Pharmacy Benefit Managers Are Not Conservative

T he pharmacy benefit management (PBM) industry has begun placing advertisements to convince conservatives that its business practices are fiscally conservative and promote budgetary discipline in D.C. But don’t be fooled. 

A recent ad in Breitbart asserts that PBMs are the “only real check on big pharmaceutical companies’ ability to set sky-high prices for prescription drugs.” Senator Rand Paul (R., Ky.) seems persuaded, labeling reform of the multibillion-dollar PBM industry as “misguided.” 

Let’s dispel some myths. The most notable lies are that PBMs favor the lowest-cost drug and are guardians of fiscal discipline. But the reality is that most PBM profits are derived from concessions, rebates, and fees paid by manufacturers, which are pocketed by PBMs and health plans, not passed on to patients. Since these payments are most generous for high-cost, brand-name medicines, PBMs do all they can to close off competition. How? As a recent Wall Street Journal article documents, they do so by excluding low-cost generics from their formularies.

Are these product exclusions the exception? Data from the National Association of Insurance Commissioners suggest that, in just the past several years, the three largest PBMs, which control nearly 89 percent of the prescription market, have excluded 1,357 medications from their formularies to keep patients and providers from accessing the products.

A study published in the Health Science Journal demonstrated that nearly 50 percent of exclusions administered by the second largest PBM — Express Scripts — were not financially or clinically beneficial for patients. The reason that PBMs favor higher-priced biopharmaceuticals and exclude generics is simple: They are managing their formularies to maximize profits rather than to promote the most cost-effective medications. 

Plainly stated: PBMs inhibit access to effective medicines and often work against a patient’s interest by failing to provide lower-cost products. 

There are other policy-makers who misstate the extent of the problem with PBMs. Former Republican representative Bill Johnson of Ohio believes that PBMs account for only 6 percent of drug costs. The reality is that a study published in 2022 demonstrates that up to 35 percent of new spending on brand medicine is retained by the so-called payers such as insurance companies, PBMs, and, in some instances, the government. 

Suppose actual data do not persuade lawmakers. In that case, they may want to pay attention to what happened when PBMs allegedly cost the Ohio Medicaid program more than $200 million in one year. That is why Ohio’s attorney general is pursuing litigation against the PBMs.

PBM policies are not only affecting public programs in Ohio. It’s happening in Medicare and other state Medicaid programs.

Consider Texas, where legislation mandates that the state Department of Insurance (TDI) collect “profitability” data from PBMs. According to the Texas Department of Insurance annual report, PBMs’ profit margin on average has far exceeded Johnson’s claims. 

Most importantly, according to TDI data, none of the savings are passed back to the patients. This is a significant problem for patients, since PBMs require that out-of-pocket deductibles and coinsurance are paid based on inflated retail prices, rather than the prices negotiated on their behalf. 

Politicians who defend the PBM model are siding with fewer drug choices, lower-quality products, and higher patient costs. That’s not our understanding of conservatism, and it isn’t something that conservatives — or anyone — should want. PBMs prey on the health-care system — and on patients. 

William S. Smith is Senior Fellow and Director of the Life Sciences Initiative at Pioneer Institute in Boston. Robert Popovian is Senior Visiting Health Policy Fellow of the Life Sciences at Pioneer Institute.