Pharmacy benefit managers (PBMs) are facing federal scrutiny as regulators and lawmakers attempt to curb practices that critics argue artificially inflate drug costs. According to data from the pharmaceutical trade group PhRMA, the three largest PBMs now exclude nine times as many generic medicines from their standard commercial formularies compared to 2014, shifting patients toward higher-cost alternatives that often generate larger rebates for the middlemen.
The Regulatory Push Against PBM Business Models
The federal government is moving to dismantle what critics describe as an opaque and self-serving supply chain. The Federal Trade Commission (FTC) has initiated lawsuits against the three largest PBMs, alleging that their business practices restrict competition and increase costs for patients. While these firms have proposed consent decrees to settle the litigation, parent companies have downplayed the potential financial impact, suggesting that current reform efforts may not lead to fundamental structural changes.
Beyond the FTC, the Department of Labor has proposed a rule designed to mandate greater disclosure regarding rebates, fees, and overall compensation. A bipartisan coalition of 45 attorneys general has publicly urged the federal government to finalize this rule, signaling alignment between state-level law enforcement and federal regulators.
Did you know?
Between 2017 and 2022, PBM-owned pharmacies generated more than $7 billion in revenue through price markups on medications.
How PBMs Influence Patient Out-of-Pocket Costs
The core of the controversy involves the role of PBMs as “gatekeepers” for insurance formularies. By deciding which drugs are covered, these firms exert significant leverage over manufacturers. However, PhRMA reports that this leverage is frequently used to prioritize drugs that offer higher rebates or hidden fees to the PBM, rather than those with the lowest list price for the consumer.
This dynamic extends to patient assistance programs. Manufacturers provide financial support to 10 million Americans annually to help offset high copays. PBMs often utilize “copay accumulator” and “maximizer” programs to capture these funds before they reach the patient, effectively preventing the assistance from counting toward a patient’s deductible. This practice allows middlemen to extract nearly $5 billion in annual value that would otherwise lower a patient’s direct expenses.
Future Legislative Priorities for Drug Pricing
Policy experts argue that current reforms are only the beginning of a necessary overhaul. To further address the cost burden, advocates for change are calling for three primary legislative actions:
- Ban “Gag Clauses”: Prohibit contractual terms that prevent employers from knowing about lower-cost drug options for their employees.
- Mandate Coverage Reporting: Require PBMs to report how often they deny or delay access to prescribed medications.
- Close Loophole Gaming: Stop insurers from inflating prices at their own internal pharmacies to bypass medical loss ratio requirements.
Pro Tip:
If you are struggling with high pharmacy costs, ask your doctor if a direct purchase program—which allows you to buy medicine directly from a manufacturer—is an option for your specific prescription.
Frequently Asked Questions
What is a pharmacy benefit manager (PBM)?
A PBM is a company that manages prescription drug benefits on behalf of health insurers. They negotiate prices with drug manufacturers and decide which medications are covered by insurance plans.
Why do PBMs exclude some generic drugs?
Critics, including PhRMA, argue that PBMs often exclude lower-cost generics in favor of more expensive drugs that provide higher rebates or fees back to the PBM, which increases the company’s profit margin.
What are copay accumulator programs?
These are programs where the value of a manufacturer’s copay assistance does not count toward a patient’s annual deductible or out-of-pocket maximum, often leaving the patient responsible for more costs throughout the year.
Are there ongoing legal actions against PBMs?
Yes. The Federal Trade Commission has filed lawsuits against the three largest PBMs to challenge their business practices, and there are active discussions regarding consent decrees to settle these matters.
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