Fat can sometimes cause healthcare issues, but not the extra 10 pounds — which is actually 30 — that some Americans want to lose. It’s the fat in the US healthcare system.
You might immediately think of the $25 aspirin in hospital bills, but that’s a rounding error. It’s the opaque partners of health insurers — known as pharmacy benefit managers (PBMs) — who are sporting the most fat — feasting on $28 billion in profits between 2017 and 2019, according to a recent report by the PBM Accountability Project.
Such bold thievery has not gone unnoticed. The PBMs, holding secret contracts with insurers, as of 2019, were being, or have been, sued by attorneys general in 20 states in the past decade, paying $370 million in fines — which is another rounding error. But it’s not small enough to stop PBMs from fighting back. A 2021 rule from the departments of Health and Human Services and the Department of Labor directed the Internal Revenue Service to require PBMs to make net prices charged to pharmaceutical companies public. Instead, PBMs suede the government and related individuals to block the rule.
Tea USC Leonard D. Schaeffer Center for Health Policy & Economicsin collaboration with the Chief Science Policy Officer of the Global Healthy Living Foundation, Robert Popovian, released a study demonstrating that opaque pricing by PBMs forced consumers to overpay for their generic drugs — the ones that are supposed to cost a few dollars for a 30 -day supply, and the ones that account for an estimated 90% of prescriptions written in the US Whether you’re on Medicare, private insurance or Obamacare, you’re likely getting fleeced by your friendly PBM if you’re taking a generic drug .
After receiving 24,000 letters during a public comment period — the vast majority against PBMs — the Federal Trade Commission (FTC) through a bipartisan agreement announced it will begin a wide-ranging investigation of PBM price-gouging practices.
FTCs involvement means something might happen that will benefit the consumer, so it’s time for a quick review of how PBMs fit into the healthcare system.
At every byzantine stage of US healthcare, someone makes money. With all these hands in the pot looking for a cut of the $3.6 trillion pie (2019 figures), there is sustained upward pressure on prices. Until now, there hasn’t been one egregious standout player since Martin Shkreli took the decades-old antiparasitic generic drug Daraprim and bumped the price from $13.50 to $750 a pill. The key phrase in that last sentence is “until now.”
It’s not hyperbole to suggest that PBMs are the new Martin Shkreli. The scale of legal kickbacks PBMs receive in the form of rebates, fees and other concessions from biopharmaceutical companies and pharmacies easily dwarf Shkreli’s breathtaking profit-seeking.
Through shrewd moves and their empty promise to tame spiraling healthcare costs, PBMs are the metaphorical bridge trolls that charge all who cross. Three of them control 80% of the retail prescription market. There are nearly insurmountable barriers to entry, and employers—PBM’s primary customers—are locked in and typically loathe to change. The three PBMs — Express Scripts, CVS Health and OptumRx — have successfully created a closed market that helps drive drug prices up. After negotiating hard for the cheapest price from pharma, PBMs find ways to charge the retail price to patients. If you’re on Medicare, you pay a 20% copay for prescription drugs — and you don’t know if you’re paying it on the retail price or the net price PBMs enjoy because it’s a secret. The same is true if you are on commercial insurance.
But just as Shkreli ratcheted up the anger directed at him by his lack of contrition during his trial, PBMs have ratcheted up their greed by charging extra to sell to them. If pharma wants its drugs promoted by a PBM to those it insures, it pays a kickback — called a rebate, fee or other non-transparent concession — based on volume. Then we pay our deductibles and co-insurance on a hidden price that may or not reflect what the PBM paid.
Our latest, maybe last, and best hope is the Federal Trade Commission. Chairman Lina Khan took the 24,000 comments seriously. We hope she puts PBMs on a diet. We’ll all be healthier.
Disclosure: Lina Khan was previously an Associate Professor of Law at Columbia Law School. Newsweek Expert Louis Tharp is the triathlon swim coach at Columbia.