Prescription drug prices in the U.S. are high for many reasons, but the primary one is simply that we have a patent system that rewards the development of innovative drugs—which benefits us all–with a temporary monopoly. Of course, with monopoly rights come high prices, but there are very few drugs without viable therapeutic alternatives, and when a drug comes off-patent there many alternatives become available via generic drugs. This multitude of drugs requires careful coordination.

Some entity needs to manage the complex interactions between payers, insurers, pharmaceutical companies, pharmacies, and ultimately patients, and pharmacy benefit managers (PBMs) currently perform that task. Far from being nebulous organizations operating in the shadows, PBMs have operated in partnership with other players in the healthcare landscape to optimize benefits for decades.

Tyrone’s Commentary:

I teach this very topic in my Certified Pharmacy Benefits Specialist program. PBMs help lower cost what we stink at is passing back 90% or more of those savings back to our clients. PBMs deserve a reasonable service fee but what some of you are paying is how should I say it, fiscally irresponsible. 

There is nothing you [plan sponsor] can do about drug prices! Manufacturers set those prices and PBMs negotiate down from there with manufacturers and pharmacies. Once that process is complete it’s a wrap. Are drug prices high? Yes, of course they are high and they aren’t coming down anytime soon. What plan sponsors can control and should be your focus is the PBM’s service fee. In my course, we refer to it as EACD or earnings after cash disbursements. Specifically, EACD is the amount of cash the PBM keeps for itself after reimbursements and cash disbursements like share of rebates. Here is the kicker – this service fee is hidden in the plan’s final cost!

Self-insured employers if you believe that your PBM negotiates hard on your behalf, your focus should then be on what portion of negotiated savings the PBM keeps. Last week I spoke with a decision-maker at a large brokerage firm who told me point blank, “I don’t care how much money the PBM makes as long as my guarantees are met.” 

I can’t begin to tell you how distraught I was after hearing this comment. How can you put employer groups first yet not care how much they are paying the PBM? Don’t make the mistake of assuming you are smarter than the PBM and have eliminated all the levers it has to pull in an effort to boost its profits. His logic was faulty. In part, because the PBM signed their contract and “it is airtight.” My question was how much redlining did the PBM do to your contract? That’s where things got cloudy. 

Another mistake is to not know or care about how much money the PBM is making. When you don’t know or care about the PBM’s take home, it’s an acknowledgement that you are also not concerned with VALUE. This is a red flag. I can’t say for sure but my guess is this broker’s clients are being fleeced. Pivot from a focus on drug costs to PBM service fees. This is how you lower pharmacy spend significantly and quickly. Plus, it’s the right thing to do.

The Role of PBMs

Unfortunately, many of the proposals currently being discussed misdiagnose the cause of high drug prices, attaching much of the blame to PBMs and their role in benefit design. As a result, these proposals invariably prescribe steps to reduce the role of PBMs in prescription drug markets.

PBMs negotiate drug benefits on behalf of insurance companies, large employers, unions, state Medicaid programs, and other large buyers of prescription drugs. They are the only mechanism in the drug supply chain mitigating the impact of high drug prices on consumers.

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