GAO: PBMs Gave Back Majority of Drug Rebates | Citizens Against Government Waste
The WasteWatcher: The Staff Blog of Citizens Against Government Waste

GAO: PBMs Gave Back Majority of Drug Rebates

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


On August 14, the Government Accountability Office (GAO) released a report, “Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization.”  The GAO looked at how pharmacy benefit managers (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.

The government watchdog was tasked by Sen. Susan Collins (R-Maine) and Rep. Richard Neal (D-Mass.) to provide an overview of the role PBMs play in Medicare Part D.  They wanted to know to what extent plan sponsors utilize PBMs to deliver drug benefits; how PBMs earn revenue from the services they provide to Part D plan sponsors; trends in rebates and other price concessions obtained by Part D plan sponsors and PBMs from drug manufacturers and others; the extent to which prices for Part D drugs are discounted off of manufacturer list prices; and, what are the savings and other results achieved by PBMs utilized in Part D plans.

PBMs have been around since the 1960s and had their beginnings in claims administration in the private sector for health insurance companies and employer health plans.  Overseeing the development of plastic drug benefit cards, pharmacy networks, and mail delivery for medications, PBMs helped to simplify and reduce the cost of administering drug benefits.  By the 1990s, PBMs had developed into a sophisticated healthcare service provider.

PBMs services include negotiating rebates (discounts in exchange for increased volume) from manufacturers; formulary development; pharmacy network development, particularly preferred networks that help beneficiaries pay lower cost-sharing amounts; utilization management services that include prior authorization, step therapy, medication adherence, limiting the risk of adverse drug events, and drug usage.  These services have helped to drive down drug costs and improve health outcomes.

There is a lot of information contained in the GAO report, which demonstrates PBMs provide a valuable service in delivering drug benefits to beneficiaries.  Instead of more government interference and price controls, as has been done recently in Medicare Part D, it would be better to have more private-sector negotiation among pharmaceutical manufacturers, PBMs, and pharmacies to encourage competition, lower costs, and increase healthcare quality for patients.

Issues/Topics: 

Sign Up for Email Updates!Click Here!

View Archives

Posts by Author

Posts by Tag

Big Government (152) Obamacare (85) Congress (84) Healthcare (76) Budget (76) Waste (75) Uncategorized (56) Telecommunications (50) Internet (49) Debt (47) Technology (47) Deficit (44)