\n\tDan Weissmann<\/span><\/p>\n

Pharmacy benefit managers, or PBMs, are intermediary companies that negotiate the price of prescription drugs. PBMs are at the center of a tangled knot of pharmacies, drugmakers, and health insurers.<\/p>\n

Experts say they play a big role in raising prescription drug prices.<\/p>\n

So, what is being done to regulate PBMs?<\/p>\n

In this episode of \u201cAn Arm and a Leg,\u201d host Dan Weissmann explores how PBMs work and looks into government efforts to check their power. Since this episode originally aired in 2019, widespread legislation to regulate PBMs has been introduced at the state level. Weissmann gives an update.<\/p>\n

\tDan Weissmann<\/p>\n

\t\t\t
\n\t\t\t\t@danweissmann\t\t\t<\/a><\/p>\n

\t\t\tHost and producer of “An Arm and a Leg.” Previously, Dan was a staff reporter for Marketplace and Chicago’s WBEZ. His work also appears on All Things Considered, Marketplace, the BBC, 99 Percent Invisible, and Reveal, from the Center for Investigative Reporting.\t\t<\/p>\n

\n\t\tCredits\t<\/h3>\n
\tEmily Pisacreta
\n\tProducer<\/p>\n
\tAdam Raymonda
\n\tAudio wizard<\/p>\n
\tWhitney Henry-Lester
\n\tEditor<\/p>\n
\tEllen Weiss
\n\tEditor<\/p>\n
\t\t\t\t\tClick to open the Transcript\t\t\t\t<\/p>\n
\t\t\t\t\t\tTranscript<\/strong>: Wait, What\u2019s a PMB?<\/strong>\t\t\t\t<\/p>\n
Note: \u201cAn Arm and a Leg\u201d uses speech-recognition software to generate transcripts, which may contain errors. Please use the transcript as a tool but check the corresponding audio before quoting the podcast.<\/em><\/p>\n
Dan: <\/strong>Hey there \u2014<\/p>\n
You may have seen ads recently about access to drugs. Here\u2019s one that starts with a woman trying to fill a prescription, but the pharmacist says\u2026<\/p>\n
[Clip from an ad plays]<\/em><\/p>\n
Pharmacist: I\u2019m sorry, this medicine isn\u2019t covered by your insurance.\u00a0<\/strong><\/p>\n
PBM: Yeah\u2026<\/strong><\/p>\n
Dan: <\/strong>This guy in a blue suit comes up from behind. The patient grabs her prescription slip.<\/p>\n
[Ad clip resumes]<\/em><\/p>\n
PBM: I decide which medicines you can get.\u00a0<\/strong><\/p>\n
Patient: Wait, you\u2019re not my doctor.<\/strong><\/p>\n
PBM: That\u2019s right, I\u2019m your insurance company\u2019s pharmacy benefit manager, or PBM. And, I don\u2019t make as much money off this one.<\/strong><\/p>\n
Dan: <\/strong>You might wonder, wait, what\u2019s a PBM exactly? And also, why am I seeing this ad now?<\/p>\n
And who\u2019s paying for this ad? So PBMs are middleman companies that have a lot to do with which drugs we get access to, how much we pay for them, and yeah, they\u2019re sharks. And, these ads are out there because Congress knows we\u2019re all mad about drug prices and access to drugs, and they\u2019re eager to be seen doing something about it.<\/p>\n
And those ads are paid for by pharmaceutical makers \u2014 also sharks \u2014\u00a0 in direct competition with PBMs for the gazillions of dollars we spend on drugs as a country. PBMs and their role are a little more complicated, so we are bringing back an episode from this show\u2019s very early days. When we get to the end, I\u2019ll have some updates, things I\u2019ve learned since then.<\/p>\n
Meanwhile, here\u2019s me four years ago, starting to figure out how all this works.<\/p>\n
So at the beginning of the year, my family switched to a new health insurance plan and I\u2019ve got this prescription I take. I get three months worth of it at a time, and in February it was time to renew. The drugstore texted me they had it. I called to check, got the robot voice.<\/p>\n
Robot: There\u2019s one prescription here for Daniel<\/strong><\/p>\n
Dan: <\/strong>And some news.<\/p>\n
Robot: The out-of-pocket cost is $720.69. And that\u2019s ready for pickup.<\/strong><\/p>\n
Dan: <\/strong>I was like, what? This is an old-time generic drug. I\u2019m used to paying like 15 bucks.<\/p>\n
Robot: Would you like me to repeat that?<\/strong><\/p>\n
Dan: <\/strong>I was like, maybe you better. I want this on tape.<\/p>\n
Robot: The out-of-pocket cost is $720.69.<\/strong><\/p>\n
