In the children’s tale “The Emperor’s New Clothes” by Hans Christian Andersen, the King is duped by a tailor promising him a suit of material so fine that it is only visible to those worthy. As the King parades around the kingdom completely naked, most everyone is afraid to tell him about his mistake.
This tale, since translated into over 100 languages, tells story of a situation where no one believes, but everyone believes that everyone else believes. This idiom applies today as well as it did when the story was first published in 1837.
PBMs are simply middlemen. They don’t sell drug product. PBMs don’t see patients. They don’t provide patient care. What a PBM does do is quite simple: the PBM provides claim processing, providing service to both the pharmacy and the payor.
This started out as a per-claim fee pharmacies paid for processing. The payor would then pay the pharmacy. Today, the PBM is in the middle of the payment transaction as well. Besides charging the pharmacy for claims processing, the PBM now makes money on the very drug product they never purchase. They do this by charging the payor more for the drug than they pay the pharmacy. This trickery is called the spread.
By ingraining themselves so deeply into the produces, pharmacy benefit managers (PBMs) have duped Medicare and other Payors into buying an invisible suit. The PBM markets and sells a pharamacy network to the payor. PBMs make promises to save the payor money by managing all aspects of the prescription benefit for the payor. This sounds reasonable, but over the last decade, PBM profits have steadily grown to tens of BILLIONS of dollars: the middleman is doing quite well. It is good to be the tailor to the King.
With PBM profits being so high, the the question needs to be asked: why has the cost of access to these networks become so high? The network of pharmacies offered by a PBM is certainly not exclusive. Most every pharmacy is a provider for multiple networks. And I have yet to see a pharmacy unwilling to provide care for a patient that is not in one of their networks. The “access” being sold is entirely artificial; an invisible suit sewn by the PBMs.
If a payor wanted to significantly cut its drug expenses, it would eliminate the spread pricing used by the PBM. The payor would demand price transparency. The price paid to the pharmacy would be the price the payor paid the PBM: the PBM would charge a simple fee for its service, just like it did in the beginning. This could save payors BILLIONS of dollars, benefiting even small payor organizations. The larger the payor, the more savings that could be realized by transparency. Medicare, the largest payor, could benefit significantly.
The truth is that the King is naked. It is time speak up and demand PBM transparency at a federal level.
