A Stethoscope for Spending: Transparency for PBMs

At its invention, the stethoscope was revolutionary—the first non-lethal way of exploring a patient’s internal anatomy. It opened a new world to physicians.

That’s the goal of the bipartisan Pharmacy Benefit Manager Transparency Act—a measure that is completely non-invasive, but that opens up a world of information about how our health care system delivers prescription drugs and what’s driving skyrocketing costs.

What are pharmacy benefit managers? They’re middlemen. As one of the primary sponsors of the bill U.S. Sen. Chuck Grassley explains, “PBMs are intermediaries that negotiate and manage prescription drug benefits on behalf of health insurance companies, self-insured employers, and government programs.”

Yet for middlemen, they have an incredibly outsized influence on who gets what medications, and at what cost. This is the leverage PBMs once used to get the best prices.  

Today, PBMs use this incredible power to turn the whole system into a classic kickback scheme. PBMs control which drugs are available on your health plan. If the drug isn’t on the list, your insurance company won’t cover it. To make sure their drugs are included on the list, drug manufacturers will give a “rebate” to the PBM, a portion of which the PBM keeps. This kickback that goes directly into the pocket of both PBM’s and insurers. Oftentimes, the higher the drug price, the bigger the kickback.

And of course, drug makers will raise a medication’s price to offset the “rebate.” And so it all spirals upward—at the expense of the employees and employers who pay those insurance premiums.

What does the PBM Transparency Act do? First, it eliminates the kickback scheme that is driving up the cost of prescription drugs. If the PBMs negotiate for a rebate, they have to pass 100% of the savings on to the employer or the patient.

This shouldn’t be a tough sell. The PBMs and insurers already claim they do this. The problem is there is no evidence it’s true.

In Texas, for example, the PBMs spread out just $10 million to enrollees from the rebates in 2020, while they and the insurers pocketed over $2.2 billion. Further, data from the Kaiser Family Foundation shows premiums keep rising year over year. The Grassley proposal would ensure patients get the savings they deserve.

Second, the PBM Transparency Act helps patients understand whether they’re getting a good deal. The PBMs can still charge fees, markup prices, or negotiate for discounts and reimbursements, but they must publicly disclose this information. This helps patients know if, why, and how much they are paying over the price negotiated by the PBM.  

I’m no friend to expanding government power—and this bill doesn’t do that. Instead, it empowers consumers with more information.

PBMs will soon be a nearly $619 billion industry—and gobbling up more and more of our health care dollars. It’s time for some transparency. And the bipartisan PBM Transparency Act will achieve this, without injecting anything more lethal than some free market principles.

David Balat is the director of the Right on Healthcare initiative at the Texas Public Policy Foundation. He has broad experience across the health care spectrum with special expertise in health care finance.