[Robot voice fades into the background]<\/em><\/p>\n
Dan: <\/strong>I was also like, yeah, I\u2019m just gonna bring my new insurance card over to the drugstore and hope that clears things up.<\/p>\n
And it did. The copay was $0. That is some good new insurance right there. And as I walked outta the drug store, I was like, What was that all about? I pulled up a site called GoodRx on my phone. A doctor friend of mine sometimes recommends it to people whose prescriptions cost a lot, and what I found there was weird.<\/p>\n
I punched in the name of the medication and my zip code and it showed me prices from a bunch of different places. Drugstore chains like CVS and Walgreens, big box stores like Costco and Walmart, local supermarkets with pharmacy counters. And the spread was crazy. 25 bucks at Costco, 170 at the supermarket, 300-some at CVS, and more than 700 at my drugstore, Walgreens.<\/p>\n
And that was just the first set of prices. There were actually two. The first: what you\u2019d pay if you just walked in. The second was what you\u2019d pay at each place if you brought in a digital coupon from GoodRx. And with the coupons, another crazy spread, a bunch of $20 options. But 75 bucks at CVS, 195 at Walgreens.<\/p>\n
And this was just super, super weird. And it meant I was gonna have to do something I\u2019d been honestly kind of dreading\u2026 Figuring out prescription drug prices. I\u2019d done some reading about it before and it always made my eyes glaze over. I was like, ah, no. Too complicated. Let me come back to this, like in some other lifetime.<\/p>\n
But this was too weird not to investigate. Because I was used to seeing stories about high drug prices. I figured we all knew that, but I wasn\u2019t used to seeing stories about random prices. That was new. Better get on that. This is An Arm and a Leg, a show about the cost of health care. I\u2019m Dan Weissmann.<\/p>\n
And I did some reading and eventually I figured out how to maybe explain this to myself without getting totally lost.<\/p>\n
And I ended up running this explanation by some experts and they all said, that is not the most idiotic explanation. So here goes. It starts with the old movie It\u2019s a Wonderful Life<\/em>. Right at the beginning of the movie, the Jimmy Stewart character, George Bailey, is a 12-year-old kid working in the drugstore.<\/p>\n
Now, note the sound effect here from this scene. Clip clap. This is olden days, 1919. And in the scene, the kid keeps the pharmacist, Mr. Gower, from sending out literal poison pills.<\/p>\n
Film sound: Mr. Gower, you don\u2019t know what you\u2019re doing. You, you put something bad in those capsules. It wasn\u2019t your fault, Mr. Gower, just look and see what you did. The bottle took the powder from\u2026 it\u2019s poison, I tell you, it\u2019s poison.<\/strong><\/p>\n
Dan: <\/strong>Now late in the movie, there\u2019s a scene with another character, a really grouchy bartender.<\/p>\n
Film sound: Hey, look, mister. We save hard drinks in here for men who wanna get drunk fast, and we don\u2019t need any characters around to give the joint atmosphere. Is that clear or do I have to slip you my left for a convincer?<\/strong><\/p>\n
Dan: <\/strong>And here\u2019s the thing. At the time of these scenes, the druggist and the bartender were basically in the same kind of business. I\u2019m talking about the structure of the business. You go to the bar, order a martini, the guy grabs the gin, the vermouth, some olives, mixes it up and tells you a price that reflects his negotiations with all his suppliers and his sense of local market conditions, what he thinks you\u2019ll be willing to pay for a martini.<\/p>\n
And he is balancing all those things and it\u2019s like a straight line. You negotiate with the bar keep, he deals with everybody else. In 1919, Mr. Gower is in exactly the same kind of business, except instead of gin and vermouth, he\u2019s got big jars, full of powders and okay, I mean, one of those jars is marked poison. I\u2019m not sure what that\u2019s about, but, okay. Mr. Gower measures out doses and sells them to his customers at a price he sets. Same exact deal. Simple.\u00a0<\/p>\n
