Steinhardt: Before New Jersey asks teachers and taxpayers to pay more, it must open the PBM black box

OPINION

Every year, New Jersey taxpayers hear the same thing. Health care costs are rising. Premiums are increasing. The budget’s skyrocketing. And you keep paying.

Before government asks New Jersey families to pay more, it must answer a more important question: Is it doing everything possible to ensure taxpayers are paying the right price in the first place?

That question brings us to one of the most powerful and least understood players in American health care: Pharmacy Benefit Managers, or PBMs. Last week, I wrote about how New Jersey’s largest, vertically integrated PBMs increasingly restrict where you fill prescriptions, steering you toward pharmacies they own and control. The response was remarkable.

Within hours, two of the nation’s largest PBMs, Optum and CVS Caremark, requested meetings. Democrat legislators voiced approval and even expressed interest in co-sponsoring legislative solutions. Republicans and Democrats recognize that the issue deserves greater public attention.

The response confirmed something else important. People are noticing that the prescription drug market has changed dramatically while public oversight has not. The timing couldn’t be more significant. New Jersey just announced proposed health care premium increases of almost 34% for active participants in the School Employees’ Health Benefits Program (think educators, administrators, secretaries, school nurses, custodians, bus drivers, cafeteria workers, and more). The issue is scheduled for debate this month.

I should note that PBMs didn’t cause all of the increase. Health care inflation is real. Americans are living longer. Specialty medications have transformed treatment but carry big costs. New therapies, like GLP-1 medications, have significantly increased prescription spending. Medical use is up. Health plan reserves contribute to higher premiums.

Those issues are real. But so is this: Prescription drugs represent one of the fastest-growing components of health care spending, and PBMs increasingly control how those dollars move through the system. That alone deserves scrutiny.

The question isn’t whether PBMs caused the whole increase. The question is whether New Jersey has a better way of knowing that the prescription dollars it’s spending are being managed as efficiently, competitively and transparently as possible.

Today’s PBMs look nothing like the companies employers originally hired decades ago. Originally, they negotiated discounts.

Today, they negotiate prices, design formularies, own specialty pharmacies, control which pharmacies you use, dictate delivery, reimburse themselves, employ physicians and operate within the same corporate silo as major health insurers. In many cases, one corporate enterprise now occupies and controls all the components of the very transaction it’s supposed to manage objectively.

Imagine hiring someone to negotiate the best price for your home while that same person owns the appraisal company, mortgage bank, title agency, moving company and real estate brokerage representing the seller. No prudent buyer would accept that deal without asking tough questions. Neither should New Jersey taxpayers.

This isn’t an argument against successful businesses. Businesses exist to earn profits. Government exists to protect the public interest. Those are vastly different responsibilities. When government spends billions of taxpayer dollars, it has an obligation to verify that the market where it spends them is competitive and the conflicts of interest eliminated.

Federal regulators have spent years investigating PBMs for many of these concerns. They’ve focused on market concentration, affiliated transactions, reimbursement practices and the “incentives” created by vertical integration. The Fed is asking many of the right questions. New Jersey must do the same.

As school districts face another difficult budget year, taxpayers deserve clear answers. How much prescription volume in the State Health Benefits Program ultimately flows to PBM-owned pharmacies? How much compensation is generated through affiliated companies? How much money is retained through rebates, administrative fees and other pricing gimmicks? How much independent competition has disappeared because of these activities? And most importantly, has anyone done a truly independent audit in search of answers? If one exists, make it public. If it doesn’t, taxpayers deserve honest answers.

These aren’t anti-business questions. They aren’t pro-big government questions. They are questions of stewardship. Period.

As elected officials, we have a responsibility to protect taxpayer dollars with the same care any family would use in managing its own money. No responsible homeowner would write bigger and bigger checks without asking why and where their money is going. Government must do the same thing.

Whether because of inertia, institutional resistance or the influence that often flows from concentrated economic power, real oversight hasn’t kept up with the industry’s rapid consolidation. Educators and staff are told health care costs more. School board and municipal budgets strain from the pressure. And taxpayers pick up the tab.

Meanwhile, local pharmacies disappear from our neighborhoods. Retail pharmacies face similar fates. Patients lose their choice of pharmacists, medical services and even their providers. Everyone is asked to sacrifice except the system itself. If that doesn’t concern every New Jerseyan, it should.

To be clear, the answer isn’t to demonize PBMs. But it isn’t to ignore them either. The answer is accountability.

Before New Jersey approves another long-term PBM contract or asks taxpayers to fund another whopping premium increase, it should require an independent audit with full access to rebate agreements, affiliated transactions, reimbursement methodologies, ownership relationships and every other financial mechanism affecting prescription drug costs. If PBMs are delivering the savings they promise, an audit should only strengthen public confidence. But if they’re not, taxpayers deserve to know that before another dollar leaves their pockets.

My first article focused on patient choice: Your choice. This one focuses on taxpayer accountability. The next conversation New Jersey must have is larger. It’s whether the unbridled concentration of economic power currently exercised by a handful of virtually unknown, vertically integrated PBMs serves the public interest or whether it undermines the competitive market that protects patients, taxpayers and independent businesses alike.

But first, we must open the black box. Before government asks New Jersey families to pay more, it has a duty to prove it’s protected every dollar you already entrust to it. In my last piece I tackle how.

*(Part-time members of the New Jersey Legislature do not receive State health insurance or prescription drug benefits for holding their elected office.)