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Title: Blame The Game Or The Players? Regulating Pharmacy Benefit Managers
Pharmacy benefit managers (PBMs) have recently been under fire for their role in the rising costs of prescription medications. Critics argue that these middlemen are to blame for the unsustainable price increases, while others claim that they are merely responding to the incentives created by existing laws and regulations.
As a professor of accounting & health policy, I’d like to shed some light on this debate. It’s essential to recognize that PBMs are not inherently evil; instead, their actions are shaped by the game they play within an imperfect system. In other words, we should be focusing on reforming the rules rather than penalizing individual players.
Firstly, it’s crucial to understand how PBMs operate. They are hired by insurance plan sponsors to manage prescription drug benefits and compete by lowering premiums to gain business. This competition has led to remarkable stability in Medicare Part D premiums, which is far below inflation rates. The PBM business model revolves around being adversarial to drug manufacturers and pharmacies. They exert control over the placement of branded drugs on formularies, influencing sales volumes and revenue streams. Additionally, PBMs determine pharmacy reimbursement amounts.
The profit mechanisms at play are rooted in bad rules. Specifically, Congress established safe harbor protections that exempt drug rebates from federal anti-kickback statutes. This exemption allows PBMs to retain larger rebates for high-priced, high-rebate drugs over low-priced, low-rebate alternatives. These protections foster rebate retention and inflated prices.
Moreover, insurance regulations invite PBMs to exploit spread pricing, which is the difference between cash-pay prices and those involving insurance and PBMs. By exploiting this gap, PBMs generate revenue and increase spending, premiums, and cost-sharing for patients. Some argue that delinking PBM revenue from drug prices and banning spread pricing would benefit pharmacies and align incentives with plan sponsors. However, such provisions overlook the fundamental issues driving rebate retention and spread pricing.
Furthermore, it’s essential to acknowledge that every player in the drug supply chain aims to make a profit. There is no concrete evidence that weakening PBMs would result in positive outcomes for patients, except perhaps when insurance and PBMs are bypassed entirely for certain transactions.
Instead of targeting individual players like PBMs, our new Congress should focus on removing bad rules and improving the game they operate within. This approach could potentially lead to a more efficient and patient-centric system.
Source: www.forbes.com
