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Driving down drug costs starts with PBM transparency


By Nate Scherer, American Consumer Institute

Prescription drug affordability is a tremendously important issue to the American public. Its importance is only expanding as Americans grow older and are prescribed more medications to treat medical conditions. Over 70 percent of American adults now report taking at least one medication daily, with 24 percent reporting they take four or more medications. Together, they purchase over six billion drugs each year in the United States.

The price of these prescription drugs continues to climb, stretching Americans’ budgets and putting millions of peoples’ wellbeing in jeopardy. Since 2014, drug prices have increased 35 percent, while the cost of all other items and services has increased only 19 percent. Americans now spend more than $1,500 annually on drugs, an amount substantially higher than that which citizens of other developed countries spend.

Lawmakers have narrowed down a suspect responsible for this abnormal increase in prescription drug costs. A growing body of research suggests that Pharmacy Benefit Managers (PBMs) are largely to blame. These industry middlemen negotiate drug prices and manage prescription drug benefits for various health plan payers. Originally created in the early 1960s to process claims and negotiate lower prices with drug makers, PBMs have, over time, lost sight of this original mission. They now increasingly leverage their position as third-party administrators to enrich themselves at the expense of everyone else, including consumers who, researchers say, routinely overpay for drugs.

Now lawmakers are taking action. Last month, Sen. Maria Cantwell (D-WA) introduced SB 127. Known as the Pharmacy Benefit Manager Transparency Act of 2023, SB 127 is designed to improve PBM transparency and crack down on various questionable business practices PBMs employ that drive up drug costs. SB 127 does this by prohibiting PBMs from engaging in certain practices deemed “unfair or deceptive,” such as making it unlawful to report “false information,” implementing new “transparency” measures and “whistleblower protections” and establishing appropriate enforcement criteria.

Many of the business practices that SB 127 would prohibit strike at the heart of PBM abuses. For instance, SB 127 would specifically prohibit PBMs, or affiliated entities, from charging a “health plan or payer a different amount” for a prescription drug, than the amount the PBM “reimburses a pharmacy for that same drug” and then keeping the difference. This practice is known as spread pricing, and PBMs increasingly rely upon it to generate easy money for themselves while contributing nothing for consumers and the healthcare system in return. Researchers have consistently linked spread pricing to higher consumer prices, and it is also believed to be responsible for driving some independent pharmacies out of business, contributing to the rise of pharmacy deserts in rural America.

SB 127 would prohibit prescription drug overpayments, better known as clawbacks, which occur when “commercially insured patients’ copayments” exceed the value of a prescribed drug. PBMs frequently use clawbacks to collect extra money from pharmacies which are not permitted to tell patients that they could save money by paying in cash rather than through their insurance. Research suggests that copays are more expensive than drugs 23 percent of the time, with patients overpaying for drugs by an average of $7.69.

Under SB 127, PBMs would also no longer be able to “increase fees or lower reimbursement to a pharmacy in order to offset reimbursement changes” or make changes to insurer formularies— lists of generic and brand-name drugs covered by prescription drug plans — that are likely to increase consumer costs without first providing Congress with a detailed “explanation for the reason why.” PBMs have frequently abused their power over formulary design to exclude generic medications from the list of covered medications, because manufacturers often provide more lucrative rebates on brand-name drugs. SB 127 would bring attention to this manipulative practice.

Other significant reforms include establishing various new transparency measures for PBMs. SB 127 would require PBMs to publish annual reports on their financial operations, specifically as they relate to payment and reimbursement transactions. Measures like this are necessary for establishing a better system of oversight.

Each of these measures would go a long way toward reining in PBMs. While other government action, like the ongoing Federal Trade Commission (FTC) inquiry into PBM business practices, is important for raising public awareness, concrete actions like those included in SB 127 are necessary for achieving genuine reform. Americans should not have to spend a disproportionate share of their monthly income on prescription drugs, nor worry about whether their copay will cost more than their medication.

Americans should be able to confidently acquire the medications they need at prices they can afford. Establishing transparency and accountability measures for PBMs must be part of the solution.


Nate Scherer is a Policy Analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us onwww.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.