How pharmacy benefit managers power medication affordability
As drug prices continue to rise, Optum Rx is creating innovative solutions that provide affordable access to medications. And yet, there is still a lot of confusion and misinformation around the role of pharmacy benefit managers (PBMs).
Most prominent are the different legislative inquiries investigating PBM activities.1 In addition, the pharmaceutical makers have tried to position PBMs as "middlemen" responsible for driving up the cost of drugs.2 In fact, pharma has by far the biggest lobbying operation in the U.S., spending $374 million in 2022 — nearly 70% more than the next ranked industry.3
Since only drug manufacturers have the power to set drug prices, PBMs are the only counterweight to high drug costs in the health care system.
In order to bring some clarity to this discussion, let’s look at the facts.
What research tells us about the role of a PBM in health care
There are several valuable resources we can consult about the roles of PBMs. We will focus here on 3 very recent sources of information:
- A Brookings Institute report from September 2023 that reviews the most prominent changes proposed for PBMs in the current policy debates (“Brookings”)4
- Senate testimony from March 2023 describing the history and function of PBMs by Professor Lawton Robert Burns of the Wharton School of Business, based on his 2022 book The Healthcare Value Chain: Demystifying the Role of GPOs and PBMs (“Burns")5
- A paper written by former Chief Economist for the Council of Economic Advisers, Casey B. Mulligan, PhD. in July 2022 that was published through the University of Chicago Department of Economics and quantifies the economic impact of PBMs (“Mulligan”)6
All of these documents are worth exploring in detail, but we can highlight some basic findings.
- If PBMs didn’t perform utilization management or price negotiations, plan sponsors would likely have to do it themselves. The alternative would be unacceptable waste and increased cost. Mulligan calculates that having PBMs do this work contributes $145 billion per year to the economy, even after the cost of paying the PBMs.14
- PBM bargaining power requires purchasing volume to achieve leverage over product suppliers. Robust PBM buying power has helped them to negotiate lower drug prices and keep annual price growth low.12,13
- PBM formularies promote quality care through the decisions made by Pharmacy and Therapeutics (P&T) Committees. They consist primarily of clinicians who are charged with reviewing the scientific evidence for each drug — before any cost considerations.15
- PBMs promote competition among drug manufacturers. Makers of similar products compete by granting price concessions to get on PBM formularies.16,17
- The various criticisms of PBMs and their suggested remedies consistently fail on close analysis. Burns finds that most criticisms don’t hold up to the available evidence.10 Brookings concludes that in many cases the proposed solutions might be viable. But they might either be ineffective, or even make the situation worse.11
A recent development extends this principle to the new biosimilar versions of the popular biologic drug, Humira®. Optum Rx was the first PBM to announce additional biosimilar versions of Humira to its standard formularies so clients and members could benefit from lower net-cost options.
Learnings: Aligning with clients' needs
The marketplace ensures that if PBMs were not accomplishing these goals, their customers would become dissatisfied and leave.18,19 But in fact, the Optum Rx client retention rate consistently exceeds 98%, while 9 out of 10 clients express their satisfaction with our clinical insights and recommendations.20
In summary, when these experts take a hard look at PBMs, they do not see an industry in dire need of an overhaul. Rather, they see a robust, evolving array of programs and services that are successfully addressing their client’s needs.
Next, we’ll look at a particular example of how PBMs are closely aligned with their clients’ needs: generic drugs.
The rise of generic drugs
We all know that generic drugs save money, but it’s a little shocking to realize just how much.