The Problem
One of the core functions of PBMs is to negotiate drug prices with drug manufacturers, in theory to make drugs cheaper for patients. In practice, PBMs tend to negotiate not the list price for a drug but rather rebates (discounts) from drug manufacturers, which decrease the net price of a drug after the rebates are applied. In theory, these discounts should be passed on to the patient and their insurance company to decrease the effective price. However, PBMs often do not pass these rebates on, such that the patient sees none of those benefits at the pharmacy counter.
Furthermore, PBMs generally negotiate these rebates as a percentage of the drug’s list price. This means that the PBM will get a larger rebate for a more expensive drug, and the PBM has an incentive to choose and negotiate discounts for costlier drugs rather than cheaper equivalents. As a result, the PBM is often selecting more expensive drugs for the patient in order to get a higher rebate, and then the PBM does not even pass the rebate on to the patient.
The Solution
State lawmakers can require that PBMs pass on to patients 100% of the rebates that they negotiate with drug manufacturers. This will immediately reduce the cost of drugs for many patients, and it will eliminate or reduce PBMs’ incentives to select more expensive drugs for insurance coverage.
Model Legislation
West Virginia HB 2263 requires PBMs to pass through 100% of rebates to the patient at the pharmacy counter.[1]
Notes
[1] West Virginia HB 2263, https://www.wvlegislature.gov/Bill_Status/bills_text.cfm?billdoc=HB2263%20SUB%20ENR.htm&yr=2021&sesstype=RS&billtype=B&houseorig=H&i=2263.