Another Government Report Proves That PBMs Save Taxpayers Money | Citizens Against Government Waste

Another Government Report Proves That PBMs Save Taxpayers Money

The WasteWatcher

The substantial benefits provided by pharmacy benefit managers (PBMs) and the consequences of not using them has been demonstrated once again by a federal government agency.  A  March 31, 2023, Department of Labor (DOL) Office of Inspector General (OIG) Office of Audit report found that the DOL overspent $321.3 million in a six-year span (fiscal years 2015-2020) on prescription drugs for the Federal Employees’ Compensation Act (FECA) program because the Office of Workers’ Compensation Programs (OWCP) did not use a PBM.  There are approximately 2.6 million federal and postal workers in the FECA program.  Prior OIG audits determined that OWCP did not have a PBM “to help contain costs.”

The accounting firm conducting the audit for the OIG found that OWCP failed to manage pharmaceutical spending effectively, “did not pay the best available price for prescription drugs,” and did not address “emerging issues” or “perform sufficient oversight of prescription drugs that are highly scrutinized and rarely covered in workers’ compensation programs.”  These failures led to the purchase  of “drugs that may not have been necessary or appropriate for FECA claimants,” who received “thousands of inappropriate prescriptions and potentially lethal drugs, including 1,330 prescriptions for fast-acting fentanyl after issuing a policy that restricted its use.”  There were, therefore, not only adverse consequences for taxpayers, but also potentially deadly consequences for thousands of federal and postal workers in the FECA program.

PBMs administer drug plans for more than 275 million Americans who obtain their health insurance from employers, unions, state governments, insurers, and other entities.  The number of people PBMs serve year over year is consistently growing due to the popularity of PBMs and the lower priced drugs they provide.  PBMs save an average of $1,040 per payer and patient per year.  They provide their customers with 40 to 50 percent savings on prescription drugs and related medical costs by negotiating on behalf of the large groups they serve; the savings are then passed onto health plan sponsors and patients.  PBMs utilize a variety of tools to lower prices like rebates, pharmacy networks, drug utilization review, formularies, specialty pharmacies, mail-order, and audits to drive down drug costs, improve quality, increase patient medication adherence, and prevent fraud. 

These capabilities help prevent the costly and potentially lethal consequences of what the OIG reported regarding the failure by the DOL to use a PBM. 

The prior reports on PBMs came from the Federal Trade Commission (FTC) and the Government Accountability Office (GAO).  As Citizens Against Government Waste President Tom Schatz noted in his May 25, 2022, comments to the FTC on its ongoing study of the impact of PBMs’ business practices, “CAGW has for many years been involved in the debate over the regulation of pharmacy benefit managers (PBMs) as part of the effort to lower drug costs.  The organization has consistently argued that government meddling in this area does the exact opposite and raises costs.  Since PBMs provide benefits for multitudes of employers and millions of patients, they are able to bring to bear increased negotiating power and get substantial price discounts from pharmaceutical companies based on volume.  The savings are passed on to health plan sponsors, like employers, and consumers.  Processing huge volumes of prescription drug programs is complicated and overwhelming, so in the 1960s, health insurers hired PBMs to fill that role.  In the 1980s, when insurance and pharmaceutical markets grew exponentially due to medical advances, PBMs expanded their roles to negotiating lower drug prices with pharmaceutical manufacturers and pharmacies.  In 2005, before Medicare Part D was implemented, the Congressional Budget Office estimated it would cost taxpayers $174 billion by 2015, but it cost only $75 billion thanks to private-sector negotiations that included PBMs.”

An August 14, 2019, GAO report, “Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization,” examined how PBMs are used in voluntary Medicare Part D drug plans.  In 2016, PBMs were used by drug plan sponsors, like insurers, to provide 74 percent of drug management services, while the sponsors provided the remaining 26 percent.  In 2016, GAO found total gross expenditures in Part D were $145 billion, with PBM-negotiated rebates and other price concessions offsetting that amount by 20 percent, or net Part D expenditures being $116 billion.

While rebates and other price concessions grew faster than Part D net expenditures from 2014 to 2016, at 66 percent and 13 percent respectively, PBMs retained less than 1 percent of the rebates and passed the rest to their plan sponsors.  The plans use these savings to help offset the growth in drug costs and keep drug benefit premiums low for Medicare beneficiaries.  GAO also found PBMs are primarily compensated by fees obtained from plan sponsors, not the rebates.

Despite the growing evidence of the value provided by PBMs, some members of Congress are insisting on trying to impose pricing requirements or rate regulations, which will distort the medical marketplace and limit PBMs’ negotiating power, causing harm to the customers they serve.  Bills like S. 1339, Sen. Bernie Sanders’ (I-Vt.) PBM “reform” legislation, would take power away from patients and turn it over to government bureaucrats, opening the door to price controls and market manipulation, and move the country closer to government-run/socialized healthcare. 

PBMs provide a valuable service by negotiating prices and delivering benefits that lower healthcare costs for patients.  The serious financial and personal consequences of failing to choose to use a PBM were made clear in the DOL IG report.  And the OWCP apparently got the message when it set up a competitive bid for a five-year contract with a PBM, which was awarded on February 5, 2021. 

Instead of interfering in these private sector negotiated healthcare plans, Congress should heed the reports from government agencies that show the use of PBMs should be expanded, not constricted.  That would be the best way to create an environment that will spur competition and innovation and increase healthcare quality for all Americans.

Blog Tags: 

Sign Up For Email Updates

Optional Member Code