Pharmacy Benefit Managers Are Crucial to Competitive Drug Pricing

Pharmacy benefit managers have come under intense fire in recent months by the Federal Trade Commission for alleged anti-competitive rebating practices on insulin and by Congress for their alleged role in keeping overall drug prices unfairly high.

But PBMs, which have been portrayed in several lawsuits as unscrupulous drug middlemen, are actually a crucial part of the pharmaceutical supply chain. In my testimony to Congress last month, I urged lawmakers to carefully consider the implications of legislation that would weaken the role of PBMs and ultimately harm American consumers.

PBMs negotiate with pharmaceutical companies to secure lower drug costs for their clients, which include employers, unions, state Medicaid programs, and Medicare enrollees. These price concessions typically come in the form of rebates, rather than outright price reductions, due to the constraints of the Robinson-Patman Act, which prohibits selective price discounts to specific buyers.

The rebates help lower both health insurance premiums and patients’ out-of-pocket costs. Pharmaceutical companies often portray these rebates as nefarious “kickbacks.” This characterization is often accepted without challenge, revealing the influence and distorted reality of the pharmaceutical industry’s narrative.

Efforts to weaken PBMs, such as by restricting rebates or limiting available negotiation tools, strengthen the pharmaceutical industry’s bargaining power, as I pointed out in my testimony. Many of the so-called reforms like those in the proposed Pharmacy Benefit Manager Reform Act—including banning spread pricing and mandating full pass-through of rebates to plan sponsors—would increase revenue for drug companies and pharmacists but would do nothing to reduce the prices health plans pay for drugs.

Similarly, pharmacies that complain about PBMs undermining their business by promoting direct drug delivery—and creating high-performance, low-cost pharmacy networks—overlook an essential point: Lowering drug costs benefits everyone. Studies show that poor medication adherence is a significant problem for patients with chronic diseases, and direct delivery can greatly improve adherence.

PBMs have pressured pharmacies, long accustomed to generous dispensing fees, to lower their costs and improve efficiency. Not all pharmacies have adapted to this market-driven environment, and some have closed. Patients in rural areas with limited pharmacy access may disproportionately suffer in this process, so care and nuance in balancing priorities is essential.

Rather than dismantle mechanisms that counterbalance high drug costs, we should focus on enhancing market competition throughout the pharmaceutical supply chain. Preserving PBMs’ ability to negotiate lower prices—which has saved patients and governments billions of dollars—remains the most effective way to lower costs and improve patient access to care.

The stakes are high—not just for the health-care system, but for every American who depends on affordable access to medications. The choices made now about regulating PBMs and the prescription drug market will determine whether we continue to have a health-care system that prioritizes patients or one that places undue financial burdens on them.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Anthony LoSasso is professor and chair of the economics department at DePaul University.

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