Lack of Transparency and Higher Prices
According to a report by Applied Policy, "PBMs negotiate rebates directly with pharmaceutical manufacturers, and they can be based on preferred placement on a formulary tier (e.g. placement on a 'preferred brand' tier with more favorable cost-sharing amounts relative to products on a higher tier) or based on utilization (e.g. if the manufacturer is able to achieve a certain percentage of the PBM's utilization for a particular therapeutic class of drugs)."
While PBMs generally assert that these rebates are in large part passed through to plan sponsors and help reduce costs, there is growing skepticism over these claims. For example, in 2016, Anthem, one of the nation's largest health insurers, filed a lawsuit against PBM behemoth Express Scripts alleging in part that Anthem was not benefiting from negotiated rebates—to the tune of $15 billion in lost savings. Additionally, a recent report by the New York Comptroller's office found that Express Scripts failed to turn over nearly $1.5 million in rebates due to the state over a four-year period.
Moreover, an article by Peter Pitts, a former FDA Associate Commissioner and president of the Center for Medicine in the Public Interest in Investors Business Daily questioned the role of rebates in reducing costs noting that list prices were going up, but the amount retained by the manufacturer was decreasing and the extra was being retained by PBMs not being passed onto patients, "Pharmacy benefit managers are supposed to negotiate big rebates on drug prices. And they do. But they're pocketing the cash instead of passing discounts along to patients."
In addition to PBMs retaining rebates, there is also a question as to whether rebate arrangements encourage PBMs to favor pricier medications on their formularies. An online article on Business Insider explored Nexium, a heartburn medication with a generic alternative available and asserted that PBMs retain the higher cost brand version on their formulary due to the rebates they receive.
For More Information on rebates, see the following articles: