In a report released last month, the Federal Trade Commission gave credence to an issue HR and benefits professionals know well: Pharmacy benefit managers are marking up prices significantly, causing a trickle-down effect for organizations and employees.
The FTC pointed the finger at the nation’s three biggest PBMs—CVS Caremark, Express Scripts and OptumRX—finding that, combined, they brought in more than $7 billion between 2017-22 by inflating specialty drug costs. The report focused on prices for cancer, HIV and other specialty drugs and followed another FTC filing about six months ago that called out the same PBMs for directing clients to their pharmacy affiliates for significant monetary gain.
This comes as the new Trump administration has stated its intention to crack down on PBM markups amid ongoing rising pharmacy costs. The Business Group on Health recently found that employers expect a nearly 8% increase in healthcare costs this year, largely due to pharmacy spend, particularly on GLP-1 weight-loss drugs.
Related: Amid a changing landscape for GLP-1 drugs, 8 employer considerations
“The incoming administration has signaled a focus on addressing PBM practices that drive up drug prices, including efforts to reform rebate structures and improve pricing transparency,” says Ellen Rudolph, CEO of WellTheory, which provides care for people with autoimmune diseases.
“Benefits and HR leaders should monitor any federal actions aimed at increasing transparency,” she advises—including pricing structure requirements, markup reductions and rebate limits—while at the same time rethinking their own role in addressing specialty drug prices.
“Now’s a great time for employers to take a step back,” Rudolph says, “rethink their current strategies, stay ahead of potential regulatory changes and focus on making care more affordable and sustainable for their employees.”
Rudolph says several factors have fueled out-of-control PBM markups—namely, a lack of transparency and oversight.
“The integration of PBMs with their affiliated pharmacies has created opportunities to inflate prices without accountability,” she says.
As drug pricing has grown increasingly more complex—owing to more rebates, spread pricing that allows a PBM to charge a plan sponsor more than it paid for a drug, and “opaque contracts,” Rudolph says—employers and their workforces have struggled to understand the true cost of medications.
“Over time, these dynamics have allowed markups to grow unchecked,” disproportionately impacting specialty drugs, including those used to treat chronic conditions like autoimmune diseases, which affect more than 50 million Americans, and reportedly cost more than $100 billion to treat annually in the U.S. Rudolph started WellTheory three years ago after her own experience managing an autoimmune condition—and facing steep costs.
Rising pharmacy prices driven by PBM markups, she says, have a direct impact on employees, who often “bear the brunt.”
“When employers face higher cost trends due to growing pharmacy expenses, those costs can manifest as higher premiums, reduced coverage or increased out-of-pocket expenses for employees,” Rudolph says.
If costs prevent employees from accessing essential medications, it can hurt the health of the individual and the organization.
“For employers,” she says, “it reduces overall productivity and increases absenteeism.”
An action plan for HR
HR and benefits professionals play a “critical role” in mitigating the impact of drug prices on their workforces, Rudolph says.
For one, they can advocate for greater transparency in pharmacy benefits contracts, “ensuring they fully understand the pricing and rebate structures at play.” They should also consider alternative models to working with traditional PBMs, including partnering with vendors that “prioritize cost-effectiveness over profit margins” or managing individual specialty drug formularies, Rudolph says.
As HR and benefits professionals heighten their understanding of the pharmacy benefits landscape, they should also work to bring that education to employees—connecting them to options for affordable medications and specialized care.
“By promoting education and support, while simultaneously addressing hidden cost drivers—like autoimmune diseases, which drive some of their largest high-cost claimants,” Rudolph says, “employers can get a grip on their rising pharmacy spend.”
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