FTC report makes clear that pharmacy benefit managers must be reformed

This past spring, I, alongside several of my Senate and House colleagues, attempted to bring a prescription drug affordability board to Virginia. This independent body composed of health and medical experts would use proven, data-based strategies to set upper payment limits on medications. While this bipartisan measure passed both chambers, it was vetoed by the governor and sets the stage for future measures aimed at reducing the price of prescription drugs for Virginians.

Next year, the General Assembly will take another stab at adopting measures to reduce costs, but in the meantime, we need our federal lawmakers to step up and help reduce patient costs as well. As Congress weighs options to tackle the cost of medicine, they should prioritize reforms for pharmacy benefit managers (PBMs).

In 2020, Virginians spent 36% more per person on prescription drugs than the national average.  Even for Virginians that use prescription drugs daily, PBMs are not an entity that they could name off the top of their heads nor have they likely had any interactions with a PBM. But for those that have, they understand just how powerful these companies have become.

PBMs’ involvement in the drug market begins the minute a drug is approved for sale and does not end until a patient picks up the prescription from their local pharmacy. PBMs determine whether an insurance company will cover a specific drug. They negotiate with manufacturers on how much insurers will pay for a drug. They dictate how much patients will pay out-of-pocket, and oftentimes, they force patients to use specific pharmacies.

Extreme consolidation in the health care industry explains how PBMs have managed to control so much of the prescription drug industry. Having been bought by major health conglomerates that include insurers, the three largest PBMs processed 80% of all prescriptions last year. Seventy percent of those prescriptions were filled at pharmacies with financial ties to the same health conglomerates that own the PBMs.

All this consolidation has led to record profits for PBMs and their parent corporations and severe consequences for patients who need prescription drugs.

The Federal Trade Commission (FTC) recently published a report on PBMs that noted almost 30 percent of Americans have been forced to ration or skip doses of medicine due to high costs. That same report pointed to the practices of PBMs as part of the cause of rising prices.

The FTC report observes that PBMs have utilized a multitude of tactics to inflate drug prices and weaken access to affordable medicine.

PBMs negotiate rebates and discounts directly with drug manufacturers. Instead of using this lower price to reduce costs for patients, PBMs take the pre-discounted price and use that as the standard for setting co-pays and out-of-pocket costs. This practice takes the mantra of buy low and sell high to new heights.

Administrative fees are another way that PBMs have been able to increase profits. The big PBMs are now charging manufacturers double what they did just six years ago. PBMs, and others in the middle of the drug supply chain, now take home nearly 50 cents on every dollar spent on some prescriptions. That is a big chunk of money that could be used to save patients money.

As the FTC report made clear, PBM profits are coming at the expense of patients. As we at the state level work diligently to tackle this problem, it is also time for Congress to act.

Creigh Deeds is a Democratic state senator from Charlottesville.

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