Patients and prescribers have no interaction with pharmacy benefit managers (PBMs), yet these administrators usually take home more than half of the money generated from each Rx filled. They serve as middlemen to “negotiate” with pharmaceutical companies for placement on an insurance formulary. Three PBMs have an oligopoly, accounting for more than 80% of the category: CVS Caremark, Express Scripts and OptumRx.
While these groups claim to help lower drug costs, prices continue to escalate. Why? To capitalize on their position, PBMs will pay and work incestuously with insurance companies, which sometimes even own the PBMs.
How Does the Scheme Work?
These middlemen collect billions of dollars in rebates for prioritizing pharmaceutical agents on tiered formularies. Then, they pay the insurance companies and hospitals, being sure to keep a sizable share for themselves. This pay-to-play approach fails to take drug efficacy or patient needs into account.
If drug companies refuse to pay these fees—which can constitute 60% of the entire cost of the drug—the PBM will exclude them from the formulary entirely or assign them to a lower tier that challenges patient access, leaving overworked physicians to petition for them. This happens despite the fact that pharmaceutical companies are the ones spending billions on research and development for potentially life- and vision-saving treatments and fighting to have these drugs passed by the FDA. Greater transparency of the profit flow within this system would help shed light on its need for reformation.
PBMs Tied to Inflation
Here’s an example to illustrate how a patient may end up paying more for their drugs than the insurance companies do (thanks to PBMs). Let’s say a drug company provides a rebate of 80% on a drug priced at $500; thus, the company keeps $100. The logical move would be to charge $1,000, so that they can take home $200. Although the manufacturer might appear greedy, it’s the PBM receiving the much larger monetary portion of $800. The insurance companies then purchase and upcharge these drugs to get their cut, and so the cycle continues.
United Health Group’s 2022 second quarter revenues grew $9 billion, or 13%, to over $80 billion year-over-year, and its earnings exceeded $7 billion over the last three months. Fewer drugs are covered, making it harder for pharmacies to maintain profitability. Insurance companies create barriers that oblige pharmacies to increase prices, such as by denying drug coverage, mandating prior authorizations or requiring step-edits that order the use of a generic or cheaper drug first. This system often prevents patients from receiving a medication that would be superior or essential to their health.
We Can’t Ignore the Middlemen
The Inflation Reduction Act calls for policy improvements such as allowing Medicare to negotiate prices and help prevent PBMs from charging rebates on a few select drugs. However, the document doesn’t require PBMs to be transparent about what they make.
While it’s true we must address costs at every level, failing to include PBMs in the commercial payer space will continue to stand in the way of reducing inflation of drug prices. If PBMs decide they want an 85% rebate or more, drug companies won’t have the means to lower prices and continue developing drugs that save vision and lives.
Calling for Creative Solutions
If the government isn’t willing to require transparency, other avenues to dodge the middlemen need to be sought out. One company-, RVL Pharmaceuticals, has eliminated PBMs, insurance companies and pharmacies. The maker of Upneeq for ptosis offers a prescription at a set price through RVL Pharmacy, which also ensures the patient doesn’t encounter surprises (e.g., insurance denials, pre-authorizations or inflated costs).
Another creative solution that removes the middleman is allowing doctors to dispense medications from their offices, which is legal for optometrists and ophthalmologists in most states.
It’s time to look at the true reason for inflation in health care. Understanding the behind-the-scenes world of PBMs is essential to help keep medications accessible and affordable.
Dr. Karpecki is the director of Cornea and External Disease for Kentucky Eye Institute, associate professor at KYCO and medical director for the Dry Eye Institutes of Kentucky and Indiana. He is the Chief Clinical Editor for Review of Optometry and chair of the New Technologies & Treatments conferences. A fixture in optometric clinical education, he consults for a wide array of ophthalmic clients, including ones discussed in this article. Dr. Karpecki's full list of disclosures can be found here.