When the Federal Trade Commission started to investigate pharmacy benefit managers in 2022, the agency asked the country’s largest PBMs to provide employee data, including names, responsibilities, and contact information.
One of the PBMs responded by mailing the FTC a general company phone book; the agency was expecting organized, detailed information suited to its requests, not a random directory of names.
“That’s the kind of arrogance that we’re dealing with where they just haven’t had to answer questions for so long,” said Representative Jake Auchincloss, a Newton Democrat, who related the anecdote to a recent gathering at Harvard Medical School. “They don’t even know what it feels like anymore to have some scrutiny.”
The companies certainly do now. Pharmacy benefit managers have become the new boogeymen in health care. The FTC will reportedly sue a group of PBMs for inflating insulin prices. In Congress and in the state Legislature, the industry has faced adversarial hearings and a flurry of proposed legislation.
The intensifying debate over pharmacy benefits managers could mean significant changes for how consumers get their drugs — and how much they pay. The issue is also of particular economic importance to the region: CVS, based in Woonsocket, R.I., owns the country’s largest PBM in Caremark.
In recent years, CVS has grown ever more reliant on Caremark for its bottom line. The health services unit, which includes Caremark, is now the top performing business at CVS. In 2019, it generated $5.1 billion, a third of CVS’s total adjusted operating income. By 2023, that number jumped to $7.3 billion, or 41 percent of overall profits.
On the surface, PBMs are companies tasked by payers — insurance firms and employers — to manage the complex task of buying and distributing prescription drugs. They design benefits, process claims, and negotiate prices.
But PBMs have accumulated massive market power, positioning themselves at the center of three-way, real-time negotiations among payers, pharmacies, and drug manufacturers. As a result, PBMs determine everything from which drugs insurers will cover to how much consumers pay for their prescriptions at a pharmacy.
Critics say these companies, especially Caremark, Optum, and ExpressScripts, have used their power to make obscene amounts of money, often at the expense of pharmacies, patients, and even their own clients. They have been accused of driving up drug prices, driving out independent pharmacies, and creating pharmacy deserts — pockets where most residents live more than a mile from their nearest drugstore.
Auchincloss has coauthored a bill before Congress that would require PBMs to more fairly pay pharmacies for their services and share manufacturer rebates with patients. Other proposals both in Congress and state legislatures call for PBMs to disclose more financial data, obtain licenses from state regulators, and reimburse pharmacies closer to the actual price the pharmacies paid for generic drugs.
“PBMs nested themselves in the middle of the supply chain,” Auchincloss said in a recent interview. “They shielded themselves from public scrutiny, and they got greedy.”
However, PBMs say they already work hard to reduce the cost of prescriptions to patients.
“The fact is that without PBMs, consumers would likely pay more for their drugs at the pharmacy counter,” CVS Caremark said in a statement. The company “remains focused on this work, and we welcome the opportunity to work with legislators addressing the root cause of high drug costs: Big Pharma’s high list prices.”
However, several studies offer mixed conclusions about PBMs’ impact on drug prices. Some researchers say the companies pocket savings that should go to consumers, while other reports say PBMs actually lowered prices for patients.
Nevertheless, PBMs are facing greater scrutiny in the courtroom. A group of employees recently sued Wells Fargo for allowing ExpressScripts to manage their health plan in a way that caused workers to overpay for generic drugs. Johnson & Johnson faces a similar lawsuit.
“The PBMs have recognized that they have enormous opportunity to make profit,” said Bill Kramer, senior health adviser for the Purchaser Business Group on Health in Seattle, a group consisting of companies that hire PBMs but are highly critical of their business practices. “They took advantage of the complexity of the market to skim off money that could have been passed on as savings to employers, other purchasers, and patients.”
Pharmacists actually founded the first PBMs in the United States in the 1960s. At the time, private insurance firms had begun to offer coverage for prescription drugs and needed help processing the increasing volume of claims.
Over the ensuing decades, PBMs expanded their power by serving as the primary contact point between payers, drug manufacturers, and pharmacies.
Using their inside knowledge of the pharmaceutical industry, the companies have been able to pocket manufacturer rebates, extract fees, and influence prices, experts say.
For example, pharmacies normally purchase drugs based on consumer needs in their markets. The pharmacies then submit claims to the PBMs, who reimburse them. But PBMs have been increasingly lowering reimbursement rates to pharmacies, to the point where the payments don’t even fully cover the pharmacies’ cost of purchasing the drugs.
As a result, thousands of pharmacies across the country — both independent and those owned by CVS, Walgreens, and Rite Aid — have shut down, with Rite Aid even filing for bankruptcy. Experts say those closures create pharmacy deserts, which tend to more frequently impact people of color. A Globe analysis found that almost 15,000 people in Boston live in such deserts, without a reliable place to go for prescriptions, over-the-counter treatments, and medical advice.
Patient groups have also alleged that PBMs, which decide which drugs insurers and employers will cover, often choose expensive medications that will earn them the biggest rebate from the manufacturer.
“Those rebates don’t go to patients,” said Hunter Limbaugh, board chairman of the Diabetes Patient Advocacy Coalition, based in Columbia, S.C. “The entire system is rigged, so patients pay more for their drugs than they should be paying.”
These matters have caught the eye of the FTC and Congress, especially during a presidential election year, in which health care costs and access tend to be major campaign issues.
Last month, the FTC issued a scathing report that echoed much of the criticism against PBMs.
“They wield enormous power and influence over patients’ access to drugs and the prices they pay,” the report said. “This can have dire consequences for Americans, with nearly three in 10 surveyed Americans reporting rationing or even skipping doses of their prescribed medicines due to high costs.”
However, Stuart Piltch, president of Risk Strategies Consulting, thinks regulators and lawmakers might be going too far. Yes, PBMs make a lot of money, he said, but they are also the only companies with the expertise and experience to manage an incredibly complex part of the country’s unwieldy health care system.
“They are not criminals,” Piltch said.
And PBMs have created a lot of innovations that have benefited consumers, said CVS Health CEO Karen Lynch.
“What I would say about PBMs is that they have time and time again demonstrated that they reduce overall pharmacy costs, and we have data that proves that,” she said.
For example, Lynch said, Caremark recently introduced biosimilars, which are cheaper generic versions of specialty drugs, high-cost treatments for chronic, complex diseases like cancer, rheumatoid arthritis, HIV, and Hepatitis C. Biosimilars have already saved consumers $300 million, she said.
Tom Siepka, chief pharmacy officer for the Community Care Cooperative in Boston, agrees that PBMs have done a lot of good for the industry. The national organization helps nonprofit community health centers open their own pharmacies.
But Siepka also thinks that the companies have focused too much on making money and generated more profits than they should be making.
“There’s got to be limits,” he said. The PBMs have “lost sight of their mission.”
Thomas Lee can be reached at thomas.lee@globe.com.