Nevadans would benefit from Pharmacy Benefit Manager reform

By Kaylyn Karadavani

Tuesday, June 25, 2024 | 2 a.m.

Over the past decade, the Nevada Legislature has taken strong steps in bringing transparency and accountability to drug pricing so that Nevada families stop getting price gouged on life saving drugs. Now, as leaders look for additional ways to help patients get their prescriptions, they should swiftly move to reform how Pharmacy Benefit Managers (PBMs) operate.

For thousands of Nevadans who rely on prescriptions, PBMs are an unknown but substantial part of their lives. Sitting in between prescription drug manufacturers, insurance companies, pharmacies and patients, PBMs are the companies that are directly connected in determining what treatments patients can acquire and how much those treatments cost.

While PBMs are in control of patients’ access to prescriptions, the truth is PBMs interests are not aligned with consumers. Instead, PBMs are increasingly focused on generating profits for themselves and their parent insurance companies.

In recent years, the lines between PBMs and insurers have become blurred. Initially, insurers contracted out with PBMs to manage prescription drug claims. Now, insurers have decided to bring PBMs entirely in house. The three largest PBMs (OptumRx, Evernoth and CVS Caremark) command 80% of the PBM market and are all owned by major health care insurance conglomerates.

OptumRx, for instance, is owned by UnitedHealth Group (UHG), which also owns UnitedHealthCare. UHG is the 5th largest company in the world, three times the size of the country’s biggest biopharma company (Pfizer) and the PBM business that makes up nearly a third of UHG’s total revenue.

In the last ten years, the biggest PBMs’ combined profits have risen from $6.3 billion in 2012 to $27.6 billion in 2022. Much of this record growth was accomplished by picking consumers’ pockets and undermining care.

Here is how it works:

First, PBMs rely on an overly complicated pricing structure that lowers costs for their companies and inflates costs for patients. To keep their costs down, PBMs negotiate directly with drug manufacturers, securing rebates and discounts that lower what they pay for drugs. At the same time, PBMs charge patients co-pays and other expenses based on the full price of a medicine.

PBMs could pass all their savings down to patients. Instead, they funnel the savings into their own profits, giving patients just a sliver of savings.

Second, PBMs earn enormous profits from manufacturer fees. PBMs charge drug manufacturers fees that are tied to the retail price of a drug. The more expensive a drug, the higher a fee a PBM collects. Over the last few years, PBM fees have grown by more than 50% and have come to be the second largest contributor to PBM profits.

In practice, fees do little more than encourage PBMs to only offer higher priced drugs to patients. Lower cost alternatives are often excluded from insurer-covered lists, since it would mean less profit for PBMs even if patients would pay less.

Between fees, rebates, and discounts, PBMs are the largest beneficiaries of spending on prescription drugs. One recent statement from Novo Nordisk, maker of Ozempic and Wegovy, suggested that 75 cents on the dollar of the retail price of their medicines is going to middlemen like PBMs. A system where middlemen account for 3/4ths of costs is broken.

The good news is that PBMs are on Nevada leaders’ radar. Sen. Catherine Cortez Masto in particular has called for seeking greater transparency from PBMs when it comes to Medicare drug prices. Additionally, a number of Assembly and Senate members have indicated an interest in holding hearings and bringing legislation to address PBMs next Legislative Session as well.

As Congress and our legislature continue to work to lower drug prices, they should support legislation that would tie patient co-pays to the lower prices PBMs pay, as well as end links between higher cost drugs and higher PBM fees. Both reforms would lower prices and expand accessibility to treatments.

Kaylyn Karadavani is the executive director of New Day Nevada, a progressive advocacy organization that focuses on passing policy solutions to bring down costs and level the playing field for working families.