Blog: Shining the Light on Shadowy Middlemen
By Julie Gill Shuffield, Patients Come First California Executive Director
Supreme Court Justice Brandeis once mused that sunlight is the best disinfectant. Indeed, the beautiful spring sunlight is shining bright this week, illuminating the nefarious practices of the shadowy middlemen in the rising cost of prescription drugs in California and the entire US.
These price gougers, known as Pharmacy Benefit Managers or PBMs for short, are likely not enjoying their moment in the sun. The Senate Judiciary Committee recently held a hearing on the PBM Power Play: Examining Competition Issues in the Prescription Drug Chain. In California, legislation to regulate PBMs has sailed through multiple committees unanimously in recent weeks. This recent activity is a continuation of momentum from last year, when 24 states passed PBM legislation, bringing the total to 164 new state laws enacted since 2021.
Pointing the finger at PBMs is not dirty politics. It is the result of decades of harm caused by their highly opaque business model. Multiple studies have shown that PBMs are the direct beneficiaries of most of the excessive profits generated within the drug payment system. In fact, the research demonstrates that PBMs have only increased drug prices, according to Kevin Schulman, professor of medicine at Stanford University. The Federal Trade Commission (FTC) has been hot on the tail of PBMs and took the rare step of releasing Interim Reports that called out the PBMs for their predatory behavior and price gouging of patients.
These middlemen traditionally served in the role between insurance companies and pharmacies to help process payments and negotiate drug prices. But more and more, they are creating additional roles for themselves in the business cycle. The PBMs make a tremendous amount of revenue through rebates and price-spreading.
Another way PBMs are creating harm is through vertical integration, where PBMs own the major chain pharmacies they are allegedly negotiating for on your behalf. Not only are patients not getting the negotiated discounts, but the PBMs are piling on administrative fees and other payments.
So why don’t consumers just avoid PBM pharmacies? Easier said than done when the top 3 PBMs nationwide account for 75% of all prescriptions, and the top 6 account for 96%. How do they achieve such great control? They have the power to “steer” patients to their preferred pharmacies. Patients who need a drug to treat their high cholesterol or need insulin have no other option but to go to the one pharmacy in their town that covers that drug—the PBM’s pharmacy.
As legislative bodies across the US grapple with the affordability crisis impacting healthcare, Patients Come First implores them to follow the research and not the attention-grabbing headlines. The efforts should be focused on fixing the free-flowing money to PBMs, which is a costly flaw in the US system that leads to out-of-control prices. The sunlight is shining on the shadowy middleman, and hopefully, legislators across the US are taking note. The process needs this disinfectant to clean up the way prescription drugs are sold and ultimately lower costs for patients around the country.