Transparency needed on companies that manage prescription drugs

Published by The Sacramento Bee

If you’re like most Californians who have health insurance, you know two things about how prescription drugs fit into your health plan. You know that you receive some level of coverage for medications, and you know that soaring prices for prescription drugs are a major cost-driver that have caused insurance premiums to soar.

What you don’t know is how your coverage for prescription drugs works, who determines which drugs are covered, or who gets how much from the money you pay for your prescription drugs. The fact is, almost no one knows those things.

Here’s the reality: Those benefits are administered by the most influential segment of the health care industry that you’ve never heard of. These companies are called pharmacy benefits managers (PBM). They contract with health plans to administer prescription drug benefits and, unlike the more familiar segments of the industry – hospitals, insurance companies, pharmacists, doctors and other professionals – they operate almost completely outside of government oversight or regulation.

Theirs is a secretive business, run by three major companies which combine to control up to 80 percent of the U.S. market.

They establish each health plan’s drug formulary, which is the list of drugs that are covered. They decide whether you can receive a less expensive generic drug or must instead use a higher-priced, name-brand drug. They decide which pharmacies you can go to and which you can’t – even, in the case of cancer patients, whether they can continue to receive their life-saving drugs through the physician who is managing their care or must rely instead on a distant, PBM-affiliated, mail-order pharmacy.

Because they control so much of the market, they negotiate deals with the big pharmaceutical companies that give them rebates for each prescription their enrollees fill – but no one knows whether they pocket those rebates or if some of that money is used to help lower costs for consumers.

With so much clout concentrated to a handful of giant companies, serious questions are being raised about how they operate. Multiple lawsuits have been filed against PBMs alleging they have conspired to keep drug prices high. There have been reports of deals with drug manufacturers to give favorable treatment to the products of companies that pay the biggest rebates.

Suspicions abound that they have used their market power to steer business to pharmacies with which they are affiliated and to squeeze out independent pharmacies.

It’s time California joined with a growing number of states that have enacted laws to regulate the practice of PBMs. With Congress in a perpetual state of gridlock, we must act to shed light on an industry that has, for far too long, operated in the dark.

Legislation I have proposed, Assembly Bill 315, would for the first time establish reasonable regulations to add some much-needed transparency to how prescription drugs are marketed.

The bill requires PBMs to disclose to their customers any activity, policy or practice that directly or indirectly interferes with the PBMs’ obligations to its customers. PBMs would also be required to disclose the aggregate amount of drug acquisition costs, rebates received, administrative fees collected from drug manufacturers and pharmacies, and other information that would allow the customer to better assess whether they are getting the service and benefits for which they contracted.

No one would blindly take a pill from an unlabeled bottle. Yet when it comes to prescription medications, Californians are routinely required to rely on a murky, mysterious industry to determine what drugs they can receive, at what cost, from what pharmacist. It’s time to put a label on that bottle.

Jim Wood, D-Healdsburg, represents the Assembly District 2. He can be contacted at