Last year, like in several states previously, Texas struck a significant blow on behalf of taxpayers against the industry that has a powerful role in determining how much people pay for prescription drugs. The $165 million settlement with one of the nation’s large pharmacy benefit managers — for overcharging the Texas Medicaid program — sent an important message about oversight and accountability.
It’s not enough, though. More must be done not only at the state level, but at the national level. Today it is universally acknowledged that prescription drug costs are too high. Pharmacists see every day what a Kaiser Family Foundation study has reported: 25% of the population has trouble affording the medicines they need. It’s painful to know that Texas families are refraining from picking up their prescriptions because they can’t afford the out-of-pocket costs and, in doing so, are placing their health at risk. This is a problem that won’t be fixed until policymakers address, at the national level, the impact PBMs are having on prescription drug costs and patient access.
The prescription drug marketplace is largely controlled by three PBMs that dominate 80% of the market. They — not the pharmaceutical manufacturers and not the local pharmacies — throw the greatest weight around in terms of what we pay out of pocket for medicines and whether particular medications are covered by insurance. On paper, the PBMs help drive drug prices lower by using their purchasing power to leverage favorable deals from the drugmakers. In reality, these PBMs benefit from a system in which their fees and revenues from the rebates they negotiate are tied to a medication’s list price. If the price is higher, so are the PBMs’ profits. It’s a backward incentive structure that drives drug prices skyward.
Additionally, the large PBMs are affiliated with health insurance companies, as well as the nation’s largest pharmacy chains and mail-order and specialty pharmacies. This means they are able to determine which medications get preferential treatment on formularies and which are left off of the formularies entirely — and therefore not covered by insurance. It is not uncommon, for financial reasons, that a patient will have to take a medication preferred by the PBM, instead of the medication recommended by their doctor.
The PBM stranglehold on prescription benefits also has an impact on independent community pharmacies — those not owned by the PBMs. These corporate middlemen engage in many anticompetitive practices.Pharmacy closures in rural and underserved areas is a growing national problem, driven in large part by these PBM practices.
We can’t depend solely on court settlements to address these challenges. Federal legislation is necessary to level the playing field that is currently tilted in favor of corporate interests over those of patients and consumers. Legislation introduced in the U.S. Senate by Senators Maria Cantwell, D-Wash., and Chuck Grassley, R-Iowa, would force PBMs to be more transparent in their dealings, enabling greater knowledge about what is paid for drugs and why, and would ban some of their unfair pricing schemes.
This would be a good start. To make prescription drugs more affordable, policymakers need to seek ways to ensure that when the PBMs negotiate rebates and discounts with pharmaceutical companies, they pass along those savings to the consumer at the point of sale — the pharmacy counter. Also, we need to break the connection between PBM revenues and medication list prices so that there isn’t a perverse incentive to push patients to more expensive medication options, regardless of what their physicians choose to prescribe.
Texas has done well in taking the lead in challenging the PBMs, but more can be done. Also, the members of the Texas congressional delegation need to do their part and get the Cantwell-Grassley legislation enacted so we can truly start addressing the problems posed by high out-of-pocket drug costs.
Debbie Garza is CEO of the Texas Pharmacy Association.
