The Opaque Industry Secretly Inflating Prices for Prescription Drugs

Americans are paying too much for prescription drugs.

It is a common, longstanding complaint. And the culprits seem obvious: Drug companies. Insurers. A dysfunctional federal government.

But there is another collection of powerful forces that often escape attention, because they operate in the bowels of the health care system and cloak themselves in such opacity and complexity that many people don’t even realize they exist.

They are called pharmacy benefit managers. And they are driving up drug costs for millions of people, employers and the government.

The three largest pharmacy benefit managers, or P.B.M.s, act as middlemen overseeing prescriptions for more than 200 million Americans. They are owned by huge health care conglomerates — CVS Health, Cigna and UnitedHealth Group — and are hired by employers and governments.

The job of the P.B.M.s is to reduce drug costs. Instead, they frequently do the opposite. They steer patients toward pricier drugs, charge steep markups on what would otherwise be inexpensive medicines and extract billions of dollars in hidden fees, a New York Times investigation found.

Most Americans get their health insurance through a government program like Medicare or through an employer, which pay for two different types of insurance for each person. One type covers visits to doctors and hospitals, and it is handled by an insurance company. The other pays for prescriptions. That is overseen by a P.B.M.

The P.B.M. negotiates with drug companies, pays pharmacies and helps decide which drugs patients can get at what price. In theory, everyone saves money.

“We’re really, really good at what we do,” Jon Mahrt, president of UnitedHealth’s P.B.M., Optum Rx, said in an interview. The main lobbying group for the P.B.M.s says that in 2022 they saved their clients and patients $286 billion.

But those savings appear to be largely a mirage, a product of a system where prices have been artificially inflated so that major P.B.M.s and drug companies can boost their profits while taking credit for reducing prices.

The Times interviewed more than 300 current and former P.B.M. employees, patients, physicians, pharmacists and other industry experts, and reviewed court documents and patient records. The investigation found that the largest P.B.M.s often act in their own financial interests, at the expense of their clients and patients. Among the findings:

• P.B.M.s sometimes push patients toward drugs with higher out-of-pocket costs, shunning cheaper alternatives.
• They often charge employers and government programs like Medicare multiple times the wholesale price of a drug, keeping most of the difference for themselves. That overcharging goes far beyond the markups that pharmacies, like other retailers, typically tack on when they sell products.
• The largest P.B.M.s recently established subsidiaries that harvest billions of dollars in fees from drug companies, money that flows straight to their bottom line and does nothing to reduce health care costs.
• The P.B.M.s, which are responsible for paying pharmacies on behalf of employers, are driving independent drugstores out of business by not paying them enough to cover their costs. Small pharmacies have little choice but to accept these lowball rates because the largest P.B.M.s control an overwhelming majority of prescriptions. The disappearance of local pharmacies limits health care access for poorer communities but ultimately enriches the P.B.M.s’ parent companies, which own drugstores or mail-order pharmacies.
• P.B.M.s sometimes delay or even prevent patients from getting their prescriptions. In the worst cases, patients suffer serious health consequences.

Many patients learn about the existence of P.B.M.s only when they have a problem getting medications and spend hours navigating a byzantine system of approvals and restrictions.

But the P.B.M.s’ business practices touch virtually every American family. Even people who don’t take prescription drugs end up paying higher insurance premiums and taxes as a result of inflated drug costs.

In Oklahoma, for example, CVS’s P.B.M., Caremark, overcharged the health plan for state employees by more than $120,000 a year for one patient’s cancer drug, according to his insurance documents.

In Illinois, a woman with cancer paid hundreds of dollars more than she should have for her pain medication because Caremark required her to use a more expensive version.

In New Jersey, Cigna’s P.B.M., Express Scripts, wanted Joseph Kaplan, a 77-year-old retiree, to pay $211 for a three-month supply of his allergy drug when he could have paid $22 at Costco. “It’s just nuts,” he said.

Smallish sums quickly add up when applied across the health care system. It is a big reason the P.B.M.s have become a fast-growing and profitable industry.

If they were stand-alone companies, the three biggest P.B.M.s would each rank among the top 40 U.S. companies by revenue. The largest, Caremark, generates more revenue than Ford or Home Depot.

Because of recent mergers, they are becoming more dominant, collectively processing roughly 80 percent of prescriptions in the United States. In 2012, the figure was less than 50 percent.

Executives at the P.B.M.s say their size is essential to counteract the companies that make brand-name drugs.

“The biggest driver of cost in this country is the brand manufacturers,” David Joyner, president of CVS Caremark, said in an interview. “Size and scale really matters in order to be able to influence and be able to lower the overall cost of branded pharmaceuticals.”

Officials at Caremark, Express Scripts and Optum Rx defended their business models. Some executives acknowledged that there were times when they overcharged for specific drugs, but the companies said they offered the lowest overall prices to their clients. (The system’s opacity makes that claim impossible to verify.)

The P.B.M.s also say that tightfisted employers are to blame when patients are charged high out-of-pocket costs or can’t get their medications. Indeed, many employers skimp on the health benefits they offer workers.

Yet employers don’t always grasp the impact of their choices. They have outsourced so much of the responsibility for handling their workers’ drugs that employers often can’t understand — much less control — how the system works.

Few issues are as politically explosive as drug prices. For years, drug companies bore the brunt of the public ire. Increasingly, that anger is also being directed at P.B.M.s.

In Washington and state capitals, lawmakers, regulators and attorneys general have suggested that the benefit managers may be inflating drug prices and engaging in anticompetitive behavior.

“They’re seeking to extract from the system, without creating any corresponding value for the system,” said Dave Yost, the Republican attorney general in Ohio, who has sued Express Scripts and Optum Rx over their business practices. “The patients are the ones that are suffering.”

‘The Arsonist and Firefighter’

P.B.M.s have been around since the late 1950s. They initially handled requests mailed in by pharmacies and patients seeking reimbursement for the costs of prescription drugs.

Over the decades, P.B.M.s have had different owners, including drug makers and large chains of pharmacies. They were often credited with saving money for patients and employers, including in the early 2010s when they embraced a new wave of generic drugs. They kept a slice of the savings for themselves.

The modern P.B.M. emerged in 2018. The giant health insurers Aetna and Cigna were trying to achieve the growth demanded by Wall Street. They sought to merge with the P.B.M.s, whose profits were soaring. Aetna and CVS combined. Cigna bought Express Scripts. (UnitedHealth had built its own P.B.M.)

It would turn out to be a seminal moment, one that would rapidly and radically change the American health care system by further shifting power into the hands of giant conglomerates and away from employers and patients.

Today, P.B.M.s feed off a system where everything is extraordinarily complicated — including how much a drug actually costs.

Here’s how it works.

When you hear about a $16,000-a-year obesity drug or a $275 vial of insulin, that’s not the final price of the medication. This sticker price is just the starting point for negotiations between P.B.M.s and drug companies.

READ MORE HERE