The Legislature passed a bill tightening regulations on companies that serve as pharmacy benefit managers. House Bill 4149 will require the pharmaceutical middlemen to apply for licensing from the state among other new rules.
The bipartisan bill passed with overwhelming majorities in both the House and Senate. It now heads to Gov. Tina Kotek for a signature.
But what exactly is a pharmacy benefit manager? To help us demystify them, OPB 鈥淲eekend Edition鈥� host Lillian Karabaic talked to OPB All Things Considered host Crystal Ligori.
The following transcript has been edited for clarity and length.
Ligori: OK, so what exactly are they?
Karabaic: Simply put, a middleman. But Express Scripts, the third largest pharmacy benefit manager, doesn鈥檛 want to be known as one.
From a promotional video, 鈥淪ome people think we鈥檙e middlemen, but we鈥檙e not鈥︹��
A PBM like Express Scripts acts as a negotiator between the makers of drugs and the health insurance companies that pay for those drugs.
Ligori: So鈥� a company in the middle? Like鈥� a middleman?
Karabaic: Exactly like that.
Ligori: So what exactly are they doing in the middle?
They help create formularies, which are lists of what drugs insurance companies will cover and for which conditions.
Let鈥檚 say your doctor prescribes you a statin for high cholesterol. You might notice that your insurance has a 鈥減referred brand鈥� of statin. If you take that preferred brand, your copay might only be $10 or even free. But if you use another brand, it might cost hundreds of dollars for the same dose.
That鈥檚 because your insurance鈥檚 pharmacy benefit manager has cut a deal with the maker of that medication to get it on your insurer鈥檚 preferred list.
It鈥檚 a good deal for the drug maker if your insurance company is large because it means they鈥檒l sell a lot more statins 鈥� most patients choose the preferred brand because it costs them less.
Ligori: So, if PBMs exist to negotiate better deals, it seems as though people would like them. Why are they in the crossfire of so many legislators?
Karabaic: Well, they have to make money as a company, and they do so in a bunch of different ways 鈥� but it鈥檚 very opaque how much money they鈥檙e getting from the makers of drugs.
One of the controversial practices is 鈥渟pread pricing.鈥� PBMs are reimbursed at a higher price for generic drugs than what they actually pay pharmacies when you fill the prescription. Instead of passing the savings along to the consumers, PBMs keep that extra cash.
Ligori: You said one of the controversial practices 鈥� are there others?
Karabaic: Absolutely. Recently, a lot of focus has been put on 鈥渞ebates鈥� 鈥� additional money that PBMs get back from manufacturers to put their drugs on formularies. There are calls for greater transparency about how much and who is paying PBMs these rebates. Currently, the specifics of these rebates are protected as 鈥渢rade secrets.鈥�
This is big business. Total rebates and discounts paid by manufacturers to PBMs reached $334 billion for all brand-name drugs in 2023.
CVS鈥檚 own pharmacy benefit manager, Caremark, has even started working directly with manufacturers to make and market their own co-branded versions of expensive specialty drugs. This leaves people wondering how PBMs can effectively negotiate lower prices with manufacturers if they are the manufacturers.
Many PBMs own their own mail-order pharmacies, now, too 鈥� and then they pay out much lower rates to competitor pharmacies, especially independent pharmacies that don鈥檛 have big negotiating power.
Ligori: If a pharmacy is getting a bad deal from a PBM, can they just stop working with them?
Karabaic: Well, they could, but then they wouldn鈥檛 be able to fill patients鈥� prescriptions using insurance. And since there is so much consolidation in the world of PBMs, they could lose a lot of customers.
The 鈥渂ig three鈥� PBMs are Express Scripts, CVS Caremark, and Optum Rx. Between the three of them, they represent almost 90% of American health insurance patients. And now, a lot of them are actually buying insurance companies. For example, CVS merged with insurer Aetna.
This hurts rural patients the most 鈥� there are often very few pharmacy options available at all. A pharmacy cutting ties with a PBM could mean patients have to travel even further to get their medications using their insurance.
Ligori: So, what鈥檚 being done about all this?
Karabaic: Well, states like Oregon have taken the lead in trying to push new regulations on PBMs, because federal legislation has stalled out. In the most recent session, House Bill 4149 will require PBMs to be licensed by the state starting in 2025. Proponents say this would increase transparency about how they get paid from drug makers, and allow the government to audit them.
Policymakers are looking at various other reforms 鈥� including banning spread pricing and requiring PBMs to pass through more savings to patients.
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