Senators place blame on benefit managers
Committee’s report urges state lawmakers to rein in PBMS
A state Senate committee is urging New York to pass laws that would rein in pharmacy benefit managers, an increasingly scrutinized player in the complex market responsible for rising prescription drug costs.
Few people were aware of them until recently, but pharmacy benefit managers were initially formed to help control drug costs and process an upsurge in prescription drug claims in the 1960s. But their role has evolved significantly in the decades since, to the point where industry watchdogs now believe they are actually inflating drug costs for their own profit.
Determined to assess their impact on New York consumers, the state Senate Committee on Investigations and Government Operations partnered with the Senate Committee on Health in January to open an investigation into PBMS and their practices within the state. Their findings, published Monday, paint an unflattering picture of the role PBMS play and explain why they have come to share so much blame with drug companies for America’s rising drug prices.
“Every single day in this state, someone is forced to choose between buying medication that they need and buying groceries for the week,” said Sen. James Skoufis, a Democrat and chair of the Investigations and Government Operations committee. “This is an atrocity and a failure of government oversight. Price hiking has plagued consumers for decades and we are currently at a point where it has gotten out of control.”
The consolidation of PBMS over the years has enabled three companies to control the vast majority of the market. Today, CVS Caremark, Express Scripts Inc. and Optumrx collectively manage the pharmacy benefits of more than 266 million Americans with health insurance.
This isn’t necessarily a bad thing, industry watchers note. The larger the PBM, the more leverage it has to negotiate discounts and rebates with drug manufacturers. Drugmakers will typically agree to lower their prices in exchange for preferred placement on formularies, which are the lists of medicines that health insurers agree to cover as part of a plan.
The problem, the report notes, is that these negotiations occur in secret. PBMS aren’t required to disclose the savings they achieve through this process, which has led to speculation they are pocketing the savings rather than passing them on to clients, pharmacies and patients.
Additionally, because PBMS are partially reimbursed for any rebates they negotiate, critics contend they prioritize high-cost drugs that can earn them higher rebates over similar drugs that are more cost-effective for everyone.
PBMS have also come under fire for their use of spread pricing — a practice where a PBM charges a health plan more for a drug than it reimburses a pharmacy, and profits off the difference.
This practice is particularly problematic, the report notes, when used to profit off of state Medicaid programs. A 2018 study by the Pharmacists Society of the State of New York found that spread pricing on New York’s Medicaid managed care prescriptions cost taxpayers over $300 million.
New York eliminated the use of spread pricing on Medicaid managed care organizations in its most recent state budget, but advocates say more actions are needed to fix the damage caused by PBMS.
“The findings of this investigation support what independent pharmacy owners have long argued: that greedy PBMS are rigging drug prices, elimi
nating patient choice, ripping off taxpayers and destroying neighborhood pharmacies,” said Roger Paganelli, a spokesman for the Fixrx campaign, which pharmacists began last November to push for the elimination of PBMS in Medicaid managed care.
Neighborhood pharmacies say PBMS have cut their reimbursement rates to untenable levels in recent years, and that in some instances those cuts have been followed with offers of buyouts by CVS Caremark’s parent corporation, CVS Health.
PBMS have defended themselves by noting that their biggest critic is the pharmaceutical industry, which is desperate to shift blame off of itself for rising drug costs.
The Pharmaceutical Care Management Association, a group representing the nation’s largest PBMS, asserted Monday that its members will save New York health programs $39.9 billion over the next 10 years.
“This report attempts to undermine the only industry that is reducing prescription drug costs for New York’s employers and consumers,” said PCMA President and CEO JC Scott.
The Senate committee report concluded with a number of recommended actions for lawmakers designed to boost transparency, regulation and accountability within the market, as well as consumer protections.
Many of the recommendations are contained in legislation that is currently before the Legislature.
Additionally, the Office of the State Comptroller on Monday said the report had raised important issues that “warrant further review” and added that it’s in the midst of an audit to determine how PBMS are operating in the state and what they are disclosing.