Pharmacy Benefit Managers (PBMs) are finally feeling the heat. With President-elect Donald Trump’s recent vow to cut drug costs by eliminating the “middleman,” the stocks of major PBMs took a dive – and for good reason.
For years, these middlemen have quietly operated in the shadows of our healthcare system, contributing to inflated drug prices while raking in massive profits. It’s high time we shed light on this dysfunction and make the case for a more competitive, transparent environment.
What is a PBM, Anyway?
PBMs act as intermediaries between insurers, pharmacies, and drug manufacturers. They negotiate prices, decide which drugs are covered by insurance plans (via formularies), and determine how much pharmacies are reimbursed for the medications they dispense. Sounds helpful, right? In theory, PBMs are supposed to control costs and ensure patients get affordable medications.
In practice, however, PBMs have become some of the most profitable segments of major insurers. The top three – CVS Caremark (owned by CVS Health), Express Scripts (owned by Cigna), and OptumRx (owned by UnitedHealth Group) – collectively dominate the market and operate with a level of opacity that makes it difficult for plan sponsors, patients, and even policymakers to understand the true cost of prescriptions.
Spread Pricing: A Hidden Profit Engine
One of the most insidious practices PBMs engage in is spread pricing. In simple terms, PBMs charge health plans more for a drug than they pay the pharmacy and keep the difference (the “spread”) as profit. This practice creates misaligned incentives, where PBMs are motivated to keep spreads wide rather than passing savings onto employers and patients. This wasteful practice has been a silent profit engine for PBMs, driving up costs for everyone except the middlemen themselves.
Rebate Manipulation: Gaming the System
PBMs also manipulate drug rebates – discounts provided by pharmaceutical manufacturers – to their advantage. Instead of passing these rebates directly to patients, PBMs often keep a significant portion, adding to their bottom line while patients struggle with high out-of-pocket costs. This rebate game incentivizes PBMs to favor higher-priced drugs (which come with bigger rebates) over more affordable alternatives. The result? A healthcare system that prioritizes profit over patient wellbeing.
The Consolidation Conundrum
The healthcare industry’s consolidation has only made things worse. As insurers acquire PBMs, the conflicts of interest multiply. Major players like CVS Health, Cigna, and UnitedHealth now control the entire chain, from insurance to pharmacy services to PBM operations. This monopolization creates an environment where transparency is minimal, competition is stifled, and patients pay the price.
Transparency and Accountability: The Path Forward
Transparency is the antidote to these problems. Initiatives like RxDC reporting, which require employer-sponsored health plans to disclose prescription drug costs and rebates, are steps in the right direction. But reporting alone isn’t enough. We need accountability and a commitment to reform. Removing middlemen from the equation will foster genuine competition and drive down costs, but it won’t happen without resistance from lobbyists and those profiting off the current system.
We at BenefitsDNA remain hopeful that the new administration will champion substantial change. The bipartisan efforts led by Senators Elizabeth Warren and Josh Hawley to separate PBMs from insurers are encouraging. However, without strong political will and public pressure, meaningful reform could stall.
A Few PBMs Doing It Right
It’s worth noting that not all PBMs are created equal. While the big players exploit the system, there are a handful of independent PBMs who operate with transparency, integrity, and a focus on reducing costs for employers and patients. We have a short list of these trusted PBMs and are happy to share it with those who request it.
The Bottom Line
PBMs have profited from an opaque, inefficient system for far too long. By cutting out the middlemen, embracing transparency, and holding stakeholders accountable, we can create a healthcare environment where costs are lower, competition thrives, and patients benefit. It’s a pill we’re all ready to swallow.
