SHEDDING LIGHT ON PHARMACY BENEFIT MANAGER PRACTICES

Erin Trish, in an opinion she co-authored for The Washington Post, published March 28, 2023

Schaeffer Center Co-Director Erin Trish told a U.S. Senate committee on February 16 that opaque pricing by pharmacy benefit managers (PBMs) creates mystery in the drug distribution system, “and where there is mystery, there is margin.”

Trish was part of a panel of witnesses called to testify before the Committee on Commerce, Science and Transportation, which was preparing for a vote on the Pharmacy Benefit Manager Transparency Act recently reintroduced by Sen. Maria Cantwell (D-Wash.) and Sen. Chuck Grassley (R-Iowa). The legislation seeks to shine a light on PBMs and empower the Federal Trade Commission and state attorneys general to stop unfair and deceptive PBM business practices.

PBMs negotiate for lower drug prices on behalf of company health plans, insurers, unions and government entities. But their negotiations are secret—and evidence points to PBMs keeping more of those negotiated discounts for themselves rather than passing them on to patients.

“Prescription drug markets are complicated, and it takes a lot of boxes and arrows to show you even a simplified version of how the dollars and goods flow,” said Trish, an associate professor at the USC Mann School. “While this complexity keeps health economists like me in business, it still remains a mystery to most Americans.”

Transparency and Competition

Lack of transparency and competition in the PBM market dominated the questions posed by senators. Committee Chair Cantwell opened the hearing by focusing on the lack of clear information about where the money goes in the pharmaceutical distribution system. Many of the committee members’ questions pointed to Schaeffer Center work on insulin distribution markets.

“What we have seen is that over time PBMs have, in fact, been effective at lowering the net prices that those insulin manufacturers are receiving,” Trish said. “But what patients care about is how much we are actually spending on these products, and the research showed that has roughly been flat over time.” Instead, the share of expenditures going to intermediaries has increased.

Unlike the world of physicians and hospitals where there are clear negotiations and prices established with insurance companies, the world of PBMs is much more opaque, Trish said.

Impact on Independent and Rural Pharmacies

Independent and rural pharmacies play a vital role in the healthcare system in countless communities. Many senators pointed to the increasing closures of pharmacies and asked about the role vertical consolidation and fees from PBMs play in these closures.

“Our ability to care for our patients is under a very clear threat from harmful PBM practices that are costing our patients and limiting their access to pharmacy services,” said Ryan Oftebro, a pharmacist who owns five community pharmacies in the Seattle area.

“Local pharmacies are absolutely essential to the delivery of quality healthcare,” said Sen. Peter Welch (D-Vt.), who focused his question on what effects PBM clawbacks of direct and indirect reimbursement fees are having on pharmacies.

“PBMs do need tools to effectively negotiate,” Trish said. “But when that happens in a highly opaque and complex market, when PBMs are the ones holding all the information and initiating many of these fees after the fact in ways that do not reflect value, that is a concern and that is a problem.”