Lawmakers in Annapolis Should Demand Greater Transparency from Pharmacy Benefit Managers

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If you’ve never heard of pharmacy benefits managers (PBMs), that’s the way they like it. While they administer drug plans for more than 230 million Americans, PBMs thrive on secrecy and a lack of transparency.

Yet PBMs’ shady business practices deeply impact the lives of Marylanders by pushing up drug prices and limiting access to certain treatments. In fact, while drug makers’ prices have roughly kept pace with inflation over the last few years, consumers have faced steadily rising prices at the pharmacy counter -- partly due to PBMs’ harmful business practices.

In theory, PBMs are supposed to negotiate with pharmaceutical manufacturers and pharmacies on behalf of insurance plans to lower drug costs. But their role as middlemen between plan sponsors, beneficiaries, pharmacies, and manufacturers, provides PBMs with unique insights into a series of opaque transactions, and they regularly harness their knowledge to pad their profits at the expense of their clients.

Often, organizations who hire a PBM to administer a pharmaceutical plan lack basic information about what drugs are covered, the cost-sharing policies for each drug, and the deals the PBM cuts with manufacturers and pharmacies about pricing and reimbursement.

PBMs use a variety of tactics to exploit their informational advantage. “Spread pricing” is one common practice PBMs use to generate additional revenue. By promising pharmacies access to members of a specific insurance plan, PBMs negotiate reduced reimbursements for filling prescriptions. Consumers and plan sponsors never see these savings.

PBMs also negotiate aggressively with manufacturers, offering to adjust their formulary, the list of pharmaceuticals covered under an insurance plan, in exchange for deep rebates. But these billions of dollars in rebates are never passed along to consumers, because consumers and plan sponsors are unaware of them to begin with. PBMs often exclude lower cost competitors’ products from their formulary to secure larger rebates. By limiting price competition and letting financial incentives cloud clinical judgments, PBMs increase costs and reduce patients’ access to certain treatments.

One thing’s for sure: PBMs are successful in getting drug makers to slash rates. The gap between manufacturers’ list prices and the revenues they actually collect has rapidly grown in recent years -- up from $74 billion in 2012 to $153 in 2017. Yet, much like spread pricing, consumers and plan sponsors rarely benefit from these savings -- as anyone who’s recently filled a prescription knows.

Maryland is taking steps to rein in this out-of-control industry. In 2018, lawmakers banned “gag clauses” that PBMs use to prevent pharmacists from informing their customers about their co-payment on a drug exceeding its retail price and that buying it outside of their PBM plan would actually cost less. It’s estimated that Americans overpay for drugs by more than $2 billion every year due to these “clawbacks.” Encouraging pharmacists to inform consumers of their options is a simple way to save Marylanders money.

This year, a bill before the Maryland General Assembly would go further in reforming the PBM industry. SB 819, which is supported by a bipartisan group of legislators, would force PBMs to publicly disclose the share of pharmacy payments that are not passed on to plan sponsors and beneficiaries. It also requires PBMs to share their formulary, prior authorization requirements, and cost-sharing provisions publicly, so that plan sponsors and consumers understand exactly what they’re paying for.

The public deserves to see how PBMs operate and how their financial dealings drive up drug costs and hurt the very consumers they’re supposed to help. A growing number of states are passing similar laws to shine a light on these business practices and to promote transparency in this dysfunctional industry; Maryland should join them.

Liam Sigaud is an economic policy manager and Krisztina Pusok is the Director of Policy and Research at the American Consumer Institute, a nonprofit educational and research organization. For more information about the institute, visit www.TheAmericanConsumer.Org.

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