New AMA report calls for state regulation of drug price middlemen

The American Medical Association (AMA) released a new report Thursday that puts pharmacy benefits managers (PBMs) back in focus as a key player in high drug costs.

The role of PBMs in the health care ecosystem has been a hotly debated topic in recent years, as the so-called "middle managers" of prescriptions — between insurers and pharmaceutical companies — have integrated with major insurers.

The blurring of the lines adds to an opaque process of drug rebates and impacts the final cost of drugs that patients pay.

The AMA argues that over time, PBMs have morphed and are now acting like insurance companies — which are regulated at the state level.

"PBMs were created in the 1960s to help health insurers contain drug spending. PBMs can stimulate price competition among drug manufacturers by shifting demand among competing substitute drugs. In turn, manufacturers offer rebates to PBMs for their drugs to be placed favorably in a drug formulary, which PBMs are then supposed to pass on to insurers or employers," according to AMA's report.

AMA President Dr. Jack Resneck, Jr., told Yahoo Finance that these entities are "now really, fully, administering drug benefit plans. Whether it's creating formularies or making coverage decisions or doing utilization management or creating the pharmacy networks or negotiating reductions and dispensing fees."

And with so few players in the market — of which some are exclusive to one major health insurer —competition is slim.

Drug companies have complained that they raise list prices because of the increased rebates paid to PBMs — an issue the FTC has begun to address — and are themselves facing scrutiny over the pricing.

While the Inflation Reduction Act sought to curb high prices largely impacting Medicare, the Centers for Medicare and Medicaid Services (CMS) has said in calculating penalties for price increases it will consider the commercial market price hikes.

Meanwhile, the AMA, and groups like it, have been lobbying for more oversight and curbing of the power of PBMs. It is part of a blame game the industry has been engaged in over who is responsible for the high cost of America's health care.

"There's no single source of escalation (in cost) of health care, or we would have solved this a long time ago. But this is...where we've seen a lot of dramatic change in the last decade. This is an area where cost has just increasingly been a barrier for our patients," Resneck said.

"As physicians, we expect new discoveries and new medications that have a lot of R&D to be somewhat expensive when they first come out. But the reality of what we're seeing for our patients is that even those targeted drugs and biologics, 10 years after they come out, they seem to be doubling and tripling and quadrupling in price" and the generic marketplace isn't working as it should with offering lower costs, Resneck added.

Which is why AMA is turning to state governments, and the role they play in regulating insurers, to address the issue.

The report highlights the various markets that PBMS operate in, and how much of the market is served by each PBM. It is limited in scope in that it is based on the commercial insurance market and does not include employer-sponsored programs — which could work with the same or a different PBM than the one owned or affiliated with the insurance company used.

AMA's report shows that the four largest PBMs have 66% of the national market, and all 10 major PBMs have 97% of the market.

The biggest ones are Express Scripts, owned by Cigna (CI), OptumRx, owned by United Health Group (UNH), Kaiser Pharmacy, owned by Kaiser Permanente, IngenioRx which serves Anthem's markets as well as some CVS (CVS) markets, and Caremark, owned by CVS.

The report covers states and Census metro areas and identifies the top two PBMs in each market for the services they provide, including price negotiations, retail pharmacy networks, and claims adjudication.

Densely-populated areas, like New York City and Boston, tend to have lower concentrations of a single PBM. But less populated areas like Gadsden, Ala,. have 90% penetration from a single PBM — Blue Cross Blue Shield Association's Prime Therapeutics.

Those areas are especially concerning for AMA, because of the impact on patients. And as pressure for transparency increases in health care, PBMs remain opaque by comparison, and without specific oversight.

Some states have begun to create laws and regulations to control some services, but there is still more work that needs to be done to rein in costs, Resneck said.

"There's just a lot of things that can happen if this space gets non-competitive," he said.

Follow Anjalee on Twitter @AnjKhem

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