WSJ shows insurers make patients pay thousands for cheap generics while Brookings thinks Congressional PBM reforms could fall short

Over the past few days, both the Brookings Institution and The Wall Street Journal published reports on pharmacy benefit managers. Brookings researchers weighed in on the possible consequences of the enactment of bipartisan legislation in Congress that would reform the way PBMs do business. The Journal reported on how health insurers that own PBMs make patients with cancer and other serious conditions pay thousands of dollars out of their own pockets for cheap generics. 

The Brookings researchers are skeptical that bills Congress is considering which would ban certain practices like spread pricing–in which PBMs charge their customers more than they pay pharmacies for certain medications and then pocket the difference–will ultimately save the nation much money because PBMs likely will find other ways to protect their profit margins. The researchers opined that “if PBMs were barred from retaining the ‘spread, they could well claw back the money payers would save from lower spreads using other tools, like higher administrative fees.”

Toward the end of their report, they place the PBM debate in the broader context of “market failure” in health insurance in the United States, and they make a valid point. PBMs are just the latest example of how a system driven by the quest for profits fails patients and employers by charging them far more than necessary at almost every turn. 

The researchers suggest that we likely would be better off if there could be more competition in the PBM space. No argument there. They note that:

The market for PBM services is highly concentrated, with three firms [UnitedHealth, Cigna and CVS/Aetna] controlling 79% of the market, which almost certainly gives PBMs market power they can use to earn excessive profits. Greater competition could reduce these profits, and recent PBM transparency proposals may help with this, albeit only to a modest degree. Nevertheless, even eliminating all PBM profits would only reduce total drug-related spending by several percentage points. 

I found that last sentence especially peculiar. If we could reduce total drug-related spending by several percentage points, that, to me, would seem like a pretty big win for patients–and all of us for that matter–except, of course, for the companies that own the PBMs. And they are the ones who will fight tooth and nail to protect the status quo.

For those who are more interested in how patients with very serious conditions are being harmed by the status quo, I encourage you to read Joseph Walker’s piece in The Wall Street Journal (which, unfortunately, is behind a paywall). The headline provides a great summary of the article: “Generic Drugs Should be Cheap, but Insurers are Charging Thousands of Dollars for Them. Health Insurers mark up prices of generics for cancer, multiple sclerosis and other complicated diseases.”

Here are the first two paragraphs:

The cancer drug Gleevec went generic in 2016 and can be bought for as little as $55 a month. But many patients’ insurance plans are paying more than 100 times that. 

CVS Health and Cigna can charge $6,600 a month or more for Gleevec prescriptions, a Wall Street Journal analysis of pricing data found. They are able to do that because they set the prices with pharmacies, which they sometimes own. 

Walker went on to note that, “Across a selection of these so-called specialty drugs [to treat cancer, multiple sclerosis and other complicated diseases], Cigna and CVS’s prices were at least 24 times higher on average than roughly what the medicines’ manufacturers charge, the Journal found.”

He added later that, “Even when their health insurance picks up most of the cost of a drug, patients can face a larger expense from higher priced generics if they have an out-of-pocket contribution like a deductible or coinsurance pegged to the price.”

As I’ve reported in recent months, PBMs have become the dominant source of revenues and profits for big for-profit insurers. Cigna now gets far more revenue from its PBM than from all of its health plans combined. And CVS/Aetna gets more money from its PBM than it does from its Aetna health plans or its nearly 10,000 retail stores. 

Next week, we’ll report on a relatively new practice that insurers have put in place to make patients pay thousands of additional dollars every year for the drugs they need to stay alive. And later we’ll also shed some light on how a few transparent and ethical PBMs–not owned by Big Insurance–are saving employers and patients millions of dollars.