Research and public opinion polls consistently show Americans are overwhelmingly concerned about the ever-growing cost of prescription drugs. A recent study done by the U.S. Department of Health and Human Services found in just one year, from January 2022 to January 2023, the average drug price increased by nearly $600 per medication. Coloradans are no exception. More than 50% of Coloradans are concerned they may not be able to afford the critical medications they rely on. This is especially true for the more than 60% of Coloradans living with at least one chronic medical condition.

It’s no surprise then there has been a major focus at the federal and state level to develop policies and initiatives to reduce these costs. Here in Colorado, the creation of the Prescription Drug Affordability Board (PDAB) aims to do just that. 

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However, the PDAB doesn’t take into account a key actor in the health care system that has been effectively driving up prices for prescription medicines. Miraculously these actors, known as Pharmacy Benefit Managers (or “PBMs”), have been increasing costs and pocketing the profits for decades — all while remaining largely under the radar in the health care debates.

PBMs act as middlemen between patients, public and private insurance carriers, pharmacies and drug manufacturers. In this role, they touch almost every part of our health care system. Though they are intended to work to secure lower prices for consumers from pharmaceutical companies, they often pocket these savings, resulting in millions and even billions in profits. 

Even though members of the public may not be aware of their existence, PBMs play a key role in setting the prices of prescription drugs and deciding which medications are included in a prescription drug formulary and available to patients. For example, PBMs negotiate with prescription drug manufacturers on behalf of insurance carriers to reduce the costs of medications. PBMs then set patient out-of-pocket costs based on the initial list price of a medication rather than the discounted cost they negotiated with the manufacturer, pocketing the savings. 

In some cases, the patient copay for a prescription is more than the full retail price of the medication — vmore savings passed on to the PBM. PBMs also set reimbursement rates paid to pharmacies for filling prescriptions. Too often, PBMs will profit by reimbursing pharmacies at lower rates than the pharmacy paid for the drug, driving small, independent drugstores out of business and creating serious equity issues for low-income communities. 

A recent New York Times investigation found the largest PBMs consistently act in their own financial interests, at the expense of their clients and patients. This included pushing patients toward drugs with higher out-of-pocket costs, delaying or even preventing patients from getting their prescriptions, and charging employers and government programs multiple times the wholesale price of a drug.

In fact, PBMs are making some of the highest rates of profit of any corporations in the prescription drug supply chain. Three major PBM companies make up 80% of the market, giving them a near monopoly on pricing. In the same investigation The New York Times also found if these three largest PBMs were stand-alone companies they would each rank among the top 40 U.S. companies by revenue.

Through these complex pricing schemes, hidden charges and other gambits, PBMs have been successfully increasing their profits and reducing savings for consumers largely unnoticed — but it’s time for a change.

Lawmakers at the federal level have been examining bipartisan legislation to rein in PBMs nationally, and Colorado lawmakers have taken steps with the passage of HB21-1237 to at least require PBMs to provide competitive pricing for the state. 

But there is much more to do. 

The Prescription Drug Affordability Board has an opportunity and a responsibility to look at the full picture to tackle high prescription drug costs for Coloradans who rely on medications for very complex and chronic medical conditions. At the very least, PDAB should factor in PBM schemes as they work to lower costs and save Coloradans money.

Real reforms in our health care system will require a comprehensive, multi-faceted approach that targets the system as a whole — and looks behind the complex and opaque curtain created by PBMs. If we want to continue working to meaningfully reduce the costs of medications for Colorado families, PBMs cannot be left out of the equation.

Sara Froelich is executive director of Chronic Care Collaborative.