Illuminating and Eliminating the Hidden Drivers of Rising Healthcare Costs :: Fox&Hounds


The concerns of California families over the rising costs of healthcare have precipitated an important statewide conversation over how each part of the healthcare system – including physicians, health insurers, and drug manufacturers – can do their part to rein in costs.

As a practicing OB/GYN and the President of the California Medical Association—a group representing more than 43,000 physicians in our state—my colleagues and I are committed to doing our share.

Yet there is one part of our healthcare system that has avoided serious scrutiny even though it has a significant impact on healthcare costs, particularly when it comes to the price of prescription medications: pharmacy benefit managers.

Pharmacy benefit managers (often referred to as “PBM”s) are middlemen hired by insurance companies to administer the prescription drug portions of health plans. Some of the largest PBMs include Express Scripts, CVS Caremark, and Optum Rx. More than 180 million Americans have their drug benefits managed by these companies.

The problem is that these middlemen often put profit ahead of the patient.

Because PBMs manage the prescriptions for a large number of patients, they are meant to use their market weight to negotiate lower prices from drug companies.  When they do actually secure lower prices from manufacturers, they do not necessarily pass the savings along to policyholders.  In fact, some PBMs just pocket for themselves rebates from drug companies that are meant for patients.  In other cases, PBMs actually raise the cost for policyholders by setting the copayment for a medication higher than the actual price the drug maker charges.

The result is that these companies earn millions of dollars—Express Scripts reported over $660 million in profits in 2015 alone—while patients pay more. One insurance company, Anthem, was so fed up with the situation that it cut ties with its PBM (Express Scripts) this past spring.

One root cause of the problem is a lack of transparency. Negotiations between PBMs and drug companies take place behind closed doors. Neither the insurance companies nor the public sees what takes place, and both are unable to check whether policyholders are benefitting from any savings being negotiated.

Fortunately, legislation currently before the legislature in Sacramento would bring much needed transparency to the drug pricing process.   Assembly Bill 315 would help lawmakers, regulators, and the public understand whether PBMs are benefitting patients. If passed, the bill would require PBMs to operate in good faith on behalf of customers and disclose the rates negotiated with and rebates received from pharmaceutical companies. If enacted, the law would also create more oversight of PBMs by requiring them to be registered with the Department of Managed Health Care.

Because the legislation would shine light on the pricing process, it is supported by a broad range of groups representing patients, physicians, and pharmacists.

More transparency will rein in rising costs—something that is good for patients and our overall healthcare system.

I urge our state lawmakers to support this legislation and bring much needed oversight and sunlight to the pricing of prescription medications.

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Illuminating and Eliminating the Hidden Drivers of Rising Healthcare Costs :: Fox&Hounds

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