Above photo: Health care advocates risk arrest protesting care denials at UnitedHealthcare headquarters on July 15, 2024, in Minnetonka, Minnesota. David Berding / Getty Images for People’s Action Institute.
It’s Not Just Denied Claims.
Lawmakers are looking to break up massive health care conglomerates that manage nearly 80 percent of prescriptions.
Amid an outpouring of frustration with for-profit health insurance sparked by the assassination of UnitedHealthcare CEO Brian Thompson on December 4, much of the media coverage has focused on the alleged shooter, 26-year-old Luigi Mangione, and the industry’s nasty habit of maximizing profits by denying claims and leaving sick and vulnerable patients with massive medical bills.
There’s plenty of data to back up the anger over private health plans expressed online since the shooting. Insurance costs are far outpacing inflation, leaving patients with soaring out-of-pocket costs. Health insurance companies are notorious for exploiting prior authorization schemes to avoid paying for care and have denied claims at alarming rates in recent years.
However, corporate consolidation of industry “middlemen” that experts say are partially to blame for the prescription drug affordability crisis has received less scrutiny from the general public, despite efforts by lawmakers and the Federal Trade Commission (FTC) to shine light on the notoriously opaque and confusing corporate bureaucracy that determines the cost of medicine.
We often hear about Big Pharma selling drugs at high prices and insurance companies dragging their feet when it comes time to pay the bill, but the prices patients pay out of pocket for pharmaceuticals is largely shaped by the connective tissue between insurers and drug manufacturers: pharmacy benefit managers, or PBMs. PBMs have been around for decades, but the largest PBMs have merged with major insurance companies to form conglomerates, including UnitedHealth Group’s Optum Rx.
In theory, PBMs negotiate discounts and rebates paid by drug makers that are passed onto insurance companies and their patients, but the lack of transparency in that process has long frustrated lawmakers and regulators attempting to contain the skyrocketing cost of medicine.
The PBMs say their secret negotiations with drug companies make prescriptions more affordable for consumers, but this system has not shown to protect patients from sticker shock at the pharmacy counter.
Nearly 30 percent of Americans say they haven’t taken prescribed medication due to cost, and an estimated 1.1 million Medicare patients alone could die over the next decade because they cannot afford the drugs prescribed by their doctors, according to the American Hospital Association. The FTC reports that in 2023, the U.S. spent more than $722 billion on prescription drugs, nearly as much as the rest of the world combined.
Clearly the system is not working for patients or public health, and policy makers in both parties have increasingly focused on the PBMs and their recent mergers with major insurance companies. According to a two-year FTC investigation on health care conglomerates released in July, PBMs are “powerful middlemen inflating drug costs and squeezing Main Street pharmacies.”
“We’ve heard accounts of how the business practices of PBMs may deprive patients of access to the most affordable medicines and how doctors find themselves having to subordinate their independent medical judgment to PBMs’ decision-making at the expense of patient health,” FTC Chair Lina Khan said in a statement at the time.
Over the past decade, the consolidation or “vertical integration” of PBMs with major health insurers formed massive health care conglomerates that include retail and mail-order pharmacies to capture every inch of the supply chain. The FTC found that the three largest PBMs — CVS Caremark, Cigna Group’s Express Scripts and UnitedHealth Group’s Optum Rx — now manage nearly 80 percent of prescriptions filled in the United States.
PBMs leverage their management of formularies, or the list of drugs available on insurance plans, to negotiate rebate payments from drug makers that are supposed to reduce costs for patients and insurers. However, when doctors prescribe costly drugs that do not appear on an insurer’s formulary, patients can be forced to pay the full price out of pocket.
Earlier this year, New Jersey resident Ann Lewandowski sued her former employer, Johnson & Johnson, after the company’s insurance plan left her facing a $10,000 bill for a three-month supply of a name brand drug for treating multiple sclerosis. A generic version of the drug can be purchased without insurance at a cost between $28 and $77 at major pharmacies, according to the lawsuit, but these options were not available due to the PBM policy.
“They will tell you their mission is to lower drug costs,” said Rep. Earl L. “Buddy” Carter (R-Georgia), a pharmacist and a critic of PBMs, in a speech on the House floor in 2019. “My question to you would be: How is that working out?”
