Preventing PBMs from profiting at patients' expense
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West Virginia became the first state to mandate that rebates be passed directly to patients at the pharmacy counter. This move both increased pricing transparency and improved access to lifesaving medications for West Virginians.
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Rebates are discounts that drug manufacturers give to pharmacy benefit managers (PBMs) to encourage them to include certain medications on insurance plan formularies, or drug lists.
While rebates are discounts intended to lower costs, PBMs often pocket them as profits instead of passing on savings to patients, forcing many to pay full-sticker prices for medications—sometimes hundreds of dollars more than the price their insurance company has negotiated.
Originally created to help with pharmacy billing, PBMs don’t have a legal duty to prioritize patient wellbeing, unlike other health care professionals. Instead, they focus on making money for their shareholders.
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Now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies, the top three PBMs control more than 80% of the U.S. drug market. These middlemen exert major influence over which drugs are prescribed to patients, which pharmacies they can use, and how much they pay out of pocket for prescriptions.
Making matters worse, PBMs limit the competition that should reduce prescription drug costs. As cheaper generic and biosimilar drugs come to market, PBM-approved lists exclude them, or place them in higher-cost categories—specialty and non-preferred tiers—so patients don’t save money. PBMs prefer more expensive brand-name medications as they bring higher rebates, boosting profits for PBMs and leaving patients with higher costs.
While numerous factors inflate patient costs, PBMs play a major role. State legislators have a chance to help address this problem by passing laws to ensure rebate savings go directly to patients, lowering costs without adding much expense to health plans.
West Virginia has pioneered legislation to require rebates and discounts be shared with patients at the point of sale—HB 2263. This law applies to all prescription drugs, medical devices, supplies or services during the deductible period. It makes prescription drug services commensurate with other medical care while ensuring the discounts insurance companies negotiate actually benefit patients who need them most.
Following unanimous passage of HB 2263, the legislation was selected by the Council of State Governments for inclusion in their Shared State Legislation Docket. Since then, dozens of states have filed similar bipartisan measures, with rebate pass-through policy now law in West Virginia, Arkansas, Indiana, and New Mexico (as of publication).
Some opponents to this legislation say that requiring rebates to be shared with patients will dramatically raise insurance premiums, as health plans use rebates to keep premiums down. Reality shows that this is not true: States that implemented these reforms have not seen a rise in premiums past national averages. One study shows the cost increase for health plans would only be about 0.4% to 0.6%—a trivial amount. This study also did not factor in the effects of chronic disease patients being more adherent to their maintenance medications, which can drive additional savings.
Some argue that rebate money is used to lower everyone’s insurance premiums. While that may be appropriate in some cases, rebates that patients pay during the deductible period should go back to them.
Rebate reform can also reduce other costs. Patients who are overcharged for their medications meet their deductible sooner, causing health plans to pay for other claims earlier than necessary. Through rebate reform, legislators can make medications more affordable, helping patients stick to their treatment plans—especially for chronic conditions—driving better health outcomes and lower costs in the long run.
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