In the debate over rising drug prices, both drugmakers and PBMs claim innocence
BYMeg Tirrell
Wednesday, 19 Apr 2017 | 5:21 PM ET
Yuri Gripas | Reuters

The battle over rising drug prices has become a full-blown he-said-she-said.

Drug companies have pointed the finger at middlemen in the health-care system, saying they not only benefit from rising drug prices but contribute to their increases.

Those middlemen — namely, pharmacy benefits managers (or PBMs) — have said the only parties responsible for drugs' list prices are the manufacturers.

So who's right?

In a study released today, the PBM lobbying group, the Pharmaceutical Care Management Association, says an analysis it commissioned revealed no correlation between drug prices and rebates paid back to PBMs.

The drug industry's lobby, the Pharmaceutical Research and Manufacturers of America, or PhRMA, disagrees.

The reason this matters: Bubbling beneath pronouncements from President Donald Trump that the pharmaceutical industry is "getting away with murder" when it comes to their prices is a more complicated discussion. It focuses on PBMs and manufacturers, list prices, rebates and discounts.

Stick with us. Here's a quick explainer:

Pharmacy benefits managers, like Express Scripts, CVS Caremark, and UnitedHealth's OptumRx, negotiate rebates on behalf of clients, including insurers and employers. They wield power in the form of formularies: plans that rank drugs in tiers that determine how much patients end up paying out of pocket.

Drug companies want patients to pay as little out of pocket as possible (exposure to bigger portions of drugs' costs leads to outcries like last year's around the EpiPen), so they make concessions to PBMs to get more favorable formulary placement.

Drug companies argue that PBMs have incentives to drive list prices higher, because part of how they make money is based on the size of the rebates they negotiate. So, if Drug A is priced at $100, and a PBM wrings a 20 percent discount, it keeps a portion of that $20 rebate. The net price of Drug A is then $80.