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PBMs Blame Drug Companies for High Prices

By September 7, 2018Commentary

The war over high drug prices even has former buddies feuding.  The reality is that the pharmacy benefit managers and the drug makers had created a nice symbiotic system which created lots of profits for both them, to the financial detriment of health plans and consumers.  Then people started complaining even more loudly about high drug prices, then they realized that the PBMs might not be completely transparent in how they made money, and now the PBMs are feeling a little defensive.  So they have been going right back at the manufacturers.  Personally, I am enjoying seeing all the participants show us just how guilty everyone is of rapacious behavior.   Here is the latest assault on drug companies by the PBMs.   (PCMA Paper)  The thrust of this paper is that even on drugs where there are no rebates, prices are very high and price increases frequent and large, so it can’t be the need to provide rebates that is driving prices up.  I buy the first part, not sure about the second.

The report first notes that average prescription prices on launch have gone by more than $500 a year since 2005.  That doesn’t really tell you anything because some drugs do cost more to develop and manufacture and so might justifiably have higher prices.  Therefore the mix of drugs in a year has a lot to do with launch pricing.  Next they take a list of drugs covered by Part B of Medicare, and which have no rebates to PBMs, and find that from 2012 to 2017 price per prescription has risen from 76% to over 3000%.  Then they take commonly used Part B drugs and find increases in the same time period ranging from 16% to 74%.  The same thing holds true for medications without rebates in Part D.  The report also says that there is no correlation between a drug’s rebate level and price increases and that Part D plan profits and administrative expenses are not associated with manufacturer rebate levels.  Now here is a hilarious one, they claim that PBM profit margins are the smallest in the drug supply chain.  Of course, if you inflate your revenue by taking the drug costs into it, your margins are going to look low.  If you take the drug costs out, where the PBMs have no real risk, their margins are extremely high, as are the returns on capital, so cut the BS.  The PBMs also claim that manufacturers are raising prices to offset declining brand drug volume, which the report says is a result of aggressive PBM efforts to encourage use of generics.  Funny, but I didn’t see anything in there about high generic price increases or the profits PBMs make on generics.

There is no doubt that manufacturers engage in dubious, at best, pricing practices, and are using a government-granted patent monopoly to extract outrageous profits.  There is also no doubt that PBMs contribute to high prices so that they also can make large profits.  If I make an effort, I am sure I could continue this series by finding a study where manufacturers blame PBMs, PBMs blame providers, PBMs and manufacturers blame health plans, etc., etc.  If you go to Adam Feinberg’s outstanding website,, he has a lot of excellent analysis on where the money goes in the drug racket.  Personally, the topic is making me nauseous, since everyone has known forever about these issues and no one is doing anything to actually lower prices.  (Can  you say–don’t rock the boat on those political contributions.)  I keep advocating for use of the patent-granting power to limit prices and price increases.  Take away those extended patent lives and prices will go lower very quickly.

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