Why prescription-drug costs have soared in recent years remains unknown for millions of Georgians, largely due to a complex web of interactions between behind-the-scenes companies.

Drugmakers are far from the only players in the complex system that has led to higher medication prices and costs in Georgia since 2010. State lawmakers have recently singled out intermediary companies called pharmacy benefit managers as a major influence in rising prescription-drug costs. Those companies have faced lawsuits in several states and new regulations in Georgia aimed at reining in what critics view as harmful practices that increase drug costs – all while arguing they’ve been wrongfully targeted by state lawmakers.

• Read about how many Georgia residents struggle to pay for prescription drugs without knowing the reasons behind the recent rise in medication costs in our story, “The Staggering Cost of Prescription Drugs in Georgia.”

Costs for prescription drugs under Medicare in Georgia shot up between 2013 and 2019. (Credit: Brittney Phan for State Affairs)

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Snapshot of Costs

Gross costs for prescription drugs under Medicare plans in Georgia have shot up in recent years, climbing from nearly $3 billion in 2013 to more than $5.6 billion in 2019, according to federal Centers for Medicare and Medicaid Services data.

Prices for many individual medications have also risen, such as the brand-name drug Victoza to treat Type 2 diabetes. That drug increased from an average $433 per fill in 2012 to $805 in 2017, according to analysis from the medication-assistance group NiceRx.

State records show several pharmacy benefit managers have reimbursed local pharmacies less on average than what they charge Georgia’s Medicaid programs for prescription drugs – a difference of roughly $89 million from July 2017 to July 2019.

Costs for prescription drugs under Medicare throughout the United States shot up between 2013 and 2019. (Credit: Brittney Phan for State Affairs)

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Behind the Scenes

Pharmacy benefit managers work to secure financial rebates from drugmakers to help lower costs for health plans and drive decisions on which medications each health plan will cover under certain lists called formularies. Critics say many pharmacy benefit managers end up pocketing large amounts of those rebates without passing them on to health plans – though it’s tough to track how often that happens in Georgia.

State law requires pharmacy benefit managers to tell insurers the total amount of rebates they receive from drugmakers, but that rule does not apply for health plans administered by the state for which records currently cannot be obtained under Georgia’s open-records law.

State law also does not require pharmacy benefit managers to disclose how they worked with health plans to decide which medications to cover. That kind of transparency hurts their bargaining hand with drugmakers, many pharmacy benefit managers argue.

This graph by the medication-assistance group NiceRx shows annual average out-of-pocket medication spending per person for all states in 2018. (Credit: NiceRx)

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Lawmakers Wade In

State lawmakers in Georgia have passed several bills since 2019 that clamp down on many practices by pharmacy benefit managers – even as key aspects of how drug prices are set remain behind closed doors. Recently enacted state laws now prohibit pharmacy benefit managers from blocking information on cheaper medications, forbid steering patients to preferred pharmacies and require offering full rebates to health plans.

State Rep. David Knight, who has sponsored several of those bills, said that legislation has placed Georgia ahead of other states in regulating pharmacy benefit managers – though the new rules largely do not apply for medications under Medicare or private health plans.

“This is significant in what we’re doing,” said Knight, a Republican from Spalding County. “I think that the more we can push to make good policies at the state level, the more we can have a positive effect on this.”

Many pharmacy benefit managers have pushed back against Georgia’s new medication-focused laws, particularly those dealing with transparency on rebates and reporting when drug prices fall above or below a certain national average.

“(Pharmacy benefit managers) cannot support the type of transparency that provides drug manufacturers access to their competitors’ negotiated rebates, and price concessions, which in turn will allow drug manufacturers to discount less deeply as they realize their price concessions went beyond those of competitors, and thus raise overall prescription drug costs,” said Greg Lopes, a senior vice president with the national Pharmaceutical Care Management Association.

State Rep. David Knight (R-Griffin) has sponsored several bills focused on prescription drugs and transparency in the Georgia General Assembly since 2019. (Credit: Georgia House of Representatives)

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The Blame Game

Many pharmacy benefit managers place blame for high costs on drugmakers that set medication prices high from the start, arguing that drugmakers should offer a wider selection of cheaper generic drugs rather than lean on more expensive brand-name options.

Meanwhile, many pharmaceutical companies point the finger right back at pharmacy benefit managers as the gatekeepers for deciding which drugs health plans will cover, complicating the already-complex reasons behind rising prescription-drug costs.

Pharmacy benefit managers often require steep rebates from drugmakers before certain medications make it to patients, said Pamela Roberto, a vice president for the industry group Pharmaceutical Research and Manufacturers of America (PhRMA).

“If we’re going to be paying for rebates to have access to medicine, we want those rebates to go to patients,” Roberto said in a recent interview. “We support reforming the entire supply chain, but (pharmacy benefit managers) are a big piece of the action.”

Ultimately, many patient advocates and even some pharmacy benefit managers accuse the whole price-setting system of being rigged, partly due to how rebates influence drug prices. The higher the price, the larger the rebate, said Josh Golden, a senior vice president with the New York city-based pharmacy benefit manager Capital Rx. That encourages high prices from start to finish, he said.

“When (drugmakers) hike the list price, everyone smiles,” Golden said in a recent interview. “The real challenge that we have is that the entire supply chain seems intent on trying to conceal what those real prices are.”

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