After the fatal shooting of a UnitedHealth (UNH) executive, markets turned their attention to high healthcare denial rates. On December 11, 2024, a bipartisan group of lawmakers proposed breaking up pharmacy benefit managers.
In the proposed legislation, the lawmakers said that pharmacy-benefit managers (“PBMs”) manipulated the market to enrich themselves. They accused the firms of hiking up drug costs and driving small pharmacies out of business.
Lawmakers cannot blame the PBM situation for the bankruptcy of Rite Aid, a pharmacy chain. Walgreens (WBA) is also the worst-performing stock on the S&P 500 (SPY). CVS Health (CVS), which owns health plan provider Aetna, lost 34.45% YTD.
CVS’s Caremark is among the three biggest PBMs. Cigna (CI) owns Express Scripts while UNH runs OptumRx.
The proposal may not solve anything. Lawmakers need to ask if PBMs should exist in the marketplace at all. They do not enhance price transparency. As a result, customers may end up paying higher drug costs. This increases the cost of U.S. healthcare.
Your Takeaway
PBMs are not necessarily the reason small pharmacies have gone out of business or why drug prices are high. CVS and Walgreens, for example, are struggling to maximize profitability. The lawmakers may need to look at how big drug firms have outsized profits while pharmacy chains are struggling.
