PBMs and Prescription Drug Distribution: An Economic Consideration of Criticisms Levied Against Pharmacy Benefit Managers

Dennis W. Carlton, Mary Coleman, Nauman Ilias, Theresa Sullivan, and Nathan Wilson conducted a study, commissioned by CVS Caremark, Express Scripts, and Optum Rx, that focuses on the role of pharmacy benefit managers (PBMs) in the healthcare industry and investigates claims that PBMs are responsible for high prescription drug costs. PBMs administer the pharmacy benefit portion of healthcare plans for plan sponsors, which include health insurers, employers of all sizes, labor unions, and government programs. Since an overwhelming majority of Americans with health insurance are served by a PBM in some capacity, PBMs play an important role in containing the cost of prescription drugs and overall healthcare costs. The report analyzes concerns raised by commentators (including the Federal Trade Commission (FTC)) that PBMs contribute to the increasing costs of prescription drugs rather than helping to contain these costs. Much of the data analyzed in the report was submitted to the FTC by CVS Caremark, Express Scripts, and Optum Rx in response to the FTC’s requests during its Section 6(b) study of PBMs.

The report shows that various criticisms of PBMs are inconsistent with the empirical evidence. Specifically, the data do not support the following claims made by PBM critics:

• Claim: PBMs are responsible for high drug prices. On the contrary, PBM profit margins (including their mail order and specialty pharmacy dispensing operations) are small relative to the total cost of prescription drugs to plan sponsors and their members.
• Claim: PBMs fail to pass through rebates and fees from drug manufacturers to plan sponsors. On the contrary, the data show that PBMs are passing through the vast majority of manufacturer rebates and fees — and in 2020 and 2021, this number has neared 100%.
• Claim: Rebates are associated with much higher growth in list prices or net prices compared to non-rebated branded drugs. On the contrary, the data show that growth in list prices is not greater for rebated branded drugs than non-rebated branded drugs. And between 2018 and 2021, the overall real net price (paid by plan sponsors and members combined) decreased by 5% for rebated branded drugs while it increased by 4% for non-rebated branded drugs.
• Claim: PBMs are restricting patient access to generic drugs. On the contrary, the data show that following generic entry, formularies quickly shift generic drugs to preferred tiers and branded drugs to non-preferred tiers, incentivizing generics over branded alternatives.
• Claim: PBMs are driving independent pharmacies out of business and disfavoring independent retail pharmacies relative to chain retail pharmacies. On the contrary, the number of and profit margins of independent pharmacies have been relatively stable while they have declined for chain pharmacies. In addition, relative to non-affiliated chain pharmacies, reimbursement rates paid to independent pharmacies are higher on average by about 4% for branded drugs and by about 24% for generic drugs.