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December 20 2017

Health care experts call for more transparency into PBMs

Patient Daily
featuring Hadley Heath

Pharmacy benefit managers (PBMs), companies that act as middlemen in the prescription drug supply chain, posted revenues totaling more than $260 billion last year.

But a diverse range of people, politicians, advocates and health experts, are asking hard questions about just exactly how this staggering amount of money was made and what added value they brought to the supply of drugs from pharmaceutical companies to the consumer.

Many are calling for much greater transparency for PBMs in a market that one expert described as the most opaque he has studied in his nearly 50 years as an economist.

"The complexity of this market, and the opacity, is remarkable," Charles Phelps, a former professor and provost emeritus at the University of Rochester and a member of the study committee for a recent report by the National Academies of Sciences, Engineering and Medicine (NASEM), told Patient Daily. "This is a market that is more opaque than any other I have seen since I began studying economics in the 1960s."

Three companies – Express Scripts, Optima, which is owned by UnitedHealth and CVS Caremark – control approximately 80 percent of the market. PBMs essentially act as middlemen, negotiating drug prices with manufacturers and administering delivery for insurance plans, large employers and Medicare Part D.

But their role is often unseen, even though the total revenue generated by the three PBMs was approximately $260 billion. 

"That is precisely why we call for greater transparency because we have no idea where the money is going in the chain," said Phelps, one of the authors of the report "Making Medicines Affordable: A National Imperative," recently published by the National Academies of Sciences, Engineering, and Medicine (NASEM).

The Senate Health, Education, Labor and Pensions Committee held a hearing on drug pricing earlier this week and examined the NASEM report more closely. 

The recommendation in the report is that information should be disclosed on the average net volume of and prices paid for drugs across each active sales channel.

Phelps rejected the argument made by PBMs that they cannot reveal information because it is either proprietary or that it would lead to higher prices if details of negotiations are known.

"Give it to the feds, then they can aggregate it and at the same mask private data," Phelps said.

Overall, the NASEM report has its critics, with claims it leans far too heavily on arguing for more regulation and legislation, including advocating allowing the Department of Health and Human Services to directly negotiate drug prices for Medicare, Medicaid and Veterans Affairs.

But there is broad agreement that greater transparency is needed, particularly as it relates to PBMs.

"In my opinion, they bring no value to the system and only add cost," Rep. Buddy Carter (R-GA) told Patient Daily. Carter is the only pharmacist in Congress and has strong views on the role of PBMs.

He noted that when PBMs first began to ease themselves into the chain, it was with the promise that their negotiating powers would keep a lid on drug price increase.

"How is that working out for you?" Carter asked. "Drug prices have gone up more than 1,500 percent since then. If PBMs were doing their job we would not be talking about this."

Carter said consumers are not reaping the benefits of those deals made between the middleman and big pharma, adding the PBMs are believed to be pocketing not just part of the rebates negotiated but also a percentage of the drug company's list price. 

Carter said PBM representatives gave testimony last week before the House Sub-Committee on Health.

"They said they were all in favor of transparency," Carter said. Yet, he added, PBMs impose gag clauses and confidentiality agreements in their contracts with pharmacists so they can’t tell consumers when they’d save money by paying out-of-pocket.

Mark Merritt, president of Pharmaceutical Care Management Association (PCMA), the PBM industry group, told the committee in a prepared statement: “The bottom line is that the original list price of a drug is solely determined and controlled by the drug company – not the market – and it drives the entire pricing process.” 

Other recommendations included using federal agencies to deter manufacturers from paying other producers for the delayed entry into the market, revising the Orphan Drug Act designed to foster the development of drugs for rare conditions. 

But Phelps said it is not recommended that the brand drugs, those still under patent, should be re-imported. However, most of the authors, a mix of health experts, economists and business people, believe there is room for the importation of generic drugs if found by the Food and Drug Administration to be safe and effective.

Former U.S. Sen. Tom Coburn, now a senior fellow with the Manhattan Institute, told Patient Daily that he agrees with some of the recommendations but believes others are unconstitutional.

He thinks that consumers deserve, and should be granted, more transparency in the market. Between the different players and their deals made along the chain, rebates, percentages made along the way and co-pays, a customer might not know how much drugs actually cost.

Coburn argues that new drugs should be approved faster and believes the 21st Century Cures Act, signed into law a year ago, will help greatly when fully implemented.

He cited as an example a drug he takes, which he believes costs $300 for 90 days. Yet, he, or his insurance company, pay $70, which he said should be the type of discount given to someone who cannot afford the drug.

"Price discovery is what is needed, then we can see the bad actors – publish your prices," he said. Coburn believes that as consumers are faced with much higher deductibles and co-pays, they will become much price sensitive and want more information.

Hadley Heath Manning, director of policy with the Independent Women's Forum, also weighed in on transparency, arguing the system is "very opaque."

Customers should be demanding more, Health Manning told Patient Daily, though she noted there are so many parties involved that it is difficult for consumers to have "more skin in the game."

Otherwise, she said, "more regulation would do more harm than good. There are long-term consequences, less capital and less innovation."

To combine Medicare with Medicaid and the VA in a single bargaining block would make a "huge difference," and not a positive one as the government could end up paying below market price and chill drug manufacturers.

"My overall take (on the report) was skeptical," Heath Manning said. "There was a minority report that had an alternative view and that should have been considered more in the full report." 

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IIndependent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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