The Games They Play

The pharmaceutical company sets the list price of a drug. The pharmaceutical companies will say the high list prices are used to invest in research and development. But there isn’t a clear connection that high launch prices pay for the research and development. The pharmaceutical companies also use high list prices for drugs to give them flexibility to negotiate the price down with “rebates” that go to PBMs and insurers. As for patients who do not have insurance...well, they would be charged the list price, if they do not have other assistance.

Pharmaceutical companies use various methods to extend their patents and keep generic competitors off the market. Meanwhile, other pharmaceutical companies may be ready and able to produce a generic version of the drug, which would lower costs for patients.

PBMs claim that the deals they strike behind closed doors between pharmaceutical companies and health insurers save patients money. PBMs hide information from patients and health care providers, as well as insurers. PBMs often use “clawbacks” (also called DIR fees and GER fees), taking money from pharmacies, without clear justification about why these fees are charged months after the patient picked up the drug from the pharmacy.

PBMs charge fees and make profits all the way down the pharmaceutical supply chain, while insisting that they pass on savings to patients from the deals they strike. How does this work? PBMs create a formulary of drugs that the insurance company may choose to use. Pharmaceutical companies want their brand-name drug on the formulary. To gain a favorable spot, they offer the PBM a rebate. The PBM will list the expensive, brand-named drugs on the formulary when cheaper, generic drugs are available, because it leads to more money in rebates. Patients then purchase the more expensive drug that is listed on their insurance company’s formulary.

PBMs limit patient options surrounding where they receive their medications and how much supply they need. Insurers and PBMs force patients to receive medications from pharmacies they own, when the medication may be available at another in-network pharmacy. These pharmacies can sometimes be described as “specialty” pharmacies. Insurers and PBMs may also force patients or their provider to receive medications in the mail, practices called "brown bagging" and “white bagging”, respectively. PBMs may force patients to receive 90 days’ worth of medication, forcing them to pay higher copays quarterly rather than monthly. In addition to the higher costs, this may cause waste as patients may need less than 90 days of supply.