A battle to rein in pharmacy middlemen

The high costs of prescription drugs have rightly prompted concern from Californians and lawmakers looking for ways to bring down costs. Recently, both California and the federal government have taken positive steps to address this concern by increasing transparency. Still, more action is needed to reduce costs to consumers at the prescription counter.

As part of our current health care system, health insurance companies hire middlemen called pharmacy benefit managers (PBMs) to negotiate on their behalf with drug manufacturers and pharmacies to bring drug prices down. When a deal is reached, drug manufacturers make rebate payments to PBMs.

However, because PBMs largely operate in the dark, it is impossible to tell if they are doing their job or simply pocketing the extra money and passing costs down to consumers.

We urge California legislators to act this session to eliminate PBM rebates for all insured Californians.

Experts agree that PBMs are contributing to higher costs for consumers.

According to a 2018 University of Southern California study, PBM business practices are leading customers overpay for their prescriptions 23 percent of the time, with an average overpayment of $7.69 on each transaction. In California alone, overpayments amounted to hundreds of millions of dollars annually. 

Californians with chronic conditions are among the most impacted by overpayments at the pharmacy counter. Imagine living with cancer, heart disease, arthritis, hepatitis, or any other chronic, debilitating or life-threatening disease. On top of that, imagine having to worry about how you will pay for treatments for your condition. The cost of medications without insurance can be extraordinarily expensive.

With insurance, costs ought to be affordable. In its current state, our system disproportionately hurts the most vulnerable people who need protection the most.

Fortunately, the U.S. Department of Health and Human Services (HHS) has recently issued a proposed rule that will take a different approach. By eliminating rebate payments that pharmaceutical manufacturers make to PBMs for Medicare and managed Medicaid plans, the new rule will help ensure that savings negotiated by PBMs are passed on to consumers.

This will particularly help those who have chronic conditions who require prescriptions on an ongoing basis. On Tuesday (April 9,2019), top PBM executives testified before the U.S. Senate Finance Committee on the high cost of prescription drugs. We encourage members of Congress to press those executives on how specifically they will ensure that consumers pay less for their prescriptions, and not allow them to pass the buck.

Last year, California legislators passed two bipartisan bills that also helped address this problem.

Assembly Bill 315, authored by Assemblymember Jim Wood, removed a “gag clause” that prevented pharmacists from informing their customers about cheaper options that were available without insurance. Assembly Bill 2863, authored by Adrin Nazarian, outlawed “clawbacks,” which allowed PBMs to gouge customers to increase profits.

While the new HHS rule and past California legislation are important steps, more action is needed to comprehensively address the high costs of prescription drugs. 

We urge California legislators to act this session to eliminate PBM rebates for all insured Californians. And we urge the Administration to move forward with its proposed rule to eliminate PBM rebates in Medicare. All Californians are feeling the pinch of rising health costs at the pharmacy counter, and all health care stakeholders have a role to play in the solution.

As a first step, the cost-savings from manufacturer rebates should be going where they were originally intended – to consumers. 
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Editor’s Note: Liz Helms is the CEO of the California Chronic Care Coalition, a unique alliance of more than 30 leading consumer health organizations and provider groups dedicated to improving the health of Californians with chronic conditions.