Can someone tell me what a PBM does?

Reviewed by James Ives, M.Psych. (Editor)Apr 10 2019

It was back-to-school day at the Senate Finance Committee hearing Tuesday morning. In the third of a series of hearings on rising drug prices, the senators seemed focused on getting an answer to one central question: What the heck is a pharmacy benefit manager?

Pharmacy benefit managers, or PBMs, are the go-between companies that negotiate with drugmakers on which medicines will make insurance plans' lists of covered drugs and how much insurers' plans will pay for them. This amount often involves rebates paid by the drugmaker to the PBM, and those savings are generally not passed on to the customer at the pharmacy counter. But when a consumer uses his or her health coverage to fill a prescription, PBMs are involved in paying the claim and setting the amount the consumers owes.

PBMs and drug manufacturers are prominent players in the drug-pricing pipeline and each group has been trying to blame the other for soaring prices. PBMs increasingly seem to be in the hot seat — specifically targeted in a public relations campaign by the Pharmaceutical Research and Manufacturers of America, the powerful and influential trade association of the drug industry.

The hearing attracted so many people that some spectators were turned away. Well over a dozen reporters were on hand to cover the proceedings.

Representatives from Cigna, CVS Caremark, UnitedHealthcare’s OptumRx, Humana and Prime Therapeutics, all PBMs, testified on the ins and outs of their little-understood industry, disputing the idea that they are simply "middlemen" taking their cut, but rather pharmacy experts looking for the most effective and cheapest drugs for their clients.

Though they've been around for decades, the new attention on PBMs had senators playing catch-up, trying to sort out and demystify exactly what they are and what they do.

"Despite this vast influence over what often amounts to life and death, many consumers have very little insight into the workings of PBMs," Sen. Chuck Grassley (R-Iowa), chairman of the Finance Committee, said in his opening statement.

Sen. Ron Wyden (D-Ore.), the panel's ranking member, called PBM negotiations "the most gnarled, confounding riddles," before giving the packed committee room a lesson in "PBM 101."

"What PBMs do to earn all those profits is a mystery," Wyden said.

Sen. John Cornyn (R-Texas) used his time to ask a series of five yes-or-no questions to the all-male panel.

"I'm trying to understand the basic features of the contracts between manufacturers and PBMs," he said. "I need to establish basic facts about how it works."

Senators pressed the witnesses for answers about their relationships to manufacturers. Did PBMs ever persuade drug companies to set a higher list price so the PBM could have more flexibility to negotiate a rebate? They all answered no.

Some lines of questioning were less fruitful than others.

"Are there any other egregious anti-consumer practices in your industry you'd like to highlight?" Sen. Debbie Stabenow (D-Mich.) asked.

The complete silence suggested there were not.

Sen. Sherrod Brown (D-Ohio) brought up the Trump administration's proposal to eliminate drug rebates as a means of negotiation. He also used his question as an opportunity to call attention to Health and Human Services Secretary Alex Azar's past job as an Eli Lilly executive and to hint at how drug companies also were part of the problem.

"So to recap, PBMs do not set drug prices," Brown said. "The administration rule will not change that fact." Then Brown got to the point that numerous surveys have shown is a primary health care concern among Americans: high drug prices. "Most importantly, absolutely nothing in the proposed rule would require Secretary Azar's former employer or any other pharma company to lower their price for insulin or any other drug," he said.

"We should be focused on solutions that would lead to lower drug prices, like my legislation to allow Medicare to negotiate on behalf of all Part D drugs and to prohibit price gouging," Brown added.

The witnesses said the key to lowering drug prices was not increased public transparency around the process or having the government negotiate drug prices. Instead, they advocated more competition in the drug market, something that would affect their favorite foe — drug manufacturers — the most.

"It sure looks to me like you all are taking deliberate actions to pad your bottom line at the expense of patients," Grassley said.