HIGH COSTS

Insurers – including state Medicaid programs – contract with PBMs to provide a number of services. One job of the PBMs is to negotiate prices with manufacturers, in theory to get the lowest prices for insurers, and therefore, for you. PBMs have a lot of leverage over manufacturers, which puts them in a great position to negotiate. Where does that leverage come from?

While you might assume doctors are the ones deciding what drugs are covered by insurance, it is actually PBMs that make those decisions. In order to be profitable, manufacturers need their drugs to be covered, which makes the PBMs gatekeepers. So a pay-to-play system ensues in which manufacturers offer PBMs rebates that go straight into the PBMs’ pockets. How is that possible? PBMs are not required to disclose those rebates. So two things happen. Because more expensive drugs mean bigger rebates, PBMs are incentivized to favor drugs that cost more, keep drug prices high or even pressure manufacturers to inflate prices. And manufacturers build the cost of those rebates into their prices, again keeping costs high.