On Tuesday, January 27, 2019, the Senate Finance Committee held an important hearing on the cost of prescription drugs. A key element of the discussion focused on the rebates commonly given by drug manufacturers to pharmacy benefit managers (PBMs). Three PBMs control more than 70% of the pharmacy distribution within the US (link). They are Express Scripts, CVS, and OptumRx. These PBMs develop and manage the drug formularies for carriers and health plans. They are a middleman with considerable control over the pricing of prescription drugs.

PBMs receive rebates from drug manufacturers, but under the current system, the discounts do not flow down to the actual consumer — employers and their employees. They remain with the PBM. These PBMs typically establish drug pricing for the health plans based upon the purchase price, without consideration for the rebates they receive.

The lack of transparency in prescription drug pricing makes it too easy for drug manufacturers, PBMs, insurance carriers, and pharmacies to increase the prices that consumers pay. The prescription drug spend is the fastest growing expense in an employer’s health benefit plan, second only to inpatient hospitalization.

Having this discussion on the Congressional Record is a great first step, yet it could take years before any action relieves the cost pressures of prescriptions.

Frequently, employers and employees find themselves stuck with increasing insurance premiums as well as high (and increasing!) drug costs. However, there are solutions to this problem. Understanding the healthcare supply chain is critical in addressing this and the other healthcare related issues that employers face.

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