For more than 150 years, New Jersey’s life sciences and healthcare sectors have worked together to advance lifesaving treatments, from research and development to clinical care. Yet millions of Americans in New Jersey and beyond still struggle to afford the very treatments that are developed here at home. Nearly half of U.S. adults report difficulty affording healthcare and about one third have skipped or postponed treatment due to cost. In an era when politics can feel more divided than ever, there is growing consensus across the healthcare ecosystem about one contributor to these barriers: pharmacy benefit managers (or PBMs), the middlemen profiting at every link of the healthcare supply chain.
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PBMs manage prescription drug benefits on behalf of insurers, acting as middlemen between a patient’s health plan and their pharmacy. PBMs negotiate significant rebates from drug manufacturers, but those savings are not always passed on to patients. Through their control over drug formularies (the list of drugs they are willing to cover), PBMs influence which treatments patients can afford to access. The three largest PBMs process nearly 80% of all prescription claims in the U.S. market. In defending their practices, PBMs often point to the savings and rebates they negotiate on behalf of patients and health plans while leaving out the costs they generate elsewhere in the system. In fact, over a five-year period, PBMs generated more than $7.3 billion in revenue from prescription markups, according to the FTC.
Spread pricing – where PBMs charge employer or other health plans one price for a drug and reimburse the dispensing pharmacy at a lower price – enables these middlemen to pocket the difference as profit. In New Jersey, oversight efforts have pointed to significant gaps in transparency within PBM contracting arrangements. This opacity enables PBMs to manage revenue-generating practices that prioritize high-list price drugs over lower-cost alternatives, leaving patients – and employers – to bear higher costs as the PBMs profit.
Hospitals see firsthand the impact of PBMs on patient care. PBM practices like prior authorization and step-therapy protocols allow these middlemen to delay and restrict access to necessary treatments with little accountability. These corporate intermediaries interfere with the critical decision-making of clinical professionals – and patients pay the price with worsening symptoms and potentially life-altering consequences.
In February, Congress passed a federal funding bill prohibiting PBMs that operate in Medicare Part D from linking their compensation to the cost of medicines – stunting, but not stopping completely, the practice of steering patients to higher cost medicines for PBMs’ financial gain. The legislation is an important step to add transparency and realign incentives around patient care instead of profits. Now the question is whether lawmakers will build on this momentum and push for the deeper reforms that patients deserve.
Fortunately, Gov. Mikie Sherrill has called out these “shadowy” middlemen in a YouTube post, positioning the State to advance meaningful drug pricing reform. Yet, PBMs are already pushing back, attacking the governor’s proposal aimed at lowering drug costs and holding these middlemen accountable.
Further, a bipartisan group of New Jersey legislators have conveyed that PBM reform and transparency are critical, emphasizing that it is impossible to scrutinize the veracity of claims made by the PBM industry because there is no means by which policymakers can assess data for themselves. Indeed, legislation has already made progress in the Legislature, including the Patient & Provider Protection Act passed by the Assembly earlier this year which will advance much needed transparency.
At both the state and federal levels, legislators must continue to demand greater transparency and ensure patients in New Jersey and beyond have reliable access to the care they need.
Manufacturers develop the drugs patients depend on and hospitals deliver vital round-the-clock care to all who need it. Meanwhile, PBMs do not participate in patient care, instead only working as intermediaries – driving up costs across the system to generate their own profits. To the detriment of patients, they are siphoning off a healthcare ecosystem that is nationally recognized for healthcare quality and access that New Jersey has worked hard to build.
State and federal legislators, including those in our home state of New Jersey, continue to advocate for greater PBM reform. Now is the time for them to take stronger action to address PBM practices and enact full protections – including mandatory rebate pass-through, delinking PBM compensation from list prices, spread pricing bans, and guardrails against PBMs steering patients to their own subsidiaries. Failure to act will stall the very ecosystems built to improve care, expand access, and lower costs.
Reforming PBM practices is a commonsense solution to a patient affordability crisis, and one that has rightly earned the backing of the governor, legislators and stakeholders across the healthcare system.
To protect a century and a half of medical progress, we must prioritize the direct relationship between the innovators who create medicines, the hospitals that administer them, and the patients who rely on them to survive.
Cathleen Bennett is the CEO of the New Jersey Hospital Association; Debbie Hart is the CEO of BioNJ, the life sciences trade association for New Jersey.
