Several states plan to push for more Regulation of Pharmacy Benefit Managers (PBM's)

With increased pressure on medical costs, many states have chosen to rely on PBM’s to help administer prescription drug benefits for state’s Medicaid and Medicare programs. A controversial issue in that cost goes down, but access and product choice are also severely limited. If cost is the only concern, then well regulated PBM’s can be useful. Again, PBM’s  often drive down cost not only by using economies of scale to guarantee more competitive pricing, but by curtailing the ability of patients and doctors to select the most medically appropriate intervention as opposed to the least expensive one.
Several states plan to push for more regulation of Pharmacy Benefit Managers.  To get a drug on a health plan’s benefit list or formulary, drug companies make payments to PBMs that are proportionate to how often the drug is prescribed.  PBMs boost their profits by pocketing some or all of these payments instead of passing them along as savings to their customers.  Consumers benefit by requiring transparency, a fiduciary relationship, and annual audits of all PBMs to insure that the full value of negotiated discounts, rebates, or other financial considerations are passed through.  Several states have enacted PBM transparency laws, and of those Texas, Maine, Maryland, and the District of Columbia have the strongest.
Facts on Pharmacy Benefit Manager:

  • Three PBM companies administer 80% of all private prescription coverage and each pocket annual revenues exceeding $15 billion.
  • The three largest PBM companies manage the drug benefits for 95% of Americans with prescription drug coverage.
  • From 1997 to 1999, Medco Managed Care, then a subsidiary of Merck, was paid $3.5 billion in rebates it negotiated from manufacturers, the majority of which were not passed through to health plans and consumers.
  • Illinois has estimated it could save $10 million annually by directly negotiating prescription drug prices for the state employee health plan instead of using a PBM.
  • The University of Michigan saved $8.6 million in 2003 by downsizing from 5 to 1 PBMs and better regulating the single remaining manager.

Courtesy: Progressive States Network (November 23, 2009) located at:

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