Since then, a couple things have happened. First, scientific breakthroughs made drugs a much bigger deal. I mean, penicillin, insulin, the Polio vaccine, just for starters, it\u2019s a miracle and a big business.<\/p>\n
The other thing is, health insurance became a thing, including prescription drugs. So now you\u2019ve got this intermediary standing between you and the provider, hashing out prices, telling you what your share is gonna be. And those two things created an opportunity for a new kind of business: pharmacy benefit managers.<\/p>\n
Jeffrey Joyce is an economist at the University of Southern California. He studies the drug supply chain. He says, originally these companies did one narrow, technical thing. They created systems that told the drug store what each customer\u2019s specific insurance plan meant that customer was supposed to pay for their specific prescription, and the systems did all that in real time.<\/p>\n
Geoffrey Joyce: So that when you show up at the pharmacy, it\u2019s a seamless transaction and they know exactly what your insurance is and what your copay should be.<\/strong><\/p>\n
Dan: <\/strong>Because Mr. Gower is not sending you a bill. He needs to ring you up right now. And insurance companies weren\u2019t set up to make that happen. So pharmacy benefit managers, PBMs for short, that\u2019s what they came along to do.<\/p>\n
Geoffrey Joyce: That\u2019s what they functioned primarily as for many, many years.<\/strong><\/p>\n
Dan: <\/strong>And then PBMs got this new idea. They said to their customers, the insurance companies, Hey, we could save you some money. How about we start negotiating with manufacturers to get you lower prices? Here\u2019s how that works. There\u2019s lots of kinds of drugs where different companies make their own version. Like for high cholesterol, there\u2019s drugs called statins, and they\u2019ve got brand names like Lipitor, Mevacor, Crestor.<\/p>\n
But they all basically do the same thing. And that is an opportunity for the PBMs.<\/p>\n
Geoffrey Joyce: They will go to the different manufacturers and say, who\u2019s gonna give us the best price? Who wants to be our preferred statin?<\/strong><\/p>\n
Dan: <\/strong>And that preferred statin? That one\u2019s gonna move a lot of units because the PBM and any insurance company they\u2019re working for is gonna say to consumers: If you\u2019re our patient, our customer covered by our insurance, we want you to take this statin and we\u2019ll make it worth your while cuz this one, the preferred<\/em> statin has a $10 copay and all the others 50 bucks, maybe 75, maybe we don\u2019t cover them at all. And suddenly manufacturers are coming to the table.<\/p>\n
Geoffrey Joyce: And manufacturers offer discounts or rebates. So, hey, I\u2019ll give you 40 or 50% off if you make mine the preferred statin with a $10 copay. And all my competitors are either aren\u2019t covered on your plan or have a $50 copay<\/strong>.<\/p>\n
Dan: <\/strong>And here\u2019s an important distinction. The manufacturers are not lowering their sticker prices here for whoever wants to buy. They are giving this rebate to this PBM. In other words, The PBM isn\u2019t shopping. They\u2019re not comparing the prices on offer in the open market. They\u2019re negotiating. They\u2019re cutting individual deals behind closed doors, but whatever, okay. At first, to an economist like Jeffrey Joyce, this whole set up sounds like great news.<\/p>\n
Geoffrey Joyce: I bought into their arguments that they actually lowered prices by negotiating competitively and and with manufacturers.<\/strong><\/p>\n
Dan: <\/strong>Now, sellers can\u2019t just charge whatever they want. They\u2019ve gotta compete to give the best deal to buyers. Everybody wins. It\u2019s like economics 101.<\/p>\n
Geoffrey Joyce: In, in, in theory, you would want this type of entity. You want them to go around and say, who\u2019s gonna gimme the best price?<\/strong><\/p>\n
