Testimony on Pharmacy Benefit Managers and the Prescription Drug Supply Chain

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Editor’s Note: The following is a testimony delivered by Karen Van Nuys to the U.S. Senate Committee on Finance on March 30, 2023. More information about the hearing can be found here.

Key Points:

  • PBMs play a central role in the economic system that distributes and pays for life-saving
    drugs in the United States. Evidence indicates they leverage their position to extract profits in
    ways that are detrimental to patients, payers, and the drug innovation system more broadly.
  • PBMs in some cases increase drug costs to patients and taxpayers; our study suggests
    Medicare pays 21% more for the most common generic drugs than they would if purchased
    at Costco.
  • The rebate system by which PBMs negotiate with manufacturers to gain market access
    distorts incentives; indeed, it increases list prices for brand drugs, which can have significant
    adverse impact on patients.
  • PBMs sometimes steer patients toward more expensive drugs; there are many examples of
    PBMs providing more favorable formulary placement to expensive brand drugs than to lower
    cost generics, presumably in exchange for larger rebates.
  • Research on the economic rents earned by different sectors of the distribution system indicates PBMs and other intermediaries earn excess returns after adjusting for risk.
  • Increased transparency could shed light on how widespread such practices are, and their overall impact on drug prices and spending. Greater transparency could also provide purchasers better information about the prices and alternatives they face, and help lower costs to patients and taxpayers.

Full testimony is available here.