Middlemen Are Not Passing On All Drug Discounts Intended For Patients
Over 400,000 Americans with cancer suffer from a second disease — “financial toxicity.” The symptoms include missed mortgage and rent payments, raided retirement accounts and decisions about whether to take medicines as prescribed or ration them to save money. Such choices can be deadly.
Given these grim choices, it’s no surprise that more than three-quarters of Americans think that prescription drugs costs are “unreasonable.” They largely blame pharmaceutical companies. But the story is more complex — pharmacy benefit managers and big chain pharmacies play a key role in driving up pharmaceutical prices.
PBMs work as the middlemen in the drug market, negotiating drug prices with pharmaceutical companies on behalf of 266 million Americans’ employer-sponsored and Medicare insurance plans. They determine which medicines are covered by plans at which co-payment or co-insurance levels.
In the past five years, four PBMs have secured a near-monopoly, together accounting for 80% of the market. In theory, their bulk buying power gives them leverage to extract big discounts from drug makers. And they do — the problem is that they increasingly keep the lion’s share of discounts rather than pass them on to customers.
“PBMs used to be the sheriff,” explained the executive director of the Community Oncology Alliance. “But they’ve become sheriff, jury, judge and executioner, all wrapped into one.”
The negotiation process is opaque, due to PBMs’ vested interest in keeping pharmaceutical costs high. Take, for instance, Sovaldi, the breakthrough hepatitis C cure made by Gilead Sciences that retails for $85,000. PBMs have negotiated discounts that reduce that price by tens of thousands of dollars.
Why doesn’t Gilead just reduce the list price off the bat? An executive at Gilead recently said that if it slashed Sovaldi’s list price by tens of thousands of dollars, the middlemen would “rip up our contract” and refuse to include the drug in its formulary.
Consider the viewpoint of the PBM. It’d prefer a bigger rebate off a higher list price than a small rebate off a much lower price. Because the rebates are hidden, insurers and patients have little idea of the amount PBMs keep for themselves.
PBMs also have charged pharmacies and clinics huge “direct and indirect remuneration” fees, which are determined with minimal transparency. In recent years, the fees for cancer drugs have increased from 3% of the drug’s cost to 11%, with the added cost ultimately passed on to patients.