High drug costs: PBM reforms in Congress may have only ‘modest’ effect at best

Bipartisan legislation aimed at reforming pharmacy benefit manager practices might be high on lawmakers’ list of priorities, but a new report from the Brookings Institution suggests “achieving large reductions in prescription drug costs will require approaches that look beyond PBMs.”

Titled “A brief look at current debates about pharmacy benefit managers,” the analysis provides an overview of the business of PBMs — focusing on drug rebates, pharmacy “spread” pricing, and PBMs’ profits and “vertical” relationships.

The main takeaway/? “[W]hile there are problems in the market for PBM services, they likely have modest effects on the overall affordability of prescription drugs,” write Brookings fellows Matthew Fiedler, Loren Adler, and Richard G. Frank.

Instead, the brief’s authors contend that “placing tighter minimum requirements on the level of coverage plans must offer, as Congress recently did with respect to insulin in Medicare Part D, or creating (or expanding) subsidies for enrollees who select more generous forms of coverage” might be better approaches. Another potential solution would involve improving the risk adjustment systems in the individual, small group, and Medicare markets.

Related: PBMs, the brokers who control drug prices, finally get Washington’s attention

Here are the three factors on which Fiedler, Adler and Frank base their conclusion that PBM reform may not be the panacea lawmakers and others are hoping for.

1. Mandating that PBMs pass 100% of the rebates collected from drug makers to health plans and restricting spread pricing models — as some of the bills under consideration in Congress would do — are “unlikely to save much money for payers since PBMs could likely extract revenue from payers in other ways,” the fellows write. “It might even backfire by weakening PBMs’ incentives to aggressively negotiate prices.”
2. With three firms — CVSCaremark, Express Scripts, andOptumRx — controlling 79% of the PBM market, PBMs have the market power to earn excessive profits, the fellows admit, adding that increased competition could reduce those profits. That said, they contend, “even eliminating all PBM profits would only reduce total drug-related spending by several percentage points. Achieving larger spending reductions would likely require more fundamental market changes such as changing intellectual property protections for drugs or changing how drug prices are regulated.”
3. Because cost-sharing for prescription drugs often is calculated using point-of-sale prices that don’t include some PBM-negotiated discounts — especially rebates — the practice may not have much of an impact on patients’ overall cost-sharing burdens, according to the fellows. “Rather,” they note, “where patients face excessive cost-sharing, the main cause is likely deeper market or regulatory failures, such as consumer difficulties in choosing insurance plans and adverse selection. Addressing those issues is likely to require solutions targeted at those broader problems — such as directly regulating how much cost-sharing insurance plans can impose, subsidizing more generous coverage, or improving risk adjustment systems — not solutions specific to rebates or PBMs.”

Read the entire brief here.