Pressuring a Purchasing Cartel
Ann Lewandowski knows all about pharmacy benefit managers, or PBMs, the companies that shape the U.S. drug market. Her job, as a policy advocate at drugmaker Johnson & Johnson, was to tell patient and physician groups about the PBMs’ role in high drug prices.
A Groundbreaking Lawsuit
Armed with that knowledge, Lewandowski filed a potentially groundbreaking lawsuit in February. Rather than targeting the PBMs, however, she went after a big company that uses one — her own employer, Johnson & Johnson. Lewandowski charges in her lawsuit that by contracting with the PBM Express Scripts, which is part of the insurance giant Cigna, Johnson & Johnson failed in its duty to ensure reasonable drug prices for its more than 50,000 U.S. employees.
The Opaque Business Practices of PBMs
The opaque business practices of PBMs have drawn fire. The Federal Trade Commission is conducting a lengthy investigation of the three biggest companies and sued them in September, accusing the firms of driving up insulin prices. Bipartisan bills in Congress would rein them in. And businesses such as Mark Cuban’s Cost Plus Drugs and smaller, "transparent PBMs" have tried to wean pharmaceutical companies and health plans from their reliance on the big PBMs.
A New Era of Transparency
But Lewandowski’s lawsuit goes to a sensitive spot that had been overlooked until recently: language in the 2021 appropriations bill that revised the 1974 Employee Retirement Income Security Act, known as ERISA. The original law focused on stopping fraudulent retirement plans. By providing workers with a health plan, employers aren’t "doing you a favor. They are holding your money and investing it in your health," said Barak Richman, a George Washington University health law professor.
A Shift in the Market
In recent years, the market has seen a shift towards "transparent PBMs," which don’t shroud their pricing and drug choice decisions. "We brought on nine Fortune 500s this year, 1.2 million patients," said AJ Loiacono, CEO of New York City-based Capital Rx, a PBM founded in 2017. According to a recent survey, as many as half of U.S. employers are considering switching.
The ERISA Lawsuits
Dissatisfaction with the status quo and fear of liability are pushing employers to switch from the "Big Three" PBMs to "transparent PBMs." "You’re getting ripped off," Cuban said he tells them. "You don’t really understand the elements, and that’s costing you money and costing you wellness. And now you are going to get sued. It’s not a question of if but a question of when." The billionaire, who launched Mark Cuban Cost Plus Drugs in 2022 to upend the byzantine $500 billion U.S. drug market, is convinced that the Lewandowski suit and others will end the dominance of the big PBMs, which control 80% of the business.
Conclusion
The opaque business practices of PBMs have long been a source of frustration for patients, employers, and lawmakers. As the market shifts towards transparency, it remains to be seen whether the ERISA lawsuits will succeed in reining in the big PBMs. One thing is certain, however: the rise of "transparent PBMs" such as Capital Rx and Cost Plus Drugs is changing the game.
FAQs
Q: What are PBMs?
A: Pharmacy benefit managers (PBMs) are companies that shape the U.S. drug market by negotiating prices with drugmakers and health plans.
Q: What is the problem with PBMs?
A: PBMs engage in opaque business practices, driving up drug prices and creating conflicts of interest.
Q: What are "transparent PBMs"?
A: Transparent PBMs, such as Capital Rx and Cost Plus Drugs, don’t shroud their pricing and drug choice decisions.
Q: What is the ERISA lawsuit about?
A: The ERISA lawsuit, filed by Ann Lewandowski, alleges that Johnson & Johnson failed to ensure reasonable drug prices for its employees by contracting with the PBM Express Scripts.
