Annual prescription drug expenditures exceeded $405 billion in 2022, more than $30 billion higher than the previous year. In 1960, when pharmacy benefit managers (PBMs) began proliferating—in an ostensible effort to lower costs—that number was only $2.7 billion. Even with inflation multiplying overall costs by ten and the population almost doubling since then, today’s equivalent might be somewhere around $55 billion.
The numerous players in the pharmaceutical market continually blame each other for this crisis, but PBMs rarely enter public conversation. However, they have been the target of government lawsuits alleging anti-competitive tactics. The Federal Trade Commission (FTC) began new legal action against the three largest PBMs late last year, and several states are bringing similar lawsuits.
What is your state doing? And what is its proper role, if any, in regulating these companies?
What Is a PBM?
The complex pharmaceutical marketplace operates largely unseen by consumers, and PBMs might be the most mysterious segment. In short, they function as middlemen between manufacturers, insurance companies, employers, and pharmacies. They negotiate prices among all these parties, and in return, they pocket a portion of rebates they secure for buyers.
Because they serve all sides of the business interaction, PBMs have immense control over prices. In the suit, the FTC accuses PMBs of giving preference to manufacturers that pay them more for pushing their costly drugs, at the expense of buyers who likely do not know they are being charged exorbitant amounts for drugs that have similar components to inexpensive alternatives. Patients pay wildly varying amounts for identical drugs at different pharmacies, or even the same pharmacy, on different days.
Does The Government Play A Legitimate Role In Regulation?
It is impossible to overstate the extent to which the government intervenes in the pharmaceutical market. Tax dollars pay for drug research and development, insurance coverage, and final purchase. Therefore, taxpayers should insist the companies benefiting from the system not use it to raise patient costs. The proper ways to manage this are under debate, and residents need to keep updated on their states’ actions.
What Will Your State Do?
Following in the footsteps of the FTC, some states have directed their action specifically at the biggest PBMs. Because the four largest control 70% of the market, targeting the top will undeniably make a dent in the problem. However, it’s important to ensure lobbyists for smaller companies are not just penalizing larger ones with legislation or litigation.
Other states have targeted insulin prices, at both the BPM and manufacturer levels. Since insulin has consistently been one of the most inflated life-saving medicines, this will address a significant issue. But again, voters should always be wary of government actions that seem to be benefiting one company at the expense of another.
Lastly, many states are focusing on the PBM industry’s role in the opioid crisis, suing them for knowingly promoting harmful drug protocols. Hopefully, these court cases will enable proper investigation into the part they played. But the potential for legislative abuse exists here too. Companies that got wealthy through their misbehavior now have immense funds to pay plaintiffs, so suing them has become big business. It has also led to the restriction of pain medication for people who really need it, which is a crisis in itself.
Ultimately, states face the same dilemmas here that they do with any regulation. PBMs may indeed need restriction, but regulatory capture could lead to other companies penalizing them for profit. In an excessively complicated healthcare market, solving one problem needs to be done carefully so as not to create more.