There’s a small group of powerful companies that controls the prices of prescription drugs, and most people don’t know about it.
The group isn’t the pharmacies or the insurers, the drug manufacturers or the plan providers. It’s the pharmacy benefit managers, or PBMs, middlemen that oversee prescription drug benefits for health plans, including setting the going rates for reimbursements and processing insurance claims. Like so many other industries, PBMs have been riding a wave of consolidation, and today, just three — Express Scripts, CVS Caremark, and OptumRx — control between 75 percent and 80 percent of the market, or about 180 million prescription drug customers.
Those figures are from a new piece by David Dayen in the American Prospect, “The Hidden Monopolies that Raise Drug Prices,” that looks at these companies, and how their market power is resulting in higher costs, worse outcomes for patients, and diminishing competition.
Take CVS Caremark. The company, which resulted when the CVS chain bought the big PBM Caremark, uses tactics like lower co-pays to steer patients toward CVS pharmacies, while also saddling competing independent pharmacies with onerous contract terms. As the Prospect explains:
“With such monopolized control, PBMs offer pharmacies take-it-or-leave-it contracts, with no opportunity to negotiate. These contracts employ punitive terms, including allowing the PBM to audit pharmacies, allegedly to ferret out waste, fraud, and abuse. “Minor technicalities are used to extract money,” says Susan Pilch, vice president of policy and regulatory affairs for the NCPA. “There are examples where you were supposed to initial on the bottom right of prescription, not the bottom left. The PBM recouped all claims on that.”
Besides being a business partner, the PBM is also a competitor that can use all the pharmacy’s data against it. PBMs set up “preferred pharmacy networks” that give patients lower co-pays for using particular locations. …PBMs also aggressively steer patients to their mail-order pharmacies. …
Other pharmacies have little recourse to fight back. PBM contracts frequently contain gag orders, preventing them from talking to local elected officials or disclosing the terms of the contract. …The combined toll makes it difficult for independent pharmacies to stay in business.”
The Prospect piece is timely, because there’s beginning to be a push to check PBMs’ control. More than 20 states have passed laws that require greater transparency and fairer terms from PBMs, and at the federal level, Rep. Doug Collins, a Republican from Georgia, has introduced a bill along the same lines. “I am a free-market person, as conservative as they come,” Collins told the Prospect. “When dealing with this, it’s not a free market.”
The FTC also has the power to act. “If the FTC determined that the PBM market was anti-competitive, they could sever the relationship between PBMs and pharmacies through sanctions or divestiture demands,” Dayen writes. “They could even break up the entire industry to generate competition.”
There’s an even more far-reaching option available at the state level to check rising drug prices and create a competitive market. North Dakota has a forward-thinking law that mandates that only a licensed pharmacist may own and operate a pharmacy in the state. The effect is that the state’s pharmacies are locally owned, and run by people whose first allegiance is to the provision of healthcare. The results, as our 2014 study on the law found, include prescription drug prices that are among the lowest in the country; greater pharmacy access, including more pharmacies overall and more in rural areas in particular; and increased economic activity and tax revenues for the state.
Part of the reason North Dakota’s law works so well is that it gives independent pharmacies more negotiating power when it comes to dealing with PBMs. “Because in North Dakota, independents are the only game in town, PBMs have to negotiate with them,” ILSR’s Stacy Mitchell told the Prospect. “In other states, they have no leverage.”
For more about North Dakota’s successful model, check out our report, and see additional resources below. And next time you fill a prescription, you’ll know more about what’s happening behind the scenes — and how policy and enforcement to check the market power of PBMs could make that process better.
More of our resources on Pharmacy Ownership Laws:
- “Report: North Dakota’s Pharmacy Ownership Law Leads to Better Pharmacy Care,” Stacy Mitchell and Olivia LaVecchia, Institute for Local Self-Reliance, Oct. 20, 2014.
- “Pharmacy Ownership Laws,” Institute for Local Self-Reliance, Oct. 22, 2014.
- “In Big Win for Local Ownership, North Dakota Votes to Keep State’s Pharmacy Law,” Olivia LaVecchia, Institute for Local Self-Reliance, Nov. 5, 2014.
- “Why North Dakotans Should Vote to Keep the State’s Unique Pharmacy Law this Election Day,” Olivia LaVecchia, Institute for Local Self-Reliance, Nov. 3, 2014.
More information about PBMs:
- “The Hidden Monopolies That Raise Drug Prices,” David Dayen, The American Prospect, March 28, 2017.
- “Gauther’s Pharmacy Feeling PBM Squeeze,” Robert Blechl, Caledonian Record, April 1, 2017.
- “Big pharmacies are dismantling the industry that keeps US drug costs even sort-of under control,” Brian S. Feldman, Quartz, March 17, 2016.
- “Specialty Pharmacies Say Benefit Managers Are Squeezing Them Out,” Katie Thomas, New York Times, Jan. 9, 2017.
