Current Issues in Health Insurance
- Tom Wolfe
- Sep 5, 2024
- 2 min read
Updated: Jul 27
TCCRI is pleased to release its written testimony to the House Committee on Insurance. It contains background information on a variety of key health insurance issues such as PBMs, the cost of commercial insurance, the negative effects of healthcare mandates and more.
House Committee on Insurance
Pharmacy benefit managers are entities hired by employers and insurers to perform a variety of services related to prescription drugs. These services include establishing pharmacy networks, negotiating prices with drug manufacturers and pharmacies, utilization management (e.g., conducting prior authorizations, setting enrollees’ co-pay amounts), and formulary design.
PBMs, the Big 3 in particular, have drawn intense criticism in recent years for alleged anti-competitive behavior. For example, a 2024 report by the congressional House Committee on Accountability and Oversight (the “House Report”) stated that PBMs have placed expensive drugs in their formularies to obtain large rebates from the manufacturers of those drugs, when much cheaper and equally efficacious drugs were available.
Another recurring complaint is that PBMs “steer” consumers to pharmacies the PBM owns through a variety of mechanisms, such as charging consumers a higher co-pay for using other PBMs. This steering complaint was echoed by the FTC report. PBM-owned pharmacies have been accused of charging unusually high prices in many cases; the FTC report found that from 2020 through part of 2022, PBM-affiliated pharmacies took in $1.6 billion more than NADAC with respect to two specialty generic drugs.
PBMs have also been accused of failing to provide consistency and transparency on how they calculate direct and indirect renumeration (DIR), which consists of post-sale fees that PBMs charge pharmacies based on a pharmacy’s performance metrics. These fees increased by a factor of 450 from 2010 to 2017.
The market dominance of the Big 3 provides them with the clout to negotiate with drug manufacturers, wholesalers, and pharmacies. This clout, however, also makes possible anti-competitive behavior to some extent. The PBM industry is striking not only because of the market share of the Big 3, but also because it exhibits an unusual degree of vertical integration: an insurer owns a PBM, which in turn owns a pharmacy.
