Stock via Getty Images.

Pharmacy benefit managers are claiming drug prices will go up if Gov. Ralph Northam signs two bills (HB1290 and SB251) that overwhelmingly passed both General Assembly houses. These identical bills would license PBMs under the Bureau of Insurance and address some of their business practices. The most interesting part of the PBMs’ claim is that no one knows what the real drug costs are — except the PBMs.

And they’re not telling.

They’re not telling insurers, companies, patients, regulators or anyone else. PBMs claim these data are “proprietary”.

As middlemen in the drug supply chain, they collect monies from everyone. They collect rebates and other discounts from drug manufacturers and decide coinsurance and copayment rates for patients. They arrange profitable (for them) payment rates with pharmacies and wholesalers. Then they report how much money they are “saving.” In fact, they “saved” so much money that in 2017 their total revenues were more than the top 10 drug manufacturers combined ($350-400 billion vs. $300 billion).

While both are staggering numbers, remember that the PBMs produce nothing and do nothing except control the drug supply chain. Yet they made more money than the companies that actually produced the medications. And PBMs use this economic power as leverage to ensure their “savings” continue.

Saving money for whom?

It appears most of these claimed  “savings” remain within the PBM, including rebates as well as a myriad of other fees entirely based upon the drug’s list price. But, due to the lack of transparency, we have no idea how much is “saved” and who is receiving these “savings”.  Anthem recently fired and sued ExpresScripts for $15 billion for not passing on all of the “savings” received in rebates from manufacturers (despite being contracted to do so). There are other reports of PBMs retaining more of the price concessions they negotiate with drug manufacturers by redefining these monies as fees, etc., thereby increasing costs to patients and profits for PBMs.

Saving money for whom?

PBMs claim they save money by constructing formularies with various tiers to encourage the use of lower-priced medications.  In fact, the main criteria for a drug to be on a higher rated tier is for its manufacturer to provide larger price concessions to the PBM. This scheme incentivizes drug manufacturers to increase their prices and then pay the PBMs more money in order to be able to sell their drug.   There are even reports of PBMs “reclassifying” generic and brand drugs as necessary to increase the PBM’s payments for these medications.

Saving money for whom?

Consumer Reports (January 2020) recently showed that the price of a top tier biologic arthritis drug increased from $2,914/month in 2015 to $5,174/month in 2019. The price increase resulted in the PBM’s cut going from $291/month to $2,070/month.

Meanwhile patients — the ultimate payers — typically have a copay based on a percentage of the list price, not the negotiated price, for expensive drugs. In the scenario above, an arthritis patient with a 30 percent copay would see her monthly out-of-pocket cost rise from $874/month to $1552/month!

Saving money for whom?

PBMs often preferentially pay their own pharmacies, be they mail order or brick-and-mortar, more than they pay independent pharmacies. They also often pay the dispensing pharmacy significantly less than the PBM is being reimbursed by their customer, be it an insurer, company or government.  The latter practice, called “spread pricing”, is one of the business practices addressed in the legislation passed this year.

Saving money for whom?

SB251 and HB1290 will have PBMs licensed by the Bureau of Insurance. How will increased oversight result in increased costs? Why are the PBMs claiming that trying to learn how much patients are being “saved” by their actions will result in higher costs?

Imagine if most of the “saved” money was not extracted from the health care system as profits.  What would happen to premiums and costs then? Imagine the impact on patients if their copays were based on the real cost of their drugs – the negotiated price after all price concessions – rather than the list price. This is what occurs with medical benefits; why not with pharmacy benefits?

These and other questions are ones our legislators are finally asking. HB1290 and SB251 are a start to learning how much money is going to shareholders rather than remaining with patients.  It is not enough, but it is a beginning towards actually saving us money.

Harry Gewanter, a Richmond pediatric rheumatologist, is a member of the Medical Society of Virginia, Richmond Academy of Medicine, and an advocate with the Fair Health Care VA Coalition.