(Bloomberg) — For all the uproar over U.S. drug pricing, you wouldn’t expect to hear that drug spending slowed for many last year. A big reason? An increasingly powerful group of medication middlemen called pharmacy benefit managers (PBMs), which negotiate drug prices on behalf of insurers, employers and the government.
But their services carry high costs of a different sort, including fewer drug options for patients.
The biggest of these firms, Express Scripts (Nasdaq:ESRX) and CVS Health (NYSE:CVS), say they held drug spending growth for their clients last year to 5.2 and 5 percent, respectively, from 13.1 and 11.8 percent in 2014.
One of the ways PBMs do this is by cutting deals with drugmakers, sometimes getting price discounts in exchange for refusing to cover competing medicines.
In other words, behind major drug-price cuts there is often a reduction in drug choices available to patients.
Big PBMs have gotten more aggressive about such dealmaking in recent years, which they say has saved clients billions. The gap between the prices drugmakers charge and the price after rebates and discounts, where PBMs live, is pretty big. An IMS Health report puts the number at about $115 billion in 2015.
Employers or insurers can choose less exclusive drug lists (or formularies). But Express Scripts’ narrow drug list is the most widely used formulary in the country.