I’ll sooner understand quantum theory than how drug prices are determined.
Here’s the short answer: “Pharmacy Benefit Managers.” PBMs are firms hired by health insurance companies to handle price negotiations, insurance claims, and distribution of prescription drugs. They also negotiate rebates from drug manufacturers and mail-service pharmacies. In theory, PBMs are designed to take advantage of the collective buying power of patients, enabling lower drug prices.
Are you still with me? I’m not sure I am.
PBMs collect administrative and service fees from their contracted insurance companies. They don’t disclose the prices they’ve negotiated, allowing them to resell drugs at a price higher than what they’ve paid. Pharmacies and insurance companies are often contractually prohibited by PBMs from disclosing costs and reimbursements.
There’s much more to this confounding tangle, including “gag clauses,” “clawback,” copayments, drug “tiers,” and other complexities that make the obfuscations of offshore shell companies look like kid games. Suffice it to say that drug prices are determined in an impenetrable black box.
But the box has surprising little holes, too. When I fill my prescriptions at my local pharmacy, I pay $160. A popular online discounter, GoodRx.com, lists the range of its prices at local participating pharmacies. They vary widely — in my case, from $16 to well over $160. So I print out their coupon and take it to the $16 store. I’d prefer to shop more locally, but not for the ten-fold difference. The local pharmacy excuses the cost differential with, “Oh, these discounters sell your information.” Not mine, though, since I download a coupon without divulging any info whatsoever.
GoodRx isn’t the only ray of sunshine. Google the term “drug discounter,” and you’ll find a slew of them. How do these outfits make money? GoodRx says it’s from ads on their websites. It’s also reported to collect a portion of the fee that the pharmacy pays to the PBM.
The three largest PBMs (Express Scripts, CVS Health, and OptumRx of UnitedHealth Group), comprise 78% of the market and cover 180 million Americans. Together, PBMs collect more than $315 billion annually by adding their cost of doing business to the end cost of the prescriptions paid by insurance plans, taxpayer dollars and patient copays at the pharmacy counter.
Summing up this intentional morass, Sen. Ron Wyden of Oregon said in 2019 that PBMs were “…as clear a middleman rip-off as you are going to find.”
I’m so steamed about it, I’m going to write a strong letter to Congressmembers. I hope it carries more weight than the amount PBMs donated to their campaigns.
Jeff Kane is a physician and writer in Nevada City
