Pharmacy benefit management
PBMs play a role as the middlemen between pharmacies, drug manufacturers, wholesalers, and health insurance plan companies.
[7][8] In 2024, The New York Times,[9] Federal Trade Commission,[10][11] and many states Attorneys General[12][13] accused pharmacy benefit managers of unfairly raising prices on drugs.
Therefore, states are often unaware of how much money they lose due to spread pricing, and the extent to which drug rebates are passed on to enrollees of Medicare plans.
In response, states like Ohio, West Virginia, and Louisiana have taken action to regulate PBMs within their Medicaid programs.
[26] The New York Times,[9] Federal Trade Commission,[27][28] and many states' Attorneys General[12][13] argue pharmacy benefit managers unfairly raise prices on drugs.
A report by House Committee on Oversight and Accountability chairman, Kentucky Rep. James Comer, found that PBMs use utilization schemes to increase pricing for payers and health plans.
PBMs are not required to share how these rebate rates are calculated and this can result in local pharmacies being paid back less or the same as the sticker prices of the drugs themselves.
[35][clarification needed] In 2007, when CVS acquired Caremark,[1] the function of PBMs changed "from simply processing prescription transactions to managing the pharmacy benefit for health plans",[32] negotiating "drug discounts with pharmaceutical manufacturers",[32] and providing "drug utilization reviews and disease management".
[1] As of 2013, in the United States, a majority of the large managed prescription drug benefit expenditures were conducted by about 60 PBMs.
PBMs operate inside of integrated healthcare systems (e.g., Kaiser Permanente or Veterans Health Administration), as part of retail pharmacies, major chain drug stores (e.g., CVS Pharmacy or Rite-Aid), and as subsidiaries of managed care plans or insurance companies (e.g., UnitedHealth Group).
[6] In 2012 Express Scripts acquired rival Medco Health Solutions for $29.1 billion and became "a powerhouse in managing prescription drug benefits".
[42] As of 2015, Express Scripts Holding Company was the largest pharmacy benefit management organization in the United States.
These reviews resulted from investigations into "questionable practices" at Valeant Pharmaceuticals International Inc's partner pharmacy, Philidor Rx Services.
[46] In 1998, PBMs were under investigation by Assistant U.S. Attorney James Sheehan of the federal Justice Department, and their effectiveness in reducing prescription costs and saving clients money was questioned.
[49][non-primary source needed] A 2014 ERISA (Employee Retirement Income Security Act of 1974) hearing noted that vertically integrated PBMs may pose conflicts of interest and that PBMs' health plan sponsors "face considerable obstacles in...determin[ing] compliance with PBM contracts including direct and indirect PBM compensation contract terms".
[54] In June 2024, the New York Times released its first article in a series critiquing pharmacy benefit managers for artificially raising drug prices.
[9] In July 2024, the Federal Trade Commission released an interim report on its 2-year investigation into pharmacy benefit managers, many of which it accuses of raising drug prices due to conflicts of interest, consolidation, and other factors.
However, this was not the case as written commitments by all three major PBMs (Caremark, Express Scripts, and Optum Rx) promised not to withdraw coverage should Novo Nordisk decide to reduce their prices.
Adding on to the Knox Knee Act, SB 966 requires all PBMs to acquire licensure under the California Department of Insurance and file annual business reports disclosing information about revenue and purchaser-specific benefits.
[59] Additionally, the National Community Pharmacists Association reported that health insurance premiums increased by a nationwide average of 16.66% between 2015 and 2019.
If PBMs pass all discounts to the health plan and provide them with pricing information about their services, they will be exempt from these prohibitions.
Under this act, PBMs would also need to disclose information about payments from health plans to the Federal Trade Commission (FTC) through annual reports.
