Publications / Policy Memo

The Problem with PBMs

By / 10.3.2018

Carl Icahn, the billionaire businessman and investor, recently advised shareholders to reject Cigna’s proposed $67 billion acquisition of the pharmacy benefit manager (PBM) Express Scripts. He says that a reckoning is coming for PBMs and that the price grossly exaggerated their value as “over-earning middle men.”

In 2016, PBMs made $23 billion in gross profits – with most having never touched a drug. They don’t make them, they don’t distribute them and they don’t sell them. So what do PBMs do, and why is there so much misunderstanding about their value?

Because of the structure of PBMs, they create perverse incentives for drug makers to price drugs high. A flat fee structure, greater clarity of drug costs, and increased competition would help increase transparency, align incentives, and reduce costs for the pharmaceutical sector.

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