Pharmacy benefit managers are intermediaries of the healthcare system, charged with managing prescription drug distribution on behalf of health insurers, employers, and other plan sponsors. As third-party administrators, they can negotiate prices with drug manufacturers, contract with commercial and governmental health plans, and ensure the efficient distribution of medications, including anesthetics. Pharmacy benefit managers can play a critical role in determining which pharmaceutical agents are available to which insurance plans, influencing access and affordability for both healthcare organizations and individual patients. In theory, their role streamlines the process of medication approval and reimbursement with the primary goal of optimizing therapeutic outcomes. However, in practice, various policies and regulations may complicate the situation; thus, understanding what pharmacy benefit managers do and why they are currently facing heightened public scrutiny are of paramount importance.
Prescription drug rebates, which often make up more than 40% of a drug’s list price, are paid to pharmacy benefit managers by manufacturers who want their drugs to be included in formularies. The size of these rebates varies depending on the degree of competition the drug faces and the placement of drugs on the formulary, making it difficult to assess average rebate prices in the commercial market.1
While many pharmacy benefit managers claim more than 90% of the rebates are passed onto health plans, smaller payers and employers report not receiving this amount. In 2018, a report about Medicaid in Ohio found that CVS Caremark and OptumRX, two of the three largest pharmacy benefit managers, billed health plans $2.5 billion while only reimbursing pharmacies $2.3 billion, pocketing the difference.2 Contracts with manufacturers often enforce confidentiality about drug-specific rebates; therefore, commercial plans have little ability to assess cost-savings for their members. Another point of concern lies in how pharmacy benefit managers are paid. They are being accused of prioritizing high-priced drugs or on-patent, brand-name drugs over more cost-effective and potentially generic drugs. While this move increases their revenue, it also means higher costs for patients, especially those without high-deductible health plans.3
As pharmacy benefit managers have been criticized for a lack of transparency in their contracts, corrupt processes for rebate allocation, and limited competition in the industry, policies have been enacted at both state and federal levels. As of mid-2023, four bills are pending in Congress, which will target business practices related to mandatory pass-through of manufacturer rebates to plan sponsors, prohibition of spread pricing (charging health plans more than is paid to
pharmacies, creating profit), prohibition of retroactive price changes, and removal of the link between pharmacy benefit managers and drug list prices.4 While these new business models may positively change the dynamics of the industry, the approaches are subject to two major challenges. First, business models may simply adapt to regulatory changes, circumventing the restrictions and minimizing or neutralizing the intended effects. This has been observed in several other industries, including the expansion of shadow banking entities following the passage of the Dodd-Frank Act, as well as market consolidation of media companies following the Telecommunications Act of 1996. Second, even if pharmacy benefit managers were to completely abide by the imposed legislation, it is unclear that plan sponsors and patients would benefit, as opposed to other players in the pharmaceutical supply chain. These measures may simply shift that power to pharmaceutical manufacturers, wholesalers, and pharmacies.4
Pharmacy benefit managers play a critical role in the healthcare industry, particularly in managing prescription drug costs, which directly impacts several medical specialties, including anesthesia. As anesthesiology involves the use of specialized medications, negotiation strategies can influence the availability and cost of these life-changing drugs. Since the industry currently faces a lot of criticism, legislation is being pushed to address some of the primary challenges.5 However, what the long-term solution is remains to be seen.
References
1. Seeley, Elizabeth, and Aaron S. Kesselheim. “Pharmacy Benefit Managers: Practices, Controversies, and What Lies Ahead.” Issue Brief (Commonwealth Fund), vol. 2019, Mar. 2019, pp. 1–11.
2. Carrier, Michael A., A Six-Step Solution To The PBM Problem. 30 Aug. 2018. https://doi.org/10.1377/forefront.20180823.383881
3. Warraich, Haider J. “A Costly PBM Trick: Set Lower Copays for Expensive Brand-Name Drugs than for Generics.” STAT, 12 Mar. 2018, https://www.statnews.com/2018/03/12/pbm-copays-brand-name-drugs-generics/
4. Mattingly, T. Joseph, II, et al. “Pharmacy Benefit Managers: History, Business Practices, Economics, and Policy.” JAMA Health Forum, vol. 4, no. 11, Nov. 2023, p. e233804. https://doi.org/10.1001/jamahealthforum.2023.3804
5. Drettwan, Jacob J., and Andrea L. Kjos. “An Ethical Analysis of Pharmacy Benefit Manager (PBM) Practices.” Pharmacy, vol. 7, no. 2, June 2019, p. 65. https://doi.org/10.3390/pharmacy7020065
