Drug Costs

The Cost of Insurer-PBM Consolidation

February 12, 2019 3:17 pm

A current events trivia question: which companies will bring in more revenue in 2019 than the five leading technology companies?


After watching several hearings on Capitol Hill, most Americans might answer drug companies, but the correct answer is health insurers and pharmacy benefit managers (PBMs). According to Axios, the five leading health insurers alone are projected to collect $787 billion this year while Facebook, Amazon, Apple, Netflix and Google will earn a mere $783 billion.


The profits will continue, especially with increased consolidation in the market. In a separate post, Axios noted that, “starting this spring, five corporate giants — Anthem, Cigna, CVS Health, Humana and UnitedHealth Group — will control health insurance and pharmacy benefits for more than 125 million Americans” – nearly 40 percent of the population.


Insurers and PBMs have said the consolidation will save patients money, but, as Axios also noted, “insurers and PBMs have lived under the same roof before … while U.S. health care spending has continued to rise.” Indeed, according to Sandip Shah, president of Market Access Solutions, “Since 2006, insurance deductibles have increased by 350 percent and co-insurance has jumped 89 percent.”  


Shah explained discounts given to insurers and PBMs by drug manufacturers should have resulted in lower premiums, but “Instead of passing discounts to patients, insurers pocket them. … In other words, insurers act as if those discounts don’t exist.”


Jeff Carson, an independent pharmacist in Texas, agrees insurers and PBMs are the reason why Americans and their representatives on Capitol Hill believe drug prices are rapidly rising. He noted that a 2017 study by the Texas legislature found the anti-competitive tactics used by PBMs cost taxpayers about $90 million in higher Medicaid and Children’s Health Insurance Program costs.


In a column in the San Antonio Express-News, Carson also argued PBMs harm small pharmacies like his own. He said, these companies “control almost the entire prescription drug market, which means pharmacists have no choice but to accept the ridiculous contracts PBMs offer. Individually owned pharmacies have zero ability to negotiate with these giant companies. PBMs use their monopolistic position to drive prescription drug costs higher, even as they pay pharmacists less and less.”


Carson concluded, “In this suppressed market, the focus is on PBM profits instead of cost-saving innovations.”


New treatments and therapies, meanwhile, save taxpayers, insurers and patients. As Sandip Shah noted in his column, “Every dollar spent on drugs could save up to $10 in avoided ER visits and hospitalizations for patients with congestive heart failure, high blood pressure, diabetes and more.”