AG Ford: Pharmacy benefit managers under a microscope in Nevada

Over the past several months, I, alongside many other attorneys general from across the country, have begun to hold pharmacy benefit managers (PBMs) accountable for their role in raising prescription drug costs.

Sixty years ago, PBMs were small cogs in the prescription drug machine. Today, these mammoth, multibillion corporate enterprises are the machine. If PBMs will not stop abusing their positions for profit, then policymakers must insist on reforms.

The past decade has seen a substantial shift in the PBM marketplace. In the past, a hodgepodge of PBM owners, including manufacturers and pharmacies, had control over the marketplace. Today, just three PBMs control 80% of the drug market. Each of these PBMs is vertically integrated into a major health care conglomerate. These conglomerates are not just the largest companies in their field, but among the 15 largest corporations in the United States.

While a handful of companies have cornered the PBM market, they have not used their position to save patients money. Rather, the evidence suggests they are using their size and control to increase profits, even if it means jeopardizing access to medicine.

PBMs have fundamentally changed the way patients acquire prescriptions. For anyone wondering why drug prices are rising and millions are struggling to access the drugs they need, look no further than PBMs.

Most patients are familiar with the retail or “list price” of a medication. This is the price that typically shows up on insurance statements or from the pharmacist, and is the price that patient co-pays are based on. That price, however, is not the real price that PBMs pay for drugs.

A large chunk of PBM profits comes from negotiating rebates and discounts directly with drug manufacturers. The resulting price that they and insurers pay to acquire a drug is the “net price.” PBMs’ profit is based on the difference between the two.

Under this complicated pricing structure, PBMs are extracting higher and higher rebates and discounts to maintain record profits. The result is that “net prices” stay relatively flat and retail prices rise rapidly. Not all the resulting savings work their way down to the consumer, and portions of the various rebates and discounts, when kept and multiplied across millions of patients, adds up to billions of dollars and a more than a 300% increase in profits over a decade.

Alongside other entities, including the insurers under the same corporate umbrella, PBMs went from earning one-third of total spending on brand medicine in 2013 to 50% of total spending just seven years later. Patients have been the ones paying the price for these profits.

Controlling prices isn’t the only way PBMs have been able to earn billions each year. Manufacturers fees are making up a larger and larger proportion of annual profit.

PBMs charge drug manufacturers fees that are linked to the retail price of a drug. The more high-priced drugs a PBM offers, the more money it makes. Patients across Nevada have likely wondered why their insurer covers a certain type of inhaler over another. The fact that PBMs make more money on the higher-priced options could be the reason.

PBMs are on the radar of my office. The Federal Trade Commission is undertaking an investigation as well. Now it is time for Congress to get in the game.

As Congress weighs next steps on prescription drug pricing this year, PBMs should be the priority. Simple reforms such as unlinking fees from prices, tying co-pays to “net prices,” and forcing transparency around the rebates, discounts and fees PBMs earn would be welcomed by patients and do more to lower prices than anything else.

Aaron Ford is Nevada’s attorney general.