Whether you need prescription medication, own a neighborhood pharmacy or simply pay taxes in New York, the prescription drug middlemen known as PBMs are hurting you every day.
You can learn more about how PBMs work here.
While senior citizens and chronically ill New Yorkers are especially dependent on prescription drugs, most of us rely on them at one point or another. As patients, PBMs impact all of us. How? In two key ways:
PBMs:
Insurers – including state Medicaid programs – contract with PBMs to provide a number of services. One job of the PBMs is to negotiate prices with manufacturers, in theory to get the lowest prices for insurers, and therefore, for you. PBMs have a lot of leverage over manufacturers, which puts them in a great position to negotiate. Where does that leverage come from?
While you might assume doctors are the ones deciding what drugs are covered by insurance, it is actually PBMs that make those decisions. In order to be profitable, manufacturers need their drugs to be covered, which makes the PBMs gatekeepers. So a pay-to-play system ensues in which manufacturers offer PBMs rebates that go straight into the PBMs’ pockets. How is that possible? PBMs are not required to disclose those rebates. So two things happen. Because more expensive drugs mean bigger rebates, PBMs are incentivized to favor drugs that cost more, keep drug prices high or even pressure manufacturers to inflate prices. And manufacturers build the cost of those rebates into their prices, again keeping costs high.
PBMs also control what drugs your doctors can prescribe you, making healthcare decisions based not on your best interests but on maximizing profit.
Increasingly, PBMs are requiring doctors to seek prior authorization before pharmacies can fill prescriptions for certain drugs. Prior authorization programs can:
If you don’t take prescription medication, you might think PBMs aren’t hurting you. But if you’re a taxpayer in New York, PBMs are ripping you off whether or not you ever step foot in a pharmacy. In fact, PBMs ripped New York taxpayers off to the tune of a whopping $300 million between April 1, 2017 and March 30, 20181. How?
PBMs collect money from insurers to reimburse pharmacies for the drugs they dispense to patients. But PBMs don’t have to tell insurers what those drugs cost or how much they’re passing along to pharmacies. And pharmacies have no idea how much the PBMs are collecting from insurers. PBMs continue to reduce the amount they’re reimbursing pharmacies for dispensing the drugs, without passing along any savings to insurers. In New York, the biggest insurer is the state’s Medicaid program, and the money it sends to PBMs comes from taxpayers. Between 2017 and 2018, New York Medicaid PBMs were able to overcharge taxpayers by 24% by cutting pharmacy reimbursements 83%.
And it’s not just New York taxpayers who are getting ripped off. In Ohio, a series of investigative news stories in the Columbus Dispatch prompted a state audit, which found that PBMs overcharged taxpayers by more than $200 million between April 1, 2017 and March 31, 2018.
13 Axis Advisors. (2019). Analysis of PBM Spread Pricing in New York Medicaid Managed Care. Bellbrook, OH
Independent neighborhood pharmacies – which have long been cornerstones of their communities across New York – are being choked out. In 2018, more than 2/3 of neighborhood pharmacies were forced to let employees go or reduce hours in 2018. Why?
It’s not due to competition from chain pharmacies.
While most businesses purchase inventory and recoup those costs when they sell product to customers, the prescription drug distribution system is different. Pharmacies have no say in what patients pay for drugs, and recoup their costs through reimbursements they receive from PBMs.
The PBMs decide how much pharmacies are reimbursed for the drugs they dispense, and can change those rates as often as they want without warning. In recent years, reimbursement rates have steadily declined, with pharmacies often recouping less than what they paid for drugs.
From the start of 2017 to the end of 2018, New York Medicaid PBMs cut pharmacy reimbursements a stunning 83%. In Q4 2017, PBMs paid pharmacies less than what it cost them to dispense the drugs 99% of the time, and less than what it cost them to acquire the drugs 46% of the time.
According to a survey of New York’s independent pharmacy owners in January 2019, abusive PBM practices are taking a serious toll on the small businesses. In addition to the 68% of respondents who laid off employees or reduced hours in 2018 as a result of declining reimbursements, a remarkable 95% are considering doing so in 2019.
Unfortunately, pharmacies are beholden to PBMs, which control access to both patients and revenue.
2New York City Pharmacists Society. (2019). Survey of NY Independent Pharmacists on PBM Impacts. New York, NY.