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The hard part about regulating PBMs

Illustration: Gabriella Turrisi/Axios

The U.S. drug pricing system can be hard to explain even for people who work in it.

  • So when it comes to seeking to reform PBMs, there are plenty of tripwires.


The Trump administration stepped on a hornets nest when it sought to ban drugmaker rebates to PBMs while allowing discounts that were passed all the way on to patients, lowering their costs at the pharmacy counter.

  • The flip side was that the CBO projected Part D premiums would rise, and government costs would increase $177 billion over 10 years because of higher Medicare and Medicaid spending.
  • The current PBM legislation steers clear of going this far. It would not ban rebates or require passing them on to patients. That avoids the dreaded headlines about premiums rising and taxpayer costs, but it also means less relief for sick patients with high out-of-pocket costs for their drugs.
  • "Higher premiums mean more insurance; more insurance means things like lower copays," said Alex Brill, CEO of the economic consulting firm Matrix Global Advisors and senior fellow at AEI. "You can't have both. Somebody's going to pay for this stuff."
  • Ge Bai, professor of health policy and management at Johns Hopkins, said there is a bigger issue facing the legislation, in that goals that both sound good can conflict with each other.
  • "Right now we don't even have a consensus on what we are trying to achieve," she said. "Are we trying to achieve reduction for patients out of pocket, or are we trying to reduce plan sponsors' burden?"


Transparency requirements around rebates, costs and other money moving through the system are one of the common threads in the PBM bills in the House and Senate.

  • Backers say this enables policymakers to identify problems in what is now an opaque system.
  • "Sunshine is the best medicine, and we think transparency is worth it, because then we can have at least clear incentives and work to undo some of the perverse ones," said Sarah Kaminer Bourland, legislative director of Patients for Affordable Drugs Now.
  • Brill raised a potential downside to transparency, though, saying it can be "risky" because it could allow drug companies to see what discounts their competitors are offering and "tacitly collude" to limit those discounts.

Other actors

The drug pricing system has many players, so targeting PBMs is getting at only one slice.

  • Brill noted that some of the most concrete effects on how much a patient pays at the pharmacy counter are simply how the insurance company chose to design the plan, not the result of any PBM negotiations.
  • "Does your insurance make you pay the first $5,000 out of pocket?" Brill said. "Do they make you pay 20% of the list price? Do they charge you $100 for every script that you fill? That's a question for the insurance company."
  • And of course there are drug companies themselves, which PBMs say are simply trying to distract by pointing the finger at them.
  • Bourland, however, said there can be room for reform across industries. When it comes to pharma targeting PBMs, she said, "a broken clock is right twice a day, right?"
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