Granite Staters struggle to pay for prescriptions, while middlemen rake in huge profits
HEALTH CARE
Eighteen years ago, I had the opportunity to work on a new Wall Street analyst team covering a new type of company: pharmacy benefit managers, or PBMs. I knew investors stood to make a lot of money, because the PBMs themselves were in the position to take in a lot of cash for coordinating the flow of drugs.
Ultimately, I declined. I couldn’t bring myself to switch from helping investors find exciting new medical devices that saved or improved lives to leading a lucrative, yet clearly misguided profit system that consistently put patients at a disadvantage.
The early promise of PBMs was to negotiate discounts with drug manufacturers and then work with pharmacies and insurance companies to ensure that pharmacies get reimbursed for distributing drugs and insurance companies provide reliable access to drugs. This was sold as a way to lower out-of-pocket prices for patients, but I knew the siren song of easy money would be hard to resist.
I walked away because, while money managers could do well by investing in PBMs, I wasn’t sold on the idea that they would also be doing good. Unfortunately, I was proven right.
Today, three companies control 80% of the prescription drug market and work up and down the supply chain to control the flow of drugs. Optum-Rx, CVS and Express Scripts own pharmacies and insurance companies, which makes it easier for them to negotiate rebates that help their bottom line and squeeze out mom-and-pop pharmacies.
The discounts that PBMs negotiate with manufacturers were intended to be passed along to patients, but, as is so often the case in government benevolence, the big players get to the table before John Q Public, and he is lucky to be left with scraps. In reality, he is left with the bill.
Instead of passing along savings to patients, PBMs are responding to incentives that make them rich by pushing higher-cost drugs over lower-priced options and pocketing the difference. PBMs can make more by charging a full co-pay, excluding lower-priced drugs from lists that insurance will cover, and pocketing rebates.
Changing the incentives for PBMs will do more than just keep drugs affordable, it will also keep drugs available.
Our federal delegation, Congress and GOP presidential candidates should be shouting from the mountain tops that this needs to be fixed ASAP. We need to better align PBMs with the originally stated goal of lowering the cost of prescription drugs. And we need to mandate that PBMs pass along these rebate savings to patients, or take away their government-provided advantages. We need to ensure that PBM profits aren’t directly tied to the price of medicines (in both Medicare programs and the commercial marketplace).
It gets more nuanced from there, but I hope that we can all agree that money in the health care space should be redirected to benefit patients in the form of lower costs and new lifesaving and live-improving care, not enriching middlemen.
The House Energy and Commerce Committee made significant progress on PBM reform legislation this month, and I’d encourage them to keep moving forward by including them in year-end packages. We must prioritize doing good over doing well, and PBM reform fits that bill.
Erica Layon currently serves as vice chairman of the Health, Human Services and Elderly Affairs Committee of the New Hampshire House of Representatives. She has an S.B. in economics from MIT, and worked as a medical device analyst on Wall Street for over a decade.
