Pharmacy benefit managers have become woven into the fabric of the health insurance system, but their role is increasingly being questioned as health plan enrollees, employers and the health plans themselves are not benefiting and may actually end up paying more for their medications.
PBMs, which contract with health plans to reduce prescription drug costs for patients, are increasingly coming under fire for their lack of transparency and allegations that they are profiting handsomely from their arrangements and not affecting costs as promised.
Congress has floated legislation aimed at barring these companies from using certain tactics, while states’ attorneys general have filed lawsuits accusing them of driving rates up and not sharing savings with health plan enrollees.
Critics say that PBMs employ several strategies that increase the financial burden on both patients and health plans.
Tactics that inflate drug costs
Spread pricing — Spread pricing is a practice where PBMs charge health plans more for a medication than they reimburse pharmacies for dispensing it. In many cases, the pharmacies that dispense medications earn slim margins, while PBMs reap significant profits.
Rebates — PBMs negotiate rebates from drug manufacturers in exchange for placing their products in preferred positions on health plan formularies (lists of covered medications). These rebates are often not passed on to patients, creating an incentive for PBMs to prioritize higher-cost drugs that offer larger rebates.
Clawbacks — PBMs also use “clawback” fees to extract additional revenue from pharmacies. Under Medicare Part D, for instance, PBMs can impose “remuneration fees” on pharmacies long after a prescription has been filled. These fees reduce the reimbursement that pharmacies receive. Meanwhile, patients see little benefit from these additional charges.
Steering patients to PBM-owned pharmacies — The country’s largest PBMs own their own mail-order or specialty pharmacies and often pressure patients to use them instead of their preferred local pharmacy. This vertical integration limits competition, raises prices and undermines the independence of community pharmacies.
Legal and legislative challenges
The opaque practices of PBMs have not gone unnoticed. Congress and state legislatures have ramped up efforts to hold PBMs accountable for their role in driving up drug costs.
Several states, including Ohio, Kentucky and Arkansas, have launched investigations into PBM practices, with some states filing lawsuits to recover taxpayer dollars lost to spread pricing and other abuses:
- Ohio Attorney General lawsuit: In 2019, Ohio sued PBMs for overcharging the state Medicaid program through spread pricing. The lawsuit alleged that PBMs billed the state far more than they reimbursed pharmacies, pocketing millions in the process.
- Arkansas Supreme Court case: Arkansas won a major legal battle when the U.S. Supreme Court upheld the state’s right to regulate PBM reimbursement practices in 2020. The ruling empowered other states to introduce similar legislation aimed at curbing PBM abuses.
- New York investigation into clawbacks: New York has investigated how PBMs use clawback fees to exploit pharmacies and reduce reimbursements. The findings revealed systemic overcharges to the state’s Medicaid program.
In Congress, bipartisan efforts are underway to improve PBM transparency. The Pharmacy Benefit Manager Transparency Act seeks to ban spread pricing and ensure that rebates benefit patients rather than PBMs. Meanwhile, the Federal Trade Commission has launched inquiries into anti-competitive PBM practices, signaling a broader regulatory crackdown.
A call for reform
As public and legislative pressure intensifies, the future of PBMs is likely to change.
Transparency, fair reimbursement practices and the elimination of profit-driven tactics are critical to restoring trust and reducing drug costs. Patients, providers and pharmacies are calling for reforms that prioritize accessibility and affordability.
For now, PBMs remain a significant driver of rising drug costs in the U.S., and their practices are an area ripe for reform.