Dan: <\/strong>But it hasn\u2019t worked out that way, which is why Jeffrey Joyce published an essay last year called An Economist\u2019s Change of Heart<\/em>.<\/p>\n
Geoffrey Joyce: So instead of sort of serving a, a role of, of constraining drug prices, I think they play a role in increasing drug prices.<\/strong><\/p>\n
Dan: <\/strong>Yeah, wait\u2026 How do we go from their holding prices down to their jacking prices up? That\u2019s right after this break.<\/p>\n
This episode of An Arm and a Leg is produced in partnership with KFF Health News. That\u2019s a nonprofit newsroom covering health care in America. Their work is terrific, I\u2019m so pleased to work with them. We\u2019ll have a little more information about KFF Health News at the end of this episode.<\/p>\n
So, how do pharmacy benefit managers go from holding prices down to jacking prices up? This is where Mr. Gower and Nick the bartender come in\u2026<\/p>\n
Once upon a time, before penicillin, before insurance, before pharmacy benefit managers, the relationships were simple. Me, Mr. Gower, his suppliers\u2026 straight line.\u00a0<\/p>\n
Now those relationships are a tangled knot. I found this super complicated flowchart made by Jeffrey Joyce\u2019s, colleagues from the University of Southern California. It is from a paper called Follow the Money, except the money\u2019s impossible to follow.<\/p>\n
There\u2019s insurance companies, manufacturers, pharmacies, money going back and forth. All over the place. And in this knot, the pharmacy benefit manager is in the middle of everything. Every loop, all the deals and all the money, it all goes through them.<\/p>\n
Geoffrey Joyce: You\u2019re right. And they\u2019re the hub. You\u2019re absolutely right. And I think that\u2019s at the, the crook of it. They have an inherent conflict of interest.<\/strong><\/p>\n
Dan: <\/strong>That is: Everybody\u2019s gotta negotiate with them. The drug makers, the pharmacies, and the insurance company, and nobody knows the deal anybody else is getting. So yeah, in theory, you\u2019d want an entity like the PBMs negotiating on your behalf. But that\u2019s not what they\u2019re doing. They\u2019re negotiating on their own behalf.<\/p>\n
Geoffrey Joyce: And they got sued, uh, in several states for saying, \u201cHey, you should be acting in the best interest of your clients.\u201d And they\u2019ve won in court and saying, \u201cNo, we have no obligation to do what\u2019s best for our client. We do what\u2019s best for us.\u201d<\/strong><\/p>\n
Dan: <\/strong>Okay. So how does that work and how does it lead to higher prices? Well, it helps. These companies have gotten huge. There used to be a bunch of PBMs, but they\u2019ve gone around buying each other up. Now, three PBM companies represent like four fifths of all consumers. The single biggest one covers like 80 million people.<\/p>\n
So they make a list of drugs for those 80 million people, which drugs cost $10? Which ones cost $50? And which ones. Aren\u2019t covered at all. That list has a name. It\u2019s called the formulary, and controlling a formulary with 80 million customers gives the PBM a whole new kind of leverage.<\/p>\n
Geoffrey Joyce: Just let me put it this way. Imagine you are a manufacturer and you produce a good drug and Express Scripts says, we represent 80 million Americans in their drug benefits. If you\u2019re off our formulary as a manufacturer, you lose access to 80 million consumers. That\u2019s an enormous hit. You\u2019ll do anything to stay on that formulary.<\/strong><\/p>\n
Dan: <\/strong>You\u2019ll do anything the PBM wants. And what the PBM wants is a big discount and the devious, tricky wild part that Jeffrey Joyce taught me, the easiest way to give a big discount is jack up the sticker price, which sounds like it would never work. Like I know. We\u2019ll double the price, then we can charge them the same, but we\u2019ll tell them they\u2019re getting a 50% discount. nefarious laugh<\/p>\n
I mean, are PBMs supposed to be stupid? But PBMs aren\u2019t stupid. Remember, they\u2019re not shopping on the open market. They\u2019re negotiating in secret, and they\u2019re not just negotiating for discounts. They\u2019re getting rebates, not money off, money back. A payout.<\/p>\n
