Reforming PBM practices will improve the pharmacy market

Patients, the ultimate arbiter of health care, continue to bear the cost of the perverse incentives that drive the pharmacy benefit manager (PBM) market. Because of these disincentives, patients pay excessive out-of-pocket costs. Equally troubling, misguided incentives create barriers that dictate where patients can fill their prescriptions and what prescriptions they can get.

That’s not how an efficient health care system works. Proposals currently being considered by Congress, including Unbundling of Tortious Destruction Act Revenue and Modernizing and Ensuring PBM Accountability Actwould help alleviate many of the resulting anti-market effects that harm patients.

Well-functioning competitive markets enable customers to choose which supplier they want to support and encourage suppliers to offer a variety of products. Applied to pharmacies, patients can often choose between a large national pharmacy chain and a small local pharmacy. Both have their advantages.

Large chain pharmacies are often more convenient, provide online services, and may be able to provide a greater selection of products due to their scale. Large chains are better positioned to serve patients who need prescriptions when they are away from home by seamlessly transferring their prescription to their local chain store. Consequently, patients can often access their prescription when they need it.

Small local pharmacies offer different services. Typically, a small pharmacy provides more personalized care that allows pharmacists to better understand their patients. Pharmacists in these settings are often better placed to tailor their advice and counsel to individual patient needs. These personal relationships can be highly valued by some people, particularly patients with complex health problems. Additionally, the more personalized environment can foster better communication between patients and their pharmacists, which can also lead to better health outcomes.

When the pharmaceutical marketplace works efficiently, patients express which suite of pharmaceutical services they value by choosing where they want to fill their prescriptions – at a large chain or a local store. Unfortunately, the actions of PBMs are skewing this market to the detriment of small pharmacies.

PBMs’ position at the center of the drug market has allowed these middlemen to dictate unfavorable reimbursement terms to pharmacies. And these conditions make it increasingly difficult for small pharmacies to make ends meet.

A billing system long used by PBMs charges pharmacies weeks or months after the drug is dispensed – referred to as reimbursement fees. Thanks to claw backs, pharmacies don’t know how much revenue they’ve earned when a prescription is filled. That answer will come weeks or months later when the pharmacy receives the final claw back bill.

In too many cases, these bills will push the total revenue the pharmacy earns below its costs, meaning the pharmacy has lost money on the sale of the drug. Such losses are most problematic for smaller pharmacies as well as large chain pharmacies that are not affiliated with a PBM.

Recognizing the inequities of claw backs, a new rule that will take effect in January 2024 will require PBMs to receive most of their fees at the time prescriptions are filled for Medicare patients. Unfortunately, thanks in part to incentives that are still wrong, PBMs have replaced lost recovery revenue with large cuts in their advance payments to pharmacies.

Exacerbating market outcomes, PBMs leverage their privileged position to steer the most profitable specialty drug prescriptions to their own specialty pharmacies. Even when drug prices should be low—such as when buying generic drugs—PBM-owned specialty pharmacies charge excessively high prices which far exceed the manufacturer’s price. All of these actions hurt the broader pharmacy market and increase patients’ out-of-pocket costs.

It is not only the pharmacy market that is being distorted. ONE November 2023 The analysis found that 30% of US locations had very little PBM competition, and in these concentrated local markets “preferred product selection by a dominant PBM” affected “prescribing across the market, even for patients not covered by the dominant PBM’.

In other words, PBMs don’t just have undue influence over where patients can get their drugs. they also have an undue influence on the drugs prescribed to patients. Empowering intermediaries rather than physicians is the exact opposite of how a patient-centered healthcare system should work.

Addressing these issues is complex. As the responses to the upcoming Medicare rule change demonstrate, it is also important to consider the dynamic responses that can undermine the intended effects of the reforms.

Many of the reforms currently being considered by Congress will help mitigate today’s adverse outcomes. The proposals would prohibit actions that clearly distort the current pharmacy market, including directing patients to the PBM-owned pharmacy. It also eliminates billing practices that infringe on PBMs’ interests with patients.

These reforms are not a panacea, but they will help rein in practices that unnecessarily increase patient costs, hurt small pharmacies, and exert undue influence on the drugs that patients prescribe. As such, these are pro-market reforms that take an important step towards creating a patient-centred healthcare system.