PBMs are profiting at expense of consumers and other stakeholders, group alleges

Pharmacy benefit managers are profiting at the expense of consumers and payers, the PBM Accountability Group charged in a new report.

“Over time, PBMs have found ways to take advantage of a lack of transparency and oversight to increase their profit,” said Sally Greenberg, executive director of the National Consumers League. “This report showcases not only the many ways they do this but also just how much money they’re making from these tactics. We must find policy solutions to bring that money — those savings — back to consumers as intended.”

According to the report, between 2017 and 2019:

• PBM gross profits increased by 12%, from $25 billion to $28 billion.
• Gross profits from PBM-owned mail-order and specialty pharmacies increased by more than 13%, from $8.9 billion to $10.1 billion.
• Gross profits from other sources, including spread pricing, pharmacy fees and clawbacks, fees collected from payers and other non-administrative fees collected from manufacturers grew by nearly 26%, from $8.5 billion to $10.7 billion.

The report discusses the market dynamics and misaligned incentives that the organization believes have resulted in systemwide inefficiencies and allowed PBMs to drive up costs for patients, employers and the overall health care system. PBMs benefit directly from prescription medicine list price growth, leading to misaligned incentives in the system. Several sources of PBM revenue for medicines are linked directly to the list price of the medicine. When the list price of a medicine goes up, the PBM often collects more revenue. These misaligned incentives can drive up costs for plans and patients.

“With PBMs essentially at the center of the U.S. drug supply chain, it begs for scrutiny of how their business practices may exacerbate drug pricing dysfunction and excess,” said Antonio Ciaccia, President of 3 Axis Advisors. ”As PBMs claim to be the only entity working to control drug prices, we believe that analyses like this report can shed light on the incentives and opportunities PBMs have to inflate costs rather than provide savings to plan sponsors and patients.”

Excessive complexity and information asymmetry in the market prevent payers and patients from properly evaluating PBM decisions or drug costs. Pricing complexity and lack of transparency allow PBMs to buy products or services from one stakeholder in the system and sell the same products or services to other stakeholders at higher prices, without the payer understanding the true cost or inflationary nature of the services purchased.

“Against this backdrop, PBMs continue to operate under a relative cloak of secrecy,” Ciaccia added. “The report confirms much of our prior research: While PBMs shift the sources of their revenue, they are also finding significant opportunities for growth along the way – often at the expense of payers, health plans, pharmacies, patients and even manufacturers. Looking ahead, we can expect that PBMs’ revenue sources will continue to evolve in response to changing market dynamics.”

Finally, lack of meaningful PBM industry standards, limited transparency and lack of regulatory oversight enable PBM revenue growth. Many PBM contracting mechanisms and revenue sources lack agreed-upon definitions, providing PBMs with broad discretion to design the terms of a complex contract in their favor.

“These findings highlight the need for consideration of new approaches to realigning PBM incentive structures as part of prescription drug policy discussions,” the report concluded, “including delinking PBM compensation from the list price of medicines, requiring rebates and discounts to be shared with plans and patients at the pharmacy counter, ensuring patient choice of pharmacies, limiting spread pricing within Medicaid, and establishing disclosure requirements for employers and commercial health plans.”