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Who’s really controlling your drug prices? 5 things to know

Editor’s note: In order to give our readers the best information from which to make health care decisions, the Dayton Daily News is digging into what drives prescription drug prices with a multi-part series. The full investigation will run in Sunday and Monday’s papers and look for more from this investigation online this week.


Read and watch the full investigation into prescription drug prices

While high-profile stories of price increases for life-saving prescription medications have earned negative attention for pharmaceutical manufacturers, many in the public are unaware of the role played by a less visible piece in the drug supply chain — pharmacy benefit managers.

While these companies say they save employers millions by using their collective buying power to negotiate rebates from drug makers, critics of these middlemen say their opaque tactics are actually the driving force behind some of the price increases vexing consumers.

Here are five things most consumers don’t know about pharmacy benefit managers:

1. What are they and what do they do?

Pharmacy benefit managers — or PBMs — have influence on many aspects of the consumer prescription experience. They determine which drugs are covered or excluded by health plans, which pharmacies patients can use, and play a major role in determining the price everyone along the supply chain will pay.

Health plan sponsors have been contracting with pharmacy benefit managers since the 1970s to run their prescription benefits. They started out as just claims processors, but now wield much more power.

READ MORE:3 reasons prescription drugs cost so much

PBMs use the millions of patients they represent as leverage to negotiate rebates from drug makers. If a drug maker agrees to give a big rebate, their drug gets better placement on the formulary that says which drugs are covered by the health plan and which are not.

In this way the PBM industry says it saves employers about 30 percent annually on their prescription drug costs.

2. They are very big companies

“Pharmacy benefit managers are one of the largest yet unknown industries in the United States,” said Kyle Fields, president of the Waynesville pharmacy benefit management company ApproRX, and a critic of some in the industry.

“You think of Pepsi, Coca-Cola, and Home Depot and you think, ‘Wow those are gigantic companies.’ But there’s one PBM out there that’s bigger than all three combined, yet nobody really knows what a PBM is,” he said.

VIDEO:How do drug prices get set?

Three PBMs — Express Scripts, CVS Health and Opitmum RX, a division of UnitedHealth Group — control about 70 percent of the market. The Fortune 500 list gives a sense of their enormous size. UnitedHealth Group and CVS Health are numbers six and seven on the list, while Express Scripts shows up at number 22. J.P. Morgan Chase, Boeing and Microsoft all trail Express Scripts on the Fortune list as do the largest pharmaceutical manufacturers.

Express Scripts represents 85 million members on 3,000 different health plans, according to spokesman Brian Henry.

3. PBMs are often criticized for a lack of transparency in pricing

Critics of the big PBMs say their pricing practices and a lack of transparency are driving up costs and causing insurers to pay inflated prices without knowing it — eventually passing those costs on to their members.

The alleged tactics include keeping an undisclosed amount of the rebates they negotiate while offering their clients a much smaller cut, and charging a “spread” on each prescription that gets processed.

If a pharmacy charges $40 for a prescription and the patient’s share is already covered, the PBM might bill the health plan $40 plus 5 percent, and keep the difference.

MORE:Latest health news on

Rebates and spread pricing are agreed upon in the contracts signed by their clients and are very clear about who gets what, the PBMs say. But critics argue the door is open for price gouging without more transparency and if health plan sponsors aren’t savvy in negotiating those contracts.

“I’m not opposed to someone who brings great value to my clients getting paid, and getting paid well,” said Kevin Schlotman, CEO of Benovation Healthcare, a third party health plan administrator based in Cincinnati. “There’s a difference between getting paid well and getting paid a bunch of money that nobody knows about.”

Some also argue that the rebates the PBMs negotiate don’t actually save money for consumers because manufacturers factor that cost into their pricing structure from the beginning.

4. One PBM is being sued for price inflation

A Dayton man is at the center of a $15 billion lawsuit between Anthem, one of the nation’s largest health benefit companies with 38 million members, and its pharmacy benefit manager, Express Scripts.

Anthem sued Express Scripts first, alleging the PBM charged an inflated price on certain drugs and then offered a lower price directly to Anthem’s customers in an effort to squeeze out Anthem.

Now Anthem health plan members have also sued, saying they are the ones who ultimately suffered due to the alleged inflated pricing scheme.

John Doe One is an HIV/AIDS patient in Dayton whose bills for the life-saving drug Atripla, even with insurance coverage, have been more than $1,200 a month, according to the class-action federal lawsuit in which he’s a lead plaintiff.

“The prices that plaintiffs and the class pay out of pocket under percentage-based co-insurance charges have been improperly increased because of … overcharges by Express Scripts,” according to the lawsuit.

5. PBMs decide if your medication is covered

Another major function of PBMs is to create the formulary lists that determine which drugs an insurance plan will cover and which it will not.

In general, PBMs like a progression of treatments often refusing to cover more expensive options until a patient has tried cheaper alternatives first.

In this way they say the exclusion lists save their clients money, essentially standing up to big pharma by refusing to cover higher-priced drugs except as a last option.

For 2017, Express Scripts says its exclusion list will save plan sponsors $1.8 billion compared with $1.3 billion last year. CVS Health says it will have saved clients a total of $9 billion from 2012 to 2017 due to exclusions.

Some critics have accused PBMs of excluding certain medications, even when they’re effective, because the manufacturer didn’t offer a large enough rebate — a charge the PBM industry denies.

For patients with certain diseases, like Multiple Sclerosis, each illness is unique. Patients can’t all take the same drugs in the same order and get the same results, said Bari Talente, executive vice president of advocacy for the National Multiple Sclerosis Society.

“You have situations where people have been on a particular medication for a number of years that has worked very well for them and then either their insurance changes or a formulary changes and it’s no longer covered,” she said.


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