Top line:
Consumer advocates and health economists say some of the blame for high drug prices lies with pharmaceutical middlemen, who they say drive up costs unnecessarily by adding fees and keeping rebates as profit. It’s a problem that’s plaguing regulators across the country. This week, California lawmakers are set to vote for the first time on regulations aimed at curbing their tactics.
Why it is important: Prescription drugs are unaffordable for many Californians. In just five years, spending on prescription drugs rose from $8.7 billion to $12.1 billion, a 39 percent increase, according to the latest state data.
The context: Pharmacy benefit managers, also called PBMs, typically act as intermediaries between insurance companies and drug manufacturers. They process claims, negotiate the price of drugs using a complex rebate system, and control the list of drugs covered by health plans, also called the drug schedule.
The suggestion: California’s proposal would require the state insurance agency to license pharmacy benefit managers and disclose the prices and rebates negotiated with drug manufacturers. It would also require that 100% of drug manufacturer rebates be passed on to health insurers.
Read more… for more information on this controversy.
It’s no secret that prescription drugs are unaffordable for many Californians. In just five years, spending on prescription drugs rose from $8.7 billion to $12.1 billion, a 39 percent increase, according to the latest state data.
Consumer advocates and health economists place some of the blame on drug middlemen, who they say needlessly drive up costs by adding fees and keeping rebates as profit. It’s a problem that’s plaguing regulators across the country. This week, California lawmakers are set to vote for the first time on regulations aimed at curbing their tactics.
Who are Benefit Managers?
Pharmacy benefit managers, also called PBMs, typically act as intermediaries between insurance companies and drug manufacturers. They process claims, negotiate the price of drugs using a complex rebate system, and control the list of drugs covered by health plans, also called the drug schedule.
What California is considering
In most other states, including Texas and Florida, they are already regulated to some degree. California’s proposal would require the state insurance agency to license pharmacy benefit managers and disclose the prices and discounts negotiated with drug manufacturers. It would also require that 100% of drug manufacturer rebates be passed on to health insurers.
“(The pharmaceutical benefit managers) have infiltrated the nerve center of the health care system, where they wield enormous influence over health insurers, drug manufacturers and consumers,” said Senator Scott Wiener, the bill’s author. “They are making enormous amounts of money at the expense of consumers.”
What supporters say
The companies argue that they save patients and insurance plans money — the more patients they represent, the more leverage pharmacy benefit managers have to negotiate lower drug prices, for example. They are staunch opponents of the legislation, warning that the proposed rules will increase health insurance premiums for Californians by $1.7 billion in the first year and $20 billion over 10 years.
“The bottom line is that Senate Bill 966 does nothing to reduce prescription drug costs or improve patient access and safety,” said Greg Lopes, a spokesman for the Pharmaceutical Care Management Association, an industry lobby for pharmacy benefit managers.
Putting the market into context
Three pharmacy benefit managers dominate the industry: CVS Caremark, Express Scripts and OptumRx represent more than 80% of the market.
A growing number of studies suggest that consolidation is driving up prescription drug prices. The largest player, CVS, has grown through a merger with Aetna and now offers pharmacy benefit management services and health insurance in addition to traditional pharmacies.
“It is long overdue to regulate them,” said Wiener, a Democrat from San Francisco.
Previous attempts to regulate pharmacy benefit managers have failed in California. In 2021, Governor Gavin Newsom vetoed a bill that would have prevented pharmacy benefit managers from “patient steering,” a practice that forces patients to visit only certain pharmacies, which are often also owned by the pharmacy benefit managers.
“In California, we’re really lagging behind. In other states, they’ve been much more aggressive in regulating (pharmacy providers),” said Michelle Rivas, vice chair of government relations for the California Pharmacists Association, which co-sponsored the bill. “The ideal would be comprehensive federal legislation. Unfortunately, we don’t have the luxury of waiting for Congress to act on this issue.”
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