Congress has just a few business days left to deal with the impending government shutdown. However, members devote valuable time and attention to a problem that does not actually exist: the market activity of pharmaceutical benefit managers (PBMs). Three House committees and three Senate committees have introduced anti-PBM legislation, and one bill is expected to pass the House on Monday. The House Oversight and Accountability Committee will hold a hearing Tuesday morning targeting PBMs, and there is simply no defensible reason to do so.
PBMs manage the pharmacy portion of health insurance plans for employers, labor unions, government agencies and other organizations. I have worked with PBMs for 30 years: on the government side as a state legislator, as a hospital executive working with self-insured employers, as a purchaser representing 100 construction companies providing benefits to 15,000 union workers, and as a regulator in my most recent role as director of the Ohio Department of Health.
The drug supply chain is sophisticated. There are manufacturers, wholesalers, distributors, PBMs, pharmacies, health care providers and insurance companies. Even if Congress is concerned about rising drug costs, it makes little sense to focus so narrowly on PBMs because they capture a very compact share of the profits. Researchers at the Memorial Sloan Kettering Center for Health Policy and Outcomes found that 67% of prescription costs went to drug manufacturers, 15% to pharmacies, 8% to providers, and less than 5% to PBMs.
Employers, whether self-insured or using third-party insurance plans, have been using PBMs for decades for a plain reason: they do their jobs well. They get paid because they reduce costs and improve results. They cut costs because they operate their market power to negotiate lower prices, like Walmart, and they take a cut of those savings, like Walmart.
Recent report from the Department of Labor’s Inspector General found that the agency spent an additional $321 million over 5 years on prescription drugs because it did not operate a PBM. One study estimates the combined value of various PBM tools at $145 billion annually, stating that “PBM negotiations drive competition that drives down retail and manufacturing prices.”
An extremely crucial fact that is often overlooked is that PBMs deliver better health outcomes for employees. In my experience, many people have been notified by their PBM that the drug they are prescribed is contraindicated for them.
This actually happened to me. I am allergic to amoxicillin but have been prescribed a variant with a different name. When I went to fill my prescription, the PBM notified my pharmacist and I was able to avoid any unpleasant consequences. This is not unusual.
It’s strange that lawmakers are suddenly concerned about a market player that provides positive services to employers and patients and is such a routine part of doing business. I wonder if this remark has something to do with enormity applying pressure AND advertisement Big Pharma spending because it spends more than any other industry.
I understand that Democrats want to regulate PBMs because they want to regulate the entire business and especially move us into large government health care. But what’s troubling to me is that Republicans think this is part of the free market that they should pay attention to. They may simply agree to regulate entities they don’t understand, but they should stick to the basic Republican principle of keeping government out of private business as much as possible.
The free market is what works. Companies and other buyers can negotiate with the PBM and select the level of service they want. They can request whatever information or data they want, and if they don’t like the contract, they don’t have to sign it. They can reopen contracts for renegotiation or change suppliers. I did it.
Some lawmakers say they want to protect local pharmacies, but the reality is that a number of independent pharmacies do went up in the last decade. And even they have to provide a service worth paying for, just like any other player in the market. Sure, I miss the days of going to my local hardware store – but not enough to stop shopping at Home Depot. It seems like everyone loves the free market until it becomes their market.
Congress should focus on the urgent issues on its agenda, not game the system that works. And if they want to address the drug supply chain, a sophisticated market with many players, they should focus on those making the biggest profits, not on the effective and positive role played by PBMs. As in the Hippocratic Oath, first: do no harm.
Rick Hodges is executive-in-residence at Ohio University and former director of the Ohio Department of Health.
