"To lower excessive out-of-pocket costs, we need to bring clarity and competition to the murky world ... [+]
Following an enormous cyberattack on a subsidiary of UnitedHealth Group, the Senate Finance Committee has called the company's CEO, Andrew Witty, to testify on April 30th. The hackers stole millions of medical records, which reflects badly on the company's ability to protect patients.
But while members of Congress are grilling Witty about the cybersecurity breach, they should also question him on other ways his company harms patients. Legislators should start with demanding clarity on the industry middlemen known as pharmacy benefit managers, or PBMs, one of the largest of which is owned by UnitedHealth Group.
PBMs negotiate drug prices with drug manufacturers on behalf of insurers. One might expect this leads to lower costs for patients, but because of misaligned incentives, it actually does the opposite.
PBMs' negotiating leverage comes from their control over insurance company "formularies"—or the lists of which drugs insurers cover and patients' cost-sharing obligations. The issue is that PBMs are compensated a percentage of the nominal "list price" of medicines, meaning they're incentivized to favor the costliest drugs for formulary placement, even if cheaper branded or generic alternatives are available.
This hurts patients, since the amount patients pay at the pharmacy counter isn't based on the post-discount "net price" PBMs and insurers pay. Instead, patients' cost-sharing obligations are typically based on the drug's much higher list price. As a result, many patients wind up paying hundreds—or even thousands—of dollars more per year than they otherwise would.
To make matters worse, PBMs and insurance companies like UnitedHealthcare are increasingly consolidated. The three largest PBMs, Optum, Express Scripts, and Caremark—which collectively control 80% of the PBM market—either own or are owned by insurance companies.
This consolidation has real-world consequences. For instance, PBMs often take advantage of being integrated with insurers to find out if patients have used copay assistance coupons—discounts provided directly by drug companies—to cover their share of the amount due when they buy a medicine. Then the PBMs and insurers refuse to count amounts paid with coupons towards patients' deductibles, even though they're still pocketing the money.
All of these practices drive individuals' annual out-of-pocket drug expenses even higher—if they're even still able to afford their drugs. In a 2023 study from the Kaiser Family Foundation, three in 10 adults reported not taking their medicines as prescribed in the previous 12 months due to cost.
It's hard to overstate the sway PBMs have over our healthcare system. Payments collected by PBMs accounted for a staggering 42 cents out of every dollar spent on brand-name drugs last year. And the difference between list prices and net prices is growing, according to data from the Drug Channels Institute. That means PBM profits are likely to increase—again with no benefit to patients.
To lower excessive out-of-pocket costs, we need to bring clarity and competition to the murky world of PBMs. When Witty takes the stand, senators should ask him how much Optum Rx makes from drug makers, what it charges insurers, and what—if any—benefit patients see. This information will help lawmakers craft policies to dismantle the current incentive structure and drag PBM deal-making into the light of day.
Patient welfare depends on such reforms.