Geoffrey Joyce: It\u2019s more money that potentially they can retain. Right? So the more, the bigger the rebate, that\u2019s money. They have control over them.<\/strong><\/p>\n
Dan: <\/strong>It\u2019s, it\u2019s literally, it\u2019s cash in their pockets.\u00a0<\/p>\n
Geoffrey Joyce: It\u2019s cash.<\/strong><\/p>\n
Dan: <\/strong>And Joyce says, those negotiations get totally explicit. Raising prices is part of the deal.<\/p>\n
Geoffrey Joyce: And so I\u2019ve had several CEOs of drug companies tell me, PBMs put a gun to their head<\/strong>.<\/p>\n
Raise your prices, i.e. raise your rebate, or you\u2019re off our formulary.<\/strong><\/p>\n
Dan: <\/strong>And of course, doing business in a back room someplace is what makes all this possible.<\/p>\n
Geoffrey Joyce: Everything is, is proprietary. No one can see what kind of discount or rebates they\u2019re getting, and no one really knows how much is being retained and how much is being passed on. And anytime you have that lack of information and lack of clarity, there\u2019s, it\u2019s it\u2019s a ripe environment for abuse and excess profit.<\/strong><\/p>\n
Dan: <\/strong>There\u2019s just one other thing, and I\u2019m kind of reluctant to tell you this cuz I have this rule about the show where it\u2019s supposed to be more entertaining and empowering and maybe useful than it is enraging and terrifying and depressing. But I cannot hold back this part. So here it is:<\/p>\n
That knot, that tangle of deals with money going back and forth and the PBMs in the middle of everything.That knot is getting tighter. Cuz the players are merging with each other. Those three big PBMs, one of them is CVS, the drug store chain, which is also merging with an insurance company, Aetna, and the other two?\u00a0<\/p>\n
One belongs to an insurance company, and the other is getting bought by one.<\/p>\n
Geoffrey Joyce: They always argue there are economies of scale and synergies, et cetera. Historically, we\u2019ve seen the consumers lose when you see greater and greater concentration within an industry.<\/strong><\/p>\n
**Dan: <\/strong>Great. exasperated sigh<\/p>\n
You know what\u2019s funny? None of this quite answers the question I started with. Why were there so many prices for that one generic prescription I tried to fill? And it turns out, Jeffrey Joyce has actually done research on this narrow little question, random prices at the drugstore. He sent hundreds of USC students to drugstores in LA with fake prescriptions to fill. His findings: My experience was not a one-off. Not an accident.<\/p>\n
Geoffrey Joyce: And it\u2019s basically the drug store or whatever saying, Hey, here\u2019s a consumer that may or may not know the price, and we can charge them what we think we can get away with.<\/strong><\/p>\n
Dan: <\/strong>So Mr. Gower is still with us, and he\u2019s also trying to make a buck however he can.<\/p>\n
Geoffrey Joyce: You or your child is sick and you need an antibiotic. You\u2019ve maybe not used that antibiotic in the past, or it\u2019s been a long time. You don\u2019t know what the price of that is. You don\u2019t know what a reasonable price is.\u00a0<\/strong><\/p>\n
Dan: <\/strong>Your doctor\u2019s like, you need a Z-Pak.<\/p>\n
Geoffrey Joyce: Exactly.<\/strong><\/p>\n
And when you walk in, would you know if a Z-Pak is, you know, a hundred dollars? That that may be the price you have no idea.<\/strong><\/p>\n
Dan: <\/strong>So basically we gotta watch our backs with everyone, which is turning into kind of a theme on this show. And sometimes I guess an outfit like GoodRx can help us know if Mr. Gower is trying to put one over on us. And it offers discounts with those coupons it has. So I asked Jeffrey, Joyce, and the other experts I talked with, how do I need to watch my back with GoodRx?<\/p>\n
I mean, there\u2019s a catch right? And they said, no, not exactly, except that it\u2019s, you know, just a bandaid. It\u2019s not changing anything about the big picture with the PBMs and all the other players. In fact, when GoodRx shows us a coupon for a discount, it\u2019s because they\u2019ve made a deal with a pharmacy benefit manager behind the scenes to get it.<\/p>\n
