The rent-seeking behavior of pharmacy benefit managers

Secret deals may mean consumers pay more for drugs

By Jayne O'Donnell
USA TODAY, March 21, 2016

Secret deals often prompt drug benefit companies to cover brand-name prescriptions when equally effective generic or even over-the-counter medications are available, several drug pricing experts say.

These companies, known as pharmacy benefit managers (PBMs), negotiate deals with drug makers that include rebates and other compensation to encourage certain drugs and come up with lists of drugs that their insurance plans will cover. Employers and insurance companies then determine which drugs to encourage on these formularies.

The process is so convoluted that even the United States' largest insurer, Anthem, discovered what it said were $3 billion in overcharges by Express Scripts and filed suit Monday against the PBM for damages.

In their deals with drugmakers, PBMs agree to favor the high-cost drugs on the PBMs’ formularies and agree that they won't place quantity limits — or prior authorization programs — on the drugs, even though doing so would help health plans save money and make medical sense, says Linda Cahn, founder and president of Pharmacy Benefit Consultants, which audits PBM contracts.

"What really gets me started is when PBMs sell their clients on programs that increase costs by encouraging brands so that the PBM can collect rebates," says Susan Hayes, a principal in Pharmacy Outcomes Specialists, which represents plan sponsors and audits their PBM contracts.  "And many clients do not know the cost implications when they sign off on these programs."



By Don McCanne, M.D.

Pharmacy benefit managers (PBMs) are yet one more example of how effective our policymakers have been in taking care of the medical industrial complex while perpetuating the highest level of health care spending of all nations. PBMs are superfluous pharmaceutical middlemen who further compound our uniquely-American, highly wasteful administrative excesses as a necessity to gain reward for their own rent-seeking behavior.

Rent-seeking is the use of a company, organization or individual's resources to obtain economic gain from others without reciprocating any benefits to society through wealth creation. (Investopedia)

Rent-seeking is a creature of the medical-industrial complex. It should have no place in our health care system. If we established a single, universal, publicly-funded and publicly-administered health care financing infrastructure, it would function as a monopsony, representing the people, that would work for us to dramatically reduce administrative waste while preventing clandestine rent-seeking gains.

In the words of Nobel laureate Kenneth Arrow - the leading authority in markets and health care - single payer is “better than any other system.”