From the New York Times’s most recent article on Pharmacy Benefit Managers (PBMs), we’ve seen that pharmacies and patients are financially struggling while PBMs are funneling in all the money. How are they doing this? A report from Nephron Research showed that, compared to five years ago, PBMs have begun demanding double the amount of fees they did before.¹ They are now charging manufacturers, employers, pharmacies, and health insurers fees that allow them to increase their profit by nearly 300%. These fees, considered “the cost of doing business,” often drive up drug prices, funneling even more of the total drug cost towards PBMs’ profits.
This is particularly concerning as it was found that 42% of every dollar spent on brand-name medicines in the commercial market was funneled to PBMs through fees and rebates, totaling nearly $72 billion paid to PBMs through these channels.¹ Rebates are payments or discounts from drug manufacturers to PBMs, usually provided as an incentive to add expensive brand drugs to a formulary plan.³ Oftentimes, employers are unaware that PBMs receive financial incentives related to drug pricing and volume, aside from rebates. This incentive encourages PBMs to recommend brand drugs over equally effective generics. To avoid sharing profits from these incentives with employers, PBMs often reclassify them as “fees,” such as clinical program fees, market share fees, data management fees, or admin fees. These fees bring in more than ten times the amount employers receive for formulary rebates.
The cost of rebates, fees, protection prices, and other payments has created a growing “bubble” known as the gross-to-net gap.⁴ This gap represents the increasing difference between the listed price of brand-name drugs and their gross sales revenue. For pharmacies, this gap can be especially challenging because PBMs set the rates for medication prices. Pharmacies are often paid the net price rather than the listed price, resulting in significantly lower profit margins.⁵ PBMs can also set rates lower than the acquisition cost of medications, exacerbating financial challenges. These lower profit margins particularly impact small and independent pharmacies, which have less negotiating power with PBMs. PhRMA highlights that PBM practices squeeze pharmacy profit margins, making it increasingly difficult for independent or smaller pharmacies to remain in business.
This gross-to-net gap not only negatively affects pharmacies, funneling money into PBM pockets, but also impacts patients. Rebates, fees, and discounts are not typically shared with patients, who end up paying higher list prices for medications, leading to increased out-of-pocket costs. The hidden financial incentives and opaque contracts created by PBMs have led to a gross-to-net disparity that impacts the operational sustainability of pharmacies and their ability to serve patients effectively.
- Pharmaceutical Research and Manufacturers of America. (2023, May 1). New analysis shows PBMs use fees as a profit center. PhRMA.
https://phrma.org/Blog/New-analysis-shows-PBMs-use-fees-as-a-profit-center#:~:text=Rebates%20and%20fees%20received%20by,reached%20%2472%20billion%20in%202022 - AffirmedRx. (n.d.). How PBMs make money. AffirmedRx.
https://affirmedrx.com/how-pbms-make-money/ - HealthPartners. (n.d.). Prescription drug rebates and PBMs. HealthPartners. https://www.healthpartners.com/plan/blog/prescription-drug-rebates-and-pbms/
- Model N. (2022, July 28). Shrink the gross-to-net bubble with trusted data. Model N. https://www.modeln.com/blog/shrink-the-gross-to-net-bubble-with-trusted-data/#:~:text=This%20bubble%20is%20the%20growing,have%20been%20taken%20into%20consideration
- Pharmaceutical Research and Manufacturers of America. (n.d.). Middlemen. PhRMA. https://phrma.org/middlemen
