ICYMI: Former DOJ Economist Finds PBMs Foster Competition, Reduce Drug Costs In New Report

In case you missed it, Dennis W. Carlton, Ph.D., David McDaniel Keller Professor of Economics Emeritus at the University of Chicago Booth School of Business, one of the leading industrial organization economists in the country, and former chief economist at the U.S. Department of Justice (DOJ) Antitrust Division, released a report that unveiled pharmacy benefit managers (PBMs) encourage greater competition in the prescription drug supply chain and lower drug costs.

Many recent conversations around PBMs reflect a one-sided view informed directly by the pharmaceutical industry's blame game designed to vilify PBMs to keep prescription drug prices high and increase drug company profits, ignoring the various analyses and reports that underscore the value and role PBMs play in the prescription drug supply chain to lower drug costs.

On the report, Dr. Carlton concluded:

"After analyzing data from the three largest PBMs over the past several months, my research, which also draws on the same information provided to the FTC, supports the argument that PBMs deliver value to plan sponsors and their members by negotiating significant discounts and rebates, and managing drug formularies to favor cost-effective medications. My findings are consistent with other studies that show that actions inhibiting the PBMs' ability to provide this value are likely to lead to higher drug costs. Simply put, overall PBMs play an important role in making medications more affordable while ensuring that plan members have access to necessary treatments."

Findings from the report include:

PBMs lower drug costs for health plan sponsors, patients and families:

• Negotiating Savings for Plan Sponsors and Members: Contrary to claims by critics, PBMs pass-through to plan sponsors almost all rebates and fees negotiated with drug manufacturers. The average pass-through rate has increased over time and was close to 100 percent by 2020 and 2021.
• Retail Pharmacy Spread: The average retail pharmacy spread, which is the difference between the amount that plan sponsors pay to PBMs for a prescription and the amount retained by PBMs is below two percent. Survey evidence indicates that most plans have a zero retail spread.
• Operating Margins: PBM operating margins were below five percent in recent years and were lower in 2022 than they were in 2017. These margin data contradict claims that PBMs are responsible for the high drug costs by earning excess profits that have been increasing over time.

Rebates and PBM-affiliated pharmacies are not increasing costs:

• Rebates and Prices: The data on rebates and list prices show that list prices of rebated branded drugs are not systematically increasing at a higher rate than list prices of non-rebated branded drugs. The data also show that the real net price paid by plan sponsors and members for rebated branded drugs declined 13 percent between 2017-2021 while the real net price paid for non-rebated branded drugs increased six percent.
• PBM-Affiliated Pharmacies: The data contradict the claims that PBMs are using their affiliated pharmacies to raise costs for plan sponsors and members. When comparing the total payments by plan sponsors and members, payments for all drugs dispensed at affiliated pharmacies are roughly four percent lower than payments for the same drugs at non-affiliated pharmacies.

PBMs do not put independent pharmacies out of business:

• Independent Pharmacy Locations Have Increased: According to industry data, the number of independent pharmacy locations increased by nine percent between 2011 and 2021. The number of chain pharmacy locations has fallen over that same period.
• Gross Margins: The gross margins of independent pharmacies have not fallen over time, holding at roughly 23 percent from 2011 through 2021.
• Reimbursement Rates: Data show that reimbursement rates paid to independent pharmacies are generally higher than the reimbursement rates paid to non-affiliated chain pharmacies, for both non-specialty branded drugs (four percent higher for independents) and non-specialty generic drugs (24 percent higher for independents).

PCMA did not participate in the creation or financing of the research.

See the full report HERE.

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PCMA is the national association representing America's pharmacy benefit companies. Pharmacy benefit companies are working every day to secure savings, enable better health outcomes, and support access to quality prescription drug coverage for more than 275 million patients.

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