Critics say negotiations with PBMs incentivize drug companies to inflate the “list price” or market price of drugs, creating an ever-widening gap between the list and the “net price,” which is the cost insurance companies and patients often share through various copay schemes.
This process famously pushed up the price insulin for years until the drug became unaffordable for diabetes patients who need it to survive. Congress stepped in after much public outcry — in 2019 patients traveled to Canada with Sen. Bernie Sanders to find insulin they could afford — and in 2022 President Joe Biden signed legislation capping insulin copays at $35 for Medicare patients.
Dragged before Congress and facing protests by angry patients and public health groups over the price of insulin, drug companies pointed the finger of blame at PBMs. Merck Chief Executive Kenneth Frazier told the Senate Finance Committee in 2019 that PBMs benefit when the list price of drugs goes up, creating a preference within the supply chain for higher priced medicines.
“This kind of misalignment can have a significant negative impact on patients because their cost sharing is often based on the list price of a drug, even when insurance companies and PBMs are paying a fraction of that price,” Frazier said. “Our current system that incentivizes high list prices and large rebates as a mechanism to keep insurance premiums low means that sick patients are essentially subsidizing healthy patients.”
While it remains unclear how much money PBMs keep for themselves as “middlemen,” critics tend to blame the entire supply chain, including Merck and other drug makers, when medicine is unaffordable. However, the recent integration of the largest PBMs with top insurers has consolidated an alarming level of corporate control over that supply chain, according to Unai Montes-Irueste, a spokesman for the People’s Action Institute’s Care Over Cost campaign.
“It’s a horizontal and vertical monopoly they are creating, so they are able to skim profit or take profit and grow profit at every stage and in every direction,” Montes-Irueste said in an interview.
Following its investigation, the FTC filed an administrative lawsuit in September against the top three PBMs alleging unfair and anti-competitive rebating practices that have artificially increased the list price of insulin and shifted the burden onto vulnerable patients. The PBMs responded with a lawsuit in federal court that challenges the FTC’s administrative process and accuses the agency of regulatory overreach.
The merger of large PBMs with insurers is also blamed for creating “pharmacy deserts” in rural and underserved areas where independent pharmacies that locals relied on for years went out of business. In February, the National Community Pharmacists Association declared an “emergency” and warned Congress that the monopolistic practices of health insurers and their PBMs must be regulated or thousands of pharmacies could close their doors.
“Pharmacists from West Virginia to Texas have written to the FTC, expressing concern that PBMs’ business practices are creating risk for their patients while squeezing independent pharmacies that have served their communities for decades,” Khan said in July.
Sen. Elizabeth Warren (D-Massachusetts) and Sen. Josh Hawley (R-Missouri) introduced bipartisan legislation on December 11 that would break up the monopoly on pharmacy access that the top three PBM and insurer conglomerates are building. The bill would prohibit companies that own both a PBM and insurance business from owning retail or mail-order pharmacies at the end of the supply chain. If enacted, the health care conglomerates would be required divest from their pharmacies within three years.
“If from the moment something is prescribed to when it is received by the patient it is always a source of profit, then it’s a thousand-layer cake,” Montes-Irueste said.
Multiple states have passed their own laws, but Montes-Irueste said the drug affordability crisis requires a federal solution for powerful, nationwide industry. The $35 cap on insulin copays for Medicare patients was badly needed, but the health conglomerates simply found ways to squeeze profits out of other patients.
“There are 999 layers of that cake that is not regulated and one is, and that one that is regulated is under threat by the new administration,” Montes-Irueste said.
Now policy makers must focus on lowering the out-of-pocket cost that patients pay for other lifesaving drugs, Montes-Irueste said, but that could be difficult under President-elect Donald Trump and a GOP-controlled Congress. However, the recent conversation around health insurers could prove to be an opportunity.
“We have found a place in public policy where we do not have a left-right question, we have a top-down question,” Montes-Irueste said. “We are in a moment when we can say clearly to private corporations, ‘stop denying care,’ but also that government actors must offer solutions at the scale of need.”
The scale of need is being spelled out right now by the millions of online comments from people who feel like the health insurance system is broken, Montes-Irueste said. “And for those who profit out of, it is working perfectly.”