How Pharmacy Benefit Managers Steal 340B Savings
Unfortunately for Americans, consolidation in the healthcare industry has neither reduced costs nor improved clinical outcomes. 340B nonprofits have faced particular challenges as pharmacy benefit managers (PBMs) interfere with the ways medically underserved Americans receive healthcare.
The market power that PBM and health insurer mega-firms exert in the healthcare system drives up prescription drug costs for all Americans. Nonprofits, which already operate on razor-thin margins, must combat PBM efforts to siphon off drug discount savings that the federal government intended for 340B providers to extend healthcare services to low-income, uninsured Americans.
How did PBMs get so powerful?
From poor antitrust enforcement to lax legislative oversight, PBMs became healthcare powerbrokers. Middlemen transformed into healthcare oligopolists, weaving their way into a privileged position in the prescription drug supply chain. Yet benefit managers add no value along the way, since PBMs do not care for patients. PBMs play no role in the innovation of life-saving treatments.
Still, the Byzantine world of drug pricing allows PBMs to take advantage of their supply chain perch at the center of payments and reimbursements. As a result, PBMs inform the price, sale, and provision of prescription drugs. PBMs claim to leverage market power to negotiate lower prescription drug costs for clients, enabling savings which flow throughout the healthcare system, but the way that PBMs deal with 340B nonprofits tells a different story.
PBMs get in the way of doctor-patient relationships
Through long-term relationships, 340B nonprofits develop trust with their patients. Patients entrust doctors to determine their medications, not supply chain middlemen.
PBMs, however, consistently interfere with doctor-patient relationships. PBMs use drug formularies — lists of drugs covered by health benefits plans — to impel patients toward medicines that can derive the most profit. In theory, a drug formulary is supposed to drive down costs by directing patients to the most effective drug with the lowest price tag. But, in practice, PBMs use formularies for their own financial benefit. Even worse, PBMs can manipulate formularies to deny access to life-saving medicines.
340B nonprofits, such as Ryan White clinics, care for people living with HIV. At times, Ryan White clinic physicians may not prescribe patients the most effective medications due to PBM formulary exclusions. For example, in 2022, Express Scripts denied formulary placement to Cabenuva — an innovative HIV antiretroviral drug — even though the FDA approved the treatment one year earlier. In its place, Express Scripts covers supposed “preferred alternatives.”
Not only do PBMs limit access to prescription drugs, but they also want to determine where 340B nonprofit patients can fill their prescriptions. The practice, known as “patient steering,” removes providers from managing patient prescriptions and instead directs patients to specialty pharmacies, owned by PBMs. Patient steering thereby limits contract pharmacy use. In effect, the PBM can absorb drug discount savings entitled to 340B nonprofits, undermining congressional intent and the mission of 340B providers.
How PBMs steal from healthcare nonprofits
By forcing patients into preferred pharmacies, PBMs reap significant profits from what is known as “the spread” — the difference between the price charged to drug plans per prescription and what the health insurer reimburses the dispensing pharmacy. Meridian Health, a network of 340B nonprofit hospitals in New Jersey, discovered that Express Scripts billed Meridian $92.53 for a prescription of a generic antibiotic, amoxicillin, filled at an outside pharmacy.
Yet Express Scripts only reimbursed Meridian’s own pharmacy a total of $26.91 for the same prescription. The PBM enjoyed a spread of over $65 on just one bottle of a generic drug. Congress did not create 340B for market intermediaries to soak up savings needed by nonprofits to provide comprehensive care to the medically underserved.
Without 340B savings, nonprofits will be forced to cut back on services or the number of patients in their care. Many nonprofits may be forced to shutter operations altogether.
If today’s PBM tactics continue, nonprofits would be the first casualty. No one could have imagined that PBMs would become the ultimate gatekeepers in prescription drug decisions.
Market distortions allow middlemen to influence which medicines doctors prescribe and where patients fill prescriptions. If Congress fails to act, PBMs will keep expropriating savings that lawmakers designed to bolster the health safety net.
John Arcano serves as policy analyst at AIDS Healthcare Foundation.
