It has been hard to ignore the fight in Washington over the last few years on the need to reform how pharmaceutical middlemen — or pharmacy benefit managers — conduct their business practices.
PBMs have succeeded in drawing the ire of Congress, the Federal Trade Commission, pharmaceutical manufacturers, pharmacies and patients who argue that PBMs have outsized their original business models to instead manipulate the pharmaceutical marketplace, pocket savings that belong to patients, and dictate choice in medicines and pharmacy access. The grip of the “big three” PBMs on the pharmaceutical supply chain has seemed unbreakable — at least until recently when Tyson Foods, a Fortune 100 employer, decided enough is enough.
Often, the seemingly smallest news stories can turn out to be the biggest, and that may be the case with the Tyson Foods announcement that it had shifted away from its longtime PBM partner to a more affordable, flexible and transparent startup PBM to negotiate drug prices for its employees.
While this action may seem isolated and insignificant, it is a major and potentially market-moving step that begins loosening the PBMs’ grip on the pharmaceutical supply chain. This shift by an employer as large and prominent as Tyson Foods is highly significant for several reasons. First, it signals to other large private employers that savings and efficiencies can be gained in the marketplace, which could lead other employers to follow suit, thereby breaking the PBM dam that has prevented drug discounts from flowing downstream to employers and their employees. Second, this move validates to lawmakers that the reforms they are pursuing — particularly for programs like Medicare and Medicaid — are not only justified but long overdue.
If you are unfamiliar with PBMs and what their role in the supply chain is supposed to be — these companies are engaged by the health plans of large employers to negotiate drug rebates and fees with drug manufacturers while creating lists of pharmaceuticals that are covered by the health plan for patients and reimbursing pharmacies for patients’ prescriptions.
However, the reality is the “big three” PBMs — controlling 80 percent of the market — too often operate without transparency while keeping rebates that belong to patients, including in Medicare and Medicaid, limiting patient access to medicines and pharmacy choice, and incentivizing drugs that further feed the self-enriching ecosystem they have created. PBM revenues have grown to $400 billion annually, projected to reach $900 billion by 2030.
The irony that Tyson Foods is making this move as a cost-cutting measure is not lost on anybody. After all, PBMs are supposed to be the players in the supply chain, bringing cost savings to large employers. The startup PBM that Tyson Foods has engaged is simply going back to basics — offering to negotiate rebates and fees to save employers on pharmacy costs, ensuring transparency and flexibility to achieve the appropriate balance in employee health plans while providing concierge service for employees to identify the most cost-efficient and effective medication.
The startup PBM CEO called the legacy PBM experience “fundamentally broken” and that “people have had it with a system that only accretes profits and outcomes to a handful of large, vertically integrated insurance companies.” A telling statement from a leader who is seizing on the opportunity to help bring market efficiency back to the drug supply chain.
It is time for Congress to act and get PBM reform done. The government should demand the same cost savings, transparency and flexibility as private-sector employers. The reform legislation pending before Congress is overwhelmingly bipartisan and low-hanging fruit in an otherwise partisan political environment. This is an opportunity for members of Congress to deliver something significant for their constituents, and particularly those on Medicare and Medicaid.