Pharmacy-benefit managers and drug prices

See Drug Prices Increase 5.6% as Government Ramps Up Pressure to Lower Costs by Jared S. Hopkins of The WSJ. Excerpts:

"This year the federal government has begun implementing the Inflation Reduction Act, which gives Medicare, the country’s biggest buyer of prescription drugs, the authority to negotiate how much it pays for certain high-price therapies. Later this year the federal government will disclose the first 10 drugs whose negotiated prices would take effect in 2026.

The law also requires drugmakers to pay Medicare rebates on treatments whose prices rise by more than the rate of inflation. 

Because inflation has been running unusually high, analysts expected drugmakers would lift list prices higher than usual. 

The new increases affect drug list prices, which aren’t what patients with health insurance usually pay. Patients tend to pay some out-of-pocket sum each month set by their plans, such as a monthly copay, a deductible or a percentage of the drug’s cost.

List prices aren’t typically what pharmaceutical companies are paid for their products, either. Companies that manage drug benefits, known as pharmacy-benefit managers or PBMs, often negotiate discounts and rebates off the list price, in exchange for agreeing to cover a medicine.

Discounts and rebates can cost pharmaceutical companies as much as 70% off the list price of a medicine, sums that can go to drug-benefit managers and health plans. 

List prices for U.S. branded drugs increased by an average of 5% from 2018 to the third quarter of 2022, while the sums that pharmaceutical companies were paid fell on average about 1.5%, according to the research firm SSR Health. 

A big reason why pharmaceutical companies raised list prices, analysts and pharmaceutical companies said, was to give bigger discounts and rebates. Larger markdowns can help drugmakers win a position on formularies, the lists of drugs that PBMs agree to cover, because the PBMs get those savings and can pass them on to their clients."