When “Simpler Pricing” Still Means Complexity

Recent headlines are drawing attention to the opacity of pharmacy benefit managers (PBMs), as policymakers, employers, and the media increasingly question how drug prices are set and who truly benefits. In its recent article, “Why a Budding Drug-Price Revolution Isn’t Quite What It Seems,” The Wall Street Journal notes: “Companies like Cigna and CVS are promising simpler prices, but the behind-the-scenes system remains complex.” While some PBMs are beginning to make changes, employers and patients are still navigating a pharmacy benefits system where pricing complexity, misaligned incentives, and limited transparency remain very real challenges.

Why is the pharmacy benefits industry so complex?

PBM Variability: Pharmacy benefit managers don’t necessarily “manage” prescription costs. Formularies, rebates, fulfillment, and PBM contracts vary widely.

Pricing Complexity: Multiple pricing mechanisms often result in patients and payors paying far more than the actual drug costs.

Drug Cost Range: Prescription drugs can range from pennies to hundreds of thousands of dollars per fill.

New Therapies: New therapies are continually introduced, requiring frequent updates to formularies and benefit design.

How PBM incentives contribute to rising drug costs

• PBMs often earn and retain rebates for having drugs on the formulary. Often these drugs are expensive brand name medications, while there may be less expensive alternatives that could be used instead.

• PBMs can increase their own revenue by routing prescriptions to their own specialty and mail order facilities where they acquire the drug and set pricing. They can increase the volume of prescriptions filled for patients through plan designs like mandatory mail order or automatic refills.
• Attractive rebate arrangements can incent PBMs to include high-priced drugs as preferred on formularies. Pharma can also ‘bundle’ multiple products together in means to maximize market share of their products further placing high-cost and low-value drugs as preferred. The optimal approach is a low-net cost formulary approach which removes rebates as the most valuable part of the equation.

Why the rebate-driven model is under pressure

What these changes mean for employers and members

• Work with PBMs who prioritize consumer education and advocacy, providing members with tools to find lower-cost alternatives, compare pharmacy prices, and access coupons.
• POS rebates may become more common, helping patients save at the pharmacy counter.
• Employers are also shifting more costs to members, encouraging greater cost awareness, making medication pricing more visible.

How Ethica simplifies the system and aligns incentives

“We educate. We negotiate. We audit.” – Connie Perry, PharmD

• Ethica Pharmacy Advisors doesn’t prefer certain PBMs but finds the best partner that delivers on value and contract integrity.
• Ethica can help employers understand the way their PBM makes money and the differences between the traditional model and the newer, transparent models.

How employers can actively work to keep drug costs down