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Pharmacy benefit managers—known as PBMs—have had a newsworthy year—but not for the right reasons.
In January, it was reported that nearly every day in 2023, an independent pharmacy closed somewhere across the United States. In July, the Federal Trade Commission released a report revealing PBMs’ negative impact on access to and affordability of medicines due to vertical integration and anticompetitive behavior. Most recently, the state of Indiana discovered it paid almost $7 billion to PBMs for state plans over five years due to a lack of transparency and a surplus of loopholes.
These headlines make it clear that the only benefit PBMs have is padding their bottom lines.
Time and again, PBMs have dodged state and federal policies that would increase transparency and unveil their intentionally complex business practices. The PBM business model has done little to benefit patients and instead resulted in unprecedented profits obtained from federal, state and local governments, employer health plan sponsors and patients across the country.
These insurance middlemen are glaring examples of the consequences of a vertically integrated health care system, and they will continue to take advantage of Hoosier patients until federal legislation passes to hold them accountable.
Thankfully, recent reforms—specifically fee delinking and rebate pass-through—have been introduced that would install much-needed guardrails. Delinking means PBM profits would be based on a flat fee rather than the cost of an individual drug as determined by the insurance company. This would remove the perverse incentive for PBMs to encourage high drug costs and ensure patients see savings at the pharmacy counter.
Rebate pass-through is another essential policy that can directly help patients—and Hoosiers are already leading the way for the nation.
In 2023, the Indiana General Assembly fought back against PBMs and won with the passage of Senate Enrolled Act 8. This groundbreaking legislation makes Indiana only the third state to provide immediate relief for patients’ prescription drug costs and better transparency for employers.
On average, prescription drug manufacturers refund 48% of a medicine’s price as a rebate. However, these savings are not being given to those who actually need them. Instead, they are being pocketed by insurers and PBMs, making the cost of medications to patients often much higher than the cost to their insurance plans. In fact, Hoosiers may be paying nearly twice what the insurer pays for their medications.
Indiana Senate Enrolled Act 8 will require that at least 85% of negotiated rebates are passed through to plan participants at the point of sale, making life-saving medications more affordable for hundreds of thousands of Hoosiers. Many Hoosiers could save $1,000 or more annually with minimal effect on the overall cost of premiums. Furthermore, small employers that purchase state-regulated insurance for their employees stand to gain from this legislation, as well. The bill establishes greater transparency and requires all prescription drug discounts to benefit the employer and their employees.
With states like Indiana making progress, now it is time for Congress to enact meaningful reform. Luckily, the Senate Finance Committee, of which Indiana U.S. Sen. Todd Young is a member, generated momentum by unanimously passing a bipartisan reform package last November. This package includes S. 2973, the Modernizing and Ensuring PBM Accountability Act, which would delink PBM service fees; and S. 3430, the Better Mental Health Care, Lower-Cost Drugs and Extenders Act of 2023, which would pass through rebate savings for Part D plans.
On behalf of Hoosier employers, working families and patients who deserve to receive the full value of their prescription medicines, Congress must act now to pass this critical legislation.•
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Jones is president and CEO of the Indiana Life Sciences Association.
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“These insurance middlemen are glaring examples of the consequences of a vertically integrated health care system ….”
I think you have it completely wrong. The problem IS that we DON’T have a “vertically integrated health system.” Instead, we have a desperately fractionated national health care system, structured in a way where each stakeholder, particularly the insurance industry, is incentivized to take their cut of profits. The cumulative result is that health care costs continue to out pace inflation and are on average twice the costs elsewhere in the world while health outcomes are among the worst in the industrialized world, translating into the lowest value. Well designed vertical integration would improve efficiencies, reduce cost, and better coordinate care thereby increasing value. The savings could be returned to taxpayers, policy owners, and could fund many health promoting initiatives.