So GoodRx wrangles its prices outta that same crazy float chart, that same crazy knot that produce the jacked up prices we see. And presumably it\u2019s finding a way to make a profit, but if a bandaid is useful to you, I guess it\u2019s useful.<\/p>\n
That\u2019s where we left things four years ago.<\/p>\n
I wanna recap my big takeaway from that Adventure: PBMs push drug makers to set higher list prices because the higher the list price goes, the bigger the rebate, the cash payout the PBMs can grab.<\/p>\n
And here\u2019s a couple things that we didn\u2019t hit. By setting preferred drugs based on which company gives \u2019em the biggest rebates, and by making us pay super high prices for anything else. PBMs work with insurance companies to limit access to drugs.<\/p>\n
And if you have a high deductible, or a copay, or percentage of list price you\u2019re supposed to pay at the pharmacy counter, the PBM still gets their full rebate.<\/p>\n
In other words, some of the money coming outta your pocket may go directly to them.<\/p>\n
Some things have changed since we first put this story out. The biggest PBMs have gotten bigger. For instance, the biggest, Express Scripts, now covers 100 million people, up from 80 million.<\/p>\n
And the biggest PBMs have been experimenting with new shenanigans \u2014 enough for at least a whole new episode.<\/p>\n
But not all the news is bad. In the last few years, state legislatures have passed 150 laws attempting to regulate PBMs. Every state has passed at least one.<\/p>\n
A few states have passed laws saying that PBMs have to pass rebates along the consumers at the pharmacy counter.<\/p>\n
In other words, trying to stop the PBMs from that situation where they\u2019re getting money directly outta your pocket.<\/p>\n
Couple other states have passed laws saying PBMs cannot force you to use their mail order pharmacies, which great, but geez, I guess that means it\u2019s legal in 48 states and Congress has held five hearings so far this year specifically on PBMs with members from both parties eager to get their licks in.<\/p>\n
I am not saying that the cavalry or Congress is about to ride in and fix everything. I wish. But I am saying, by understanding better what\u2019s going on, we can get a better sense of what we want our elected folks to do. I\u2019ll catch you in a few weeks till then, take care of yourself.<\/p>\n
This episode of An Arm and a Leg was produced by me, Dan Weissmann, with help from Emily Pisacreta and Bella Czajkowski. Whitney Henry-Lester edited this story in 2019, and Ellen Weiss edited this updated version.<\/p>\n
Daisy Rosario is our consulting managing producer. Adam Raymonda is our audio wizard. Our music is by Dave Winer and Blue Dot Sessions.<\/p>\n
Gabrielle Healy is our managing editor for audience. She edits the First Aid Kit Newsletter.<\/p>\n
Bea Bosco is our consulting director of operations. Sarah Ballema is our operations manager.<\/p>\n
An Arm and a Leg is produced in partnership with KFF Health News.<\/p>\n
That\u2019s a national newsroom producing in-depth journalism about health care in America, and a core program at KFF \u2014 an independent source of health policy research, polling, and journalism.<\/p>\n
Zach Dyer is senior audio producer at KFF Health News. He is editorial liaison to this show.<\/p>\n
Thanks to Public Narrative \u2014 That\u2019s a Chicago-based group that helps journalists and non-profits tell better stories\u2013 for serving as our fiscal sponsor, allowing us to accept tax-exempt donations. You can learn more about Public Narrative at http:\/\/www.publicnarrative.org<\/a>.<\/p>\n
And thanks to everybody who supports this show financially.<\/p>\n
If you haven\u2019t yet, we\u2019d love for you to join us. The place for that is armandalegshow.com\/support.<\/p>\n
Thanks for pitching in if you can, and thanks for listening!<\/p>\n
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