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American Focus > Blog > Health and Wellness > Blame The Game Or The Players? Regulating Pharmacy Benefit Managers
Health and Wellness

Blame The Game Or The Players? Regulating Pharmacy Benefit Managers

Last updated: December 31, 2024 8:28 pm
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Blame The Game Or The Players? Regulating Pharmacy Benefit Managers
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Pharmacy benefit managers (PBMs) have been under scrutiny lately, with attention from Congress, the media, and the public. The original 1,547-page Continuing Resolution bill contained various provisions aimed at regulating PBMs. The New York Times has even dedicated a series called “The Middlemen” to criticize these entities, highlighting their controversial practices. Even tech mogul Elon Musk raised the question, “What is a PBM?” to his massive following on X.

PBMs are hired by insurance plan sponsors to manage prescription drug benefits, competing by lowering premiums to attract more business. One significant achievement attributed to PBMs is the remarkable stability in the average annual growth rate of Medicare Part D premiums, which was only 0.7% from 2010 to 2023, well below inflation rates.

The business model of PBMs positions them as adversaries to drug manufacturers and pharmacies. They influence the revenues of branded drug manufacturers by controlling the placement of drugs on formularies, impacting sales volumes. Additionally, PBMs affect the revenues of pharmacies by determining reimbursement amounts.

PBMs make money from branded drugs through rebate retention, thanks to safe harbor protections that exempt drug rebates from anti-kickback laws. This incentivizes PBMs to favor high-list-price-high-rebate drugs over lower-priced alternatives, leading to rising list prices and high patient cost sharing.

On the other hand, PBMs profit from generic drugs through spread pricing, charging plan sponsors a higher price while paying pharmacies a lower one. This practice, akin to intermediaries in other industries, contributes to higher spending, premiums, and cost sharing, as well as lower reimbursements to pharmacies.

While provisions in the original Continuing Resolution bill aimed to regulate PBMs and align incentives, they failed to address the root causes of rebate retention and spread pricing. Some of these provisions could potentially weaken PBMs’ ability to contain premiums, leading to higher costs for plan sponsors and patients.

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Ultimately, the focus should be on addressing the underlying issues in the PBM industry rather than implementing quick fixes. The new Congress, set to take office soon, must prioritize removing harmful regulations to improve the PBM landscape for the benefit of all stakeholders.

TAGGED:benefitBlameGameManagersPharmacyPlayersRegulating
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