Health Issues - Drug Spending

Kickbacks to Pharmacy Benefit Managers
Daily Policy Digest
Thursday, April 10, 2003

To cut their prescription drug costs, a decade ago America's health insurance plans sought to win price breaks based on volume discounts. By pressuring doctors to prescribe only drugs on which they had gotten the best deals, pharmacy benefit managers (PBMs) cut pharmaceutical costs up to 30 percent for some health plans. Now, PBMs control the drug choices of some 200 million people in the United States. However, the savings extracted by PBMs have fallen while Americans' drug costs have risen to about $161 billion in 2002.

Experts suspect several reasons for this:

  • PBMs once earned the bulk of their revenue by holding down drug costs for health plans.
  • They now earn a large portion of their revenue from drug companies that pay them undisclosed rebates and other financial incentives for promoting certain medications.
  • The undisclosed payments to PBMs may be as much as $16 billion.
Health plan representatives have filed numerous lawsuits demanding PBMs repay millions of dollars in rebates and other financial incentives that they claim should have been passed on to the health plans. In fact, some of the lawsuits accuse PBMs of steering clients to higher-priced drugs for their own profit and of failing to act in their plans' best financial interests. The legality of drug-company payments to PBMs is in dispute and probably will be decided in court.

Source: Tony Pugh, "A System to Save on Drugs Falters," Philadelphia Inquirer, February 10, 2003.

For text

For more on Drug Spending


12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
655 15th St. N.W., Suite 375 - Washington, DC 20005 - 202/628-6671 - Fax 202/628-6474

Copyright © 2003 National Center for Policy Analysis - All rights reserved.