3 Things About PBMs That Need To Change

It’s no surprise to anyone on a US healthcare plan that drug prices have gotten out of control. Increased drug costs not only strain businesses that have to pay for the plan but also negatively impact consumers who need to pay out-of-pocket costs for life-changing medication. 

One of the major contributors to these runaway costs is the big pharmacy benefit managers (PBMs) such as Express Scripts, CVS Caremark, and OptumRx. In this post, we’ll explore three different aspects of PBMs that need to change if the US hopes to get drug costs under control. 

Problem #1: Big PBMs Only Care About Profits

As drug costs continue to rise, so too do the profits of the largest PBMs. That’s because they’re extracting as much value as they can throughout the process, with the employers and members bearing the brunt of the burden. It’s gotten bad enough that Johnson & Johnson is currently facing a class action lawsuit over prescription drug costs. 

Because the largest PBMs are publicly traded companies, they’re often driven by their bottom lines. Essentially, they’re shareholders creating shareholder value. However, such a singular focus on revenue and profits only leads to increased drug costs, which in turn limits what patients can get access to — all while PBMs extract record profits for themselves.

Problem #2: Big PBMs Are Still Using Discount-Based Pricing

A big reason why PBMs are seeing record profits is because many of them are still using discount-based evaluation. The issue is that relying on discounts obfuscates the real cost of drugs, which PBMs use to their advantage to drive up their own margins. 

A metaphor we like to use at SmithRx is shopping for a gallon of milk. If you see a gallon that’s been discounted 50% to $6, that seems like a great deal. That is until you look around and see another gallon with no discount that simply costs $5. For most consumers, it’s a no-brainer to pick the cheapest option instead of the one with the largest discount. 

However, even if cheaper options exist, PBMs that use discount-based evaluation methods are incentivized to favor the higher-priced drug when developing formularies. For example, the first Humira biosimilar that came to market was available at two different prices —  a $40,000 version and an $85,000 version (annually). The traditional PBMs preferred the more expensive version of the biosimilar because of the greater margins and rebates, which also meant more profits.

This showcases just how broken discount-based pricing models can be in US healthcare. 

Problem #3: PBMs Aren’t Transparent

All of the above issues are connected to the fact that PBMs simply aren’t transparent enough. This is a major criticism of the large, traditional pharmacy benefit managers — and for good reason. As middlemen that have a lot of sway over drug availability and pricing, PBMs often make the process more opaque than it needs to be. 

Focusing on discounts means they can hide the true cost of the drug and how much they keep for themselves. It also doesn’t help that the largest PBMs own companies across the entire healthcare spectrum, leading to “vertical monopolies” that they can take advantage of to boost their bottom line. 

Ultimately, large PBMs are pricing consumers out of crucial medication in order to continually appease shareholders. It’s clear that something needs to change. 

How SmithRx Is Transforming Pharmacy Benefits

To start addressing the out-of-control healthcare costs, you’ll want to look for PBMs that use transparent cost-based evaluation, like SmithRx. At SmithRx, we use a simple revenue structure — a flat per member, per month fee — that means we’re not incentivized to squeeze more value out of healthcare plans and members. Instead, we look for the cheapest drug costs — period. 

The key way we help members access more affordable drugs is Connect 360, our collection of programs dedicated to finding the lowest prices possible. For example, SmithRx offers Yusimry, a Humira biosimilar that costs less than $9,000 annually instead of the $85,000 version large PBMs will push for. Similarly, Teriflunomide, a generic version of a commonly prescribed multiple sclerosis (MS) drug, was listed for anywhere between $6,690-$9,600 for a month’s supply. With Connect 360, though, members could get the same medication for only $18 (including shipping!) — an incredible 99.8% savings.  

We accomplish this by finding drugs through a wide range of sources: We favor low-cost biosimilars and generics, look at international sourcing, have a partnership with Mark Cuban’s Cost Plus Drugs, and much more. 

If you’re ready to start making healthcare more affordable for both employers and members, explore how SmithRx’s transparent approach will save you money.