Today, Express Scripts stands as the country’s largest pharmacy benefits manager, or PBM, and the only to remain unaffiliated with an insurance company. As other major PBMs have consolidated with insurance companies—OptumRx is a subsidiary of UnitedHealthcare Group and CVS Health plans to buy Aetna—Express Scripts has tried to leverage its independence as a unique value-proposition for more than a decade, claiming that its independence from insurers creates better alignment with its clients. This marketing implies more value than is actually there. I know this because I spent seven years as Chief Medical Officer at Express Scripts. PBMs like Express Scripts do help lower drug prices in today’s health care system, but the system is fundamentally flawed and a better, more efficient way to lower drug costs exists: Medicare.
Pharmacy benefit managers are more middlemen in our already convoluted health care system. Acting as a go-between drug makers and insurance companies, PBMs administer prescription drug plans for Americans insured through commercial health plans, Medicare Part D, managed Medicaid plans, state government employee plans, and the Federal Employees Health Benefits program. All in, PBMs oversee the prescription drug benefits for 266 million Americans. In theory, PBMs lower prescription drug costs by negotiating with drug makers and pharmacies for discounts and rebates. But drug manufacturers artificially set prices at high starting points so that even after negotiations, drug makers get the prices they ultimately wanted and PBMs look like they’ve scored a big discount.
The process of getting a prescription drug into a patient’s hands has multiple steps: a drug company manufactures a drug and sets a high price, an insurance company contracts a PBM to negotiate a better price for the drug, the PBM then pockets a portion of the cost savings, and a patient finally buys the drug at a pharmacy. Each step introduces another for-profit player—from drug manufacturer to insurance company to PBM—trying to maximize its own profits. And history has shown that PBMs are increasingly pocketing a larger share of their negotiated savings and passing along fewer benefits to consumers. Take, for example, Express Scripts’ profit increases from 2014 to 2016: its net income increased from $2 billion to $3.4 billion. Meanwhile, Anthem, its biggest client, sued Express Scripts for $15 billion, claiming the PBM had failed to pass along negotiated drug price savings. And last month, the White House Council of Economic Advisors released a report saying that PBMs generate “outsized profits for themselves.”
The case remains that our healthcare system is highly inefficient and the independence of one PBM, Express Scripts, does not transform the industry. An independent PBM does allow employers to choose medical insurers independent of their PBMs, but only up to a point: most of the big insurance companies now have their own PBMs. And yes, a consolidated PBM like CVS Health can drive its customers to its own pharmacies, but guess what? Express Scripts has its own preferred pharmacies.
As increasing numbers of Americans put off buying necessary prescriptions because of rising costs, U.S. lawmakers should take a closer look at PBMs and instead allow Medicare to negotiate prices. By having a single negotiator like Medicare, our health care system would be more efficient and effective in lowering drug prices. Those prices could then be used as the basis for drug pricing available to every American, much as Medicare’s fee schedule for physician services is the starting point today when insurers negotiate fee schedules with physicians.
Skeptics of this negotiating model should look to the Veterans Health Administration for proof. The VA is a single negotiator that gets much better prices than any of the PBMs; in fact, the Congressional Budget Officefound that the VA pays “roughly half as much for brand-name drugs as retail pharmacies.” While PBMs do negotiate drug benefits for their customers, they are increasingly keeping these benefits to themselves. In short, I’m not terribly impressed by the illusion of PBM independence.