Pharmacy benefit managers say they protect against prescription drug prices from rising exorbitantly high, but these companies – such as one operated by CVS Health Corp. – are coming increasingly under fire for the role they may be playing in surging health care costs and squeezing independent pharmacies out of business.
PBMs act as intermediaries between drug makers, health insurers and pharmacies, negotiating drug prices and reimbursing pharmacies for prescription drugs under the terms of the plans they have negotiated. They hold a lot of power in the market as the three largest – CVS Caremark, Express Scripts and Optum Rx – manage the pricing of around 80% of prescriptions in the U.S., observers say.
But independent pharmacies nationwide accuse the PBMs of suppressing reimbursements to smaller drugstores, making it difficult to turn a profit and remain in business. In Rhode Island alone, the number of independent drugstores has fallen from 198 in 2019 to 176 in 2024, according to the R.I. Department of Health.
Pharmacy benefit managers were also cited during a panel discussion about the rising cost of prescription medications at Providence Business News' Health Care Summit in October.
The issue has drawn the attention of Congress, with U.S. Rep. Jake Auchincloss, a Massachusetts Democrat, recently introducing legislation designed to rein in the influence of PBMs.
And in September, the Federal Trade Commission sued Caremark Rx, Express Scripts and Optum Rx, alleging that the PBMs artificially inflated the price of insulin.
PBMs object to the allegations.
“CVS Caremark is proud of the work we do to make medicine, including insulin, more affordable for all Americans,” Michael DeAngelis, spokesperson for Caremark's parent company Woonsocket-based CVS Health, said in a statement. “To suggest anything else, as the FTC has, is simply wrong. We stand by our record of protecting American businesses, unions, and patients from rising prescription drug prices.”
He said CVS Caremark reimburses independent pharmacies at higher levels on average than chain drug stores, including CVS pharmacies.
Also, he said around 80% of pharmacies belong to pharmacy services administrative organizations, which serve as bargaining groups for independent pharmacies. Between 2018 and 2022, those groups received the highest reimbursement prices in Caremark’s national network.
DeAngelis also cites National Community Pharmacy Association data that indicates that average annual profit margins for independent drugstores ranged between 22.1% and 24% between 2007 and 2021.
Since 2021, there has been a 40% increase in net pharmacy costs, and without PBMs that rise would have been much higher, says Dr. Raj Hazarika, chief medical officer for commercial products at not-for-profit health insurer Harvard Pilgrim Health Care of New England Inc., a Point32Health company.
Still, he says, PBMs were expected to do more to bring down drug prices.
Hazarika, who participated in PBN's Health Care Summit in October, notes that the Inflation Reduction Act of 2022 was enacted to help curb rising drug prices. The legislation includes several provisions, including one requiring the U.S. health and human services secretary to negotiate prices for certain drugs under Medicare Part D beginning in 2026 and Part B beginning in 2028.
Initially, 10 drugs were selected for negotiation and this will increase to 50 by 2029. The negotiated prices for the first 10 drugs were announced in August and if implemented in 2023 would have saved the government an estimated $6 billion.
“That’s incremental, but after a certain point in time it will have a significant impact on the rising cost of drugs,” Hazarika said.
Meanwhile, Auchincloss' legislation known as the Pharmacists Fight Back Act, which has garnered bipartisan support, would use a more transparent pharmacy reimbursement model based on pricing that’s benchmarked to the national average drug acquisition cost, or NADAC. It also prevents PBMs from steering patients away from community pharmacists to PBM-affiliated pharmacies and removes PBMs’ ability to restrict patient choices through network exclusions.
The legislation, which has drawn opposition from health insurance companies and PBMs, is in committee. Auchincloss doesn’t expect any movement on the bill during the lame-duck session. But he hopes the bipartisan support it has gotten will help influence policy discussions and plans to reintroduce it next year.
“It’s an impossible situation," Auchincloss said. "PBMs are bullying independent pharmacies out of business.”
