PBMs are bureaucratic, non-productive elements within the pharmaceutical supply chain. They drive up prices and siphon money away from R&D for new and improved treatments. PBMs retain much of the savings they should be passing on to patients, creating little value in the process.
Between 2013 and 2020, brand medicine revenue made by insurers, PBMs and government programs tripled from $50 billion to $141.1 billion. Victoria Ford, President and CEO of the Texas Healthcare and Bioscience Institute, said: “The fact that middlemen, including PBMs, are driving up the cost that patients ultimately shoulder should serve as a wake-up call to all of us.”
I agree with Ford’s assessment. PBMs are hurting patients, especially those with disabilities because they often have conditions that require more – and sometimes more expensive – medications. PBMs are incentivized by and prefer higher drug list prices because that gives them larger rebates from manufacturers. And – as quintessential middlemen – PBMs don’t actually “make” anything.
According to a Berkeley Research Group report, more than half of every $1 spent on brand medicines in 2020 went to payers, intermediaries, providers and other non-consumer stakeholders. This is staggering. Biopharmaceutical companies—the firms that assume the lion’s share of risk and investment in these lifesaving treatments and actually produce the medicines—received less than half (49.5%) of all revenue for the drugs they developed. Moreover, some insulin manufacturers have responded to market forces by voluntarily offering lower out-of-pocket cost options for diabetes patients.
PBMs are pocketing revenue that biopharmaceutical companies could reinvest, undermining their power to innovate. But PBMs aren’t the sole contributors to this crisis. Government programs can also cause more harm than good. Case in point: the 340B drug pricing program.
The American Hospital Association describes Section 340B of the Public Health Service Act as a program that “requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounted prices to health care organizations that care for many uninsured and low-income patients.” To improve access by lowering drug costs for those least able to pay is clearly a worthy goal. But those discounts aren’t being passed along to patients. Instead, PBMs co-opt them to boost their bottom lines.
From 2013 to 2020, the 340B program directly resulted in a 1,100% increase in the amount of money some hospitals and middlemen received from brand medicine sales. The result: America’s most vulnerable patients—those with disabilities—pay the price by receiving fewer medicines at higher costs because of PBMs’ diversion of necessary resources away from R&D efforts, reinforcing this destructive cycle.
Texans with disabilities require prescription medications to live, and to live well. Our convoluted drug pricing system is in dire need of reform to lower consumer costs and to allow the actual makers of medicines to retain more of a return on investment, paving the way for further innovation.
As our leaders in Washington work to reduce patients’ out-of-pocket drug costs at the pharmacy counter, PBM reform must be a key part of any drug pricing policies under consideration.