to note that some PBMs are employing new methods to improve patient care, and there are pharmacists and technicians employed by PBM who are doing good things for patients. Nonetheless, the PBMs with the largest market share still emphasize practices that ignore patient well-being. It is essential to shed light on these practices.
PBMs originated as healthcare claim processors and still have that role today. When you pick up a prescription and hand in your insurance card, the PBM confirms that you are properly insured, tells the pharmacy how much you owe, and alerts your insurance that you have picked up your prescription. These services are useful. However, what if your insurance does not cover the medication you have been prescribed? Who decides what is covered? How is this determined?
PBMs decide which drugs are included in their drug formularies – lists of prescription drugs that are approved for prescription by a particular health insurance policy or health care system. They often have the effect of forcing your doctor or pharmacist to find different medications than what you were originally prescribed that might not work as well for you. Although the formularies are supposedly developed based on efficacy and safety, the main reason drugs are included in a formulary is whether or not they qualify for PBM discounts. The drug manufacturer gives discounts to a PBM when certain brand name drugs are dispensed, which can help reduce the cost of drugs in the absence of a generic option. However, even when a generic drug enters the market, PBMs do not automatically add that lower-cost drug to their formulary.
An example is Adderall; a generic version of Adderall has been around for a decade. However, many insurance plans, including the Michigan Medicaid program, still require the brand name to be dispensed by pharmacists because the discount is so lucrative. Last year alone, the state of Michigan received more than $2 billion in rebates through its Medicaid program drug formulary. Although Michigan Medicaid financial information is public, it is not so easy to trace the benefits of PBM rebates. Who gets the difference when, according to the Food and Drug Administration, generic drugs typically cost 80-85% less than their brand name counterparts? The reimbursement system incentivizes PBMs to keep more expensive drugs on their formulary, forcing patients and insurers to pay more for their health care.
As part of their vertically integrated structure, PBMs can require prescribers to use mail-order pharmacies or only PBM-owned pharmacies, leaving fewer choices for patients. Patients trust their pharmacist to answer all their questions about their medications, but what happens when they get their prescription in the mail? PBMs tell them to call and discuss their medications over the phone, but due to long wait times, many patients end up going to their local pharmacy with questions anyway.
In the years leading up to the pandemic, small businesses exploded with growth. Unfortunately, independent pharmacies have not followed this trend. Independent pharmacies flourished in every town and city in Michigan. However, these family pharmacies have disappeared over the past 20 years, replaced by chain pharmacies or nothing at all. Small businesses are the backbone of communities; they sponsor fundraisers, parades and little leagues. It is these small community pharmacies that are most affected when healthcare companies and unions agree to claim that PBMs are protecting them by forcing them to use mail-order or PBM-owned pharmacies. Since the 1990s, the Michigan Pharmacists Association estimates that more than half of Michigan’s community pharmacies have closed.
PBMs claim they save you money, but at what cost? Could a generic drug option be more cost-effective for individuals — or for the healthcare system as a whole? Why does the consumer not see any of the discounts given to insurers or PBMs? Should patients have access to a neighborhood pharmacist who lives in their community or be forced to call an automated 800 number whenever they have a question about their medications or side effects? Hopefully the FTC investigation will shed some light on these and other questions. PBMs have been operating in the shadows for too long. It’s time for these intermediaries to come out of obscurity for everyone to see their schemes and how they profit from them.
Michael Crowe, Pharm.D., MBA, is president of the Michigan Pharmacists Association