PBMs are now often more profitable than the drug manufacturers and insurance companies they work with

Editorial: To save local pharmacies, state must rein in the middlemen


Pharmacies in Western Pennsylvania are closing at an alarming clip, pushed out of business by a complex, opaque and utterly broken medication reimbursement system. The state legislature, following the recommendation of Gov. Josh Shapiro, must act to bring transparency and accountability to the important, but little-known, health care middlemen called pharmacy benefit managers, or PBMs.

PBMs are corporations — sometimes associated with major pharmacy chains, like CVS subsidiary Caremark, but more often independent — who manage the relationships between the makers of prescription drugs, the insurance companies who pay for them (including Medicaid and Medicare), the pharmacies that distribute them, and the people who need them. In particular, PBMs set terms and pricing.

The original purpose of PBMs was simply to process claims for prescription medicines, but over time they evolved, and now they negotiate prices at every stage of the process. In theory, this give patients and their insurers bargaining power against drug manufacturers. In practice, PBMs cut deals with manufacturers and insurers, including steering patients toward preferred drugs, and have near-total power to set the terms of their contracts with pharmacies.

For many everyday drugs, pharmacists are forced to accept a loss, sometimes in the hundreds of dollars, on each prescription they fill. The result: reimbursement rates that are ruinous for pharmacies, especially independent businesses in underserved areas, leading to closures and reducing vulnerable people’s access to life-enriching, -sustaining and -saving medicines.

Against the spread

PBMs originally made money by charging insurers to process claims and manage prescription benefits. But now they make money from all parts of the process, most notably through a practice known as “spread pricing.” To understand spread pricing, you have to understand how prescriptions are priced. The problem is that PBMs consider this a trade secret.

Even if we can’t know how they do it, we can know what they do: PBMs negotiate the price insurance companies pay for prescriptions, the price pharmacies are reimbursed for prescriptions and the copays charged to patients. The pharmacy has essentially no control over any aspect of the pricing for the products most important to its own bottom line (and in many cases their survival): When the pharmacist plugs prescription information into the computer, the PBM spits out the dollar amounts.

The “spread” in “spread pricing” is the difference between the amount PBMs charge insurers — including Medicaid and Medicare — and the amount they reimburse pharmacies. PBMs pocket the difference without even handling the drugs in question.

Spread pricing is why PBMs are now often more profitable than the drug manufacturers and insurance companies they work with. In 2017, the largest PBM in the nation, Express Scripts, made over $100 billion; the drug manufacturer Pfizer, only $52 billion.

When Ohio investigated the PBMs handling the state’s Medicaid program in 2018, they found that spread pricing was costing taxpayers a cool $223 million per year. When the state banned spread pricing and contracted with a single PBM, it charged only $25 million for its services. The PBMs had been skimming $200 million of pure profit off medications for the state’s poorest patients.

Banning spread pricing in Ohio also resulted in reimbursements for pharmacists rising by $38 million — reflecting better pay for pharmacies and huge net savings for everyday people.

No other choice

PBMs hold all the cards against pharmacies, including chains, because they gatekeep access to major insurers and drug manufacturers in their exclusive networks. It’s even worse in the Pittsburgh region, where healthcare giants UPMC and Highmark both use the same PBM, Express Scripts.

If a Pittsburgh pharmacy doesn’t like the terms Express Scripts offers, it’s free to turn them down — and lose access to about two-thirds of local patients.

This means pharmacies often sign on to unfair pricing structures, controlling everything from reimbursement rates to preferred medications. When pharmacists are forced to accept a loss on so many prescriptions they fill, they must choose between dropping patients whose prescriptions are draining the company and risking the viability of the entire business. In either case, the people they serve lose.

Last month, at least 12 pharmacies closed their doors across Western Pennsylvania alone. There’s no reason to believe we won’t keep losing more. Advocates say that the U.S. loses one pharmacy branch per day. This results in prescription deserts, usually in already underserved urban and rural communities.

No incentive to change

The fact is a shuttered pharmacy isn’t a threat to business for PBMs. Patients will always need their medications. Some PBMs even argue they are providing the remaining pharmacies with a boost in business.

But if a pharmacy closes, it’s likely because the patients it served needed medicines for which PBMs reimbursed unfairly. They’ll have to go somewhere, and the financial contagion will spread. One of the pillars of the health care system — one that seems simple compared to hospitals and other providers — is slowly collapsing.

The state can do something about it. Pennsylvania should follow Ohio’s example and ban spread pricing. Companion bills HB 1993 and SB 1000 would do just that, while forcing PBMs to submit details of their pricing schemes to the state Insurance Department. The bills would also ban PBMs from “patient steering” by creating exclusive networks of contracted pharmacies or charging higher co-pays at pharmacies they don’t contract with.

PBMs claim that their aggressive tactics translate to big savings for their clients, and that spread pricing covers the cost of their services. If that’s true, they should have no issues opening up their books for the public to take a look. The future of access to essential medicines depends on it. People’s health, even their lives, depend upon it.


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