An analysis from 2012–2017 pharmacy claims data from Blue Cross Blue Shield Axis found that 78% of the available drugs analyzed have seen a greater than 50% increase in insurer and out-of-pocket cost. Moreover, over 44% of those analyzed, nearly 49 common brand-name drugs, had more than doubled in price.1 As demonstrated in patient testimonials, social and mainstream media reports, and the growing negativity towards healthcare, the increase in the cost of drugs is pinned on pharmaceutical companies who are blamed for stuffing their pockets. In reality, the price determination is much more convoluted. There is little transparency between pharmaceutical companies, pharmacy benefit managers (PBMs), insurance companies, and pharmacies. By law, transparency is not required, and patients are left to suffer either without treatment or as victims of high prices.
Meet the Pharmacy Benefit Managers
Most insurance companies utilize outside companies, such as pharmacy benefit managers (PBMs), to decide what drugs should be on formulary, which ones to force patients to pay a larger share for, and especially to negotiate lower pharmaceutical prices. Like brokers and agents, PBMs are assumed to navigate between the insurer and pharmaceutical companies and often function under similar incentives. The original goal of the PBM was “to simplify the administration of benefits for health plan members and to provide some cost-management services,” but those goals soon shifted due to their incentivized revenue “from claim processing to other sources, including manufacturer rebates, selling data to manufacturers, and selling mail order and retail drugs.”2 The role of the PBMs were thought to be crucial in determining how much pharmacies get paid, the cost for insurers, and ultimately the cost for patients. In reality, they are responsible for putting their hands in the pockets of patients. PBMs are suspected of utilizing strategies to gouge pricing, which include copay clawbacks, spread pricing, rebates, copay accumulator cards, and step edits. In direct opposition to the Sunshine Act for physicians, PBMs have no obligation to be transparent to the public or the healthcare system.
By example, PBMs have arms like an octopus – they intercalate into every transaction, supposedly meant to navigate between insurer and pharmaceutical company. However, they also intercalate with the pharmacy. In the past, a transaction used to work as follows: a pharmacy used to buy a bottle of medication for $1.50, they would charge the patient $4.00, and the pharmacy would pocket a profit of $2.50. Today with the PBM acting as a middleman, the pharmacy still buys the bottle of medication for $1.50, but now the pharmacy has to sell the bottle at a copay cost of $11.00 because the PBM will take $9.00, leaving the pharmacy a profit of $2.00, less than the amount from the previous interaction. That $9.00 is considered the copay clawback. In other words, if the negotiated price is less than the copay, the difference is passed back from the pharmacy to the PBM, which is known as a clawback.3,4
Prior to October 10th, 2018 pharmacies had gag clauses with the PBMs that prevented them from sharing the cost of medication without using insurance to patients – the pharmacist could not disclose to the patient the cost of the medication would have been $4.00, not $11.00 with insurance. In October 2018, Trump signed the Patient Right to Know Drug Prices Act. This act prohibits insurers and PBMs from restricting a pharmacy’s ability to provide drug price information to a plan enrollee when there is a difference between the cost of the drug under the plan and the cost of the drug when purchased without insurance. The Know the Lowest Price Act provides the same protection for individuals who are covered by Medicare Advantage and Medicare Part D plans.
Imagine this scenario: A drugstore buys a hypothetical bottle of pills for $6. When someone uses employer-provided insurance to fill a prescription, their pharmacy benefit manager pays the pharmacy to cover the cost ($8) in this example, allowing the pharmacy to pocket $2. The PBM will then charge the employer $16 for the pills. The spread is the “difference between the drug ingredient cost billed to the employer by the PBM and the drug