Pharmaceutical-industry Middlemen Reap Profits

by Alexis Young

Glyburide, a drug used to control blood-sugar levels in patients with Type II diabetes, is part of an investigation over price-fixing practices. The Independent Pharmacy Fax Monitor’s Dec. 18 report detailed an ongoing lawsuit involving 20 state attorneys general and a group of generic-drug companies. The alleged corruption occurred from April 2013 to December 2015, and the investigation into the case is ongoing.

However, pharmaceutical companies are not the only culprits behind rising drug prices. Acknowledging that price gouging does occur, Vic Vena of Vic Vena Pharmacy in Olean, noted that, nonetheless, the average cost of prescription medication, now near $65, has kept pace with inflation over the years.

But prescription drug prices are not set at the retail level. According to Vena, “Our prices are dictated to us at ever-shrinking margins, making it very difficult to stay in business.” He zeroed in on a culprit relatively unknown to the general public.

Setting prices are large, corporate middlemen called pharmacy benefit managers, otherwise known as PBMs. PBMs negotiate between drug companies and insurers, and then reimburse pharmacists.

PBMs were originally introduced as a means of reducing administrative costs for insurers, validating patient eligibility, administering plan benefits and negotiating costs between pharmacies and health plans.

According to the National Community Pharmacists Association, today they have grown to become large, unregulated, profit-driven businesses with overreaching effects on approximately 95 percent of Americans with prescription drug coverage.

To generate their profits, PBMs are paid to favor certain drugs when creating formularies, or lists of drugs covered by insurance plans. On top of this, PBMs negotiate contracts both with pharmacies and with plan sponsors, allowing them to pocket the difference between the pharmacy rate and the plan sponsor rate.

“Because PBMs typically receive rebates on brand-name drugs, they are not incentivized to encourage the use of a less-expensive generic version. PBMs typically do not pass the rebate savings back to the plan sponsor,” states the National Community Pharmacists Association. “PBMs frequently require patients to switch drugs, so that they have to take a drug on which the PBM has negotiated a greater rebate—increasing the profit to the PBM.”

These practices and conflicts of interest leave one to wonder where the interests of the consumer have gone as it seems PBMs, set up to work for the public, have imploded on themselves and appear to cater to their own pocketbooks, leaving the average citizen to pick up the tab.

To address the problem of rising prescription medications and to stop the uncontrolled PBM business, the National Community Pharmacists Association called states to implement three measures:

  • Require PBMs to disclose potential conflicts of interest in contracts with plan sponsors.

  • Prevent PBMs from “steering” patients to their own mail-order pharmacy.

  • Treat retail pharmacies in the PBM network fairly.

If you feel the prescription drug market should be more fairly regulated in order to best serve the American public, write to New York’s U.S. senators, Charles Schumer and Kirsten Gillibrand, and the 23rd Congressional District’s U.S. Rep. Tom Reed.

With generic drugs accounting for approximately 80 percent of all prescriptions filled, the topic of drug price-fixing should have us all concerned.

Alexis Young is a student at St. Bonaventure University and a member of the Health Care Access Coalition.

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