The basic laws of economics would suggest any overpriced product or service cannot sustain in the free market if there exists sufficient reasonably priced competition. Unfortunately, that is not how the American health care system currently operates. Due to the outsized influence of pharmacy benefit managers (PBMs), the prescription drugs that save both money and lives are not the same ones that get into the hands of patients. A new study focusing on the drug Humira displays this sad reality.

The analysis, provided by IQVIA (a corporation specializing in biopharmaceutical research and development) generated the stunning findings. The study showed that PBMs safeguarded $2 billion worth of profits by suppressing patient access to lower-cost alternatives to Humira, an immunosuppressive drug used to treat arthritis, Crohn’s disease, and other autoimmune conditions. PBMs’ actions in the case of Humira cost employers and health plans an estimated $6 billion in excess costs. Patients directly paid an extra $800 million in co-pays. 

The current system incentivizes PBMs to show preferential treatment to more expensive prescription drugs. In fact, PBMs have a number of avenues to artificially drive up costs. The first way is through rebates. PBMs can negotiate discounts off the list price of a particular drug in the form of a rebate paid to them from the pharmaceutical company. However, PBMs are not required to disclose how much revenue they get in the form of rebates, nor are they required to pass any of those savings on to employers or patients. Thus, they will typically favor drugs with higher list prices, as their makers can afford to provide a larger rebate.

Another way is through what’s known as “spread pricing.” This is where PBMs have contracts based on the largely fictional “average wholesale price” (AWP) of a drug. The AWP is much like a list price on a car. It’s not really what’s paid in the end and those who do are generally regarded as fools. The national average drug acquisition cost (NADAC) is a more accurate figure, but because PBM contracts are based around the hyper-inflated AWP, PBMs and pharmacies can pocket the difference between the negotiated rate and NADAC, leaving employers and patients to pay the excess.

Roughly a year ago, many lower cost biosimilars entered the market to compete with Humira. Biosimilars are drugs deemed highly similar to those already approved by the Food and Drug Administration (FDA). Once a brand-name drug’s patent has expired, biosimilar and generic alternatives can come to market, typically driving prices down. For the average drug formulation, 11 months after biosimilars gain market access, they account for about 22% of the market share. However, 11 months after Humira’s biosimilar competitors came to market, they only accounted for 1% of prescriptions.

This slow uptake is especially disappointing, given that these biosimilars – on average – offer an 80% reduction in costs compared to Humira itself. The choice would seem clear in any market. However, there are reports AbbVie, Humira’s manufacturer, threatened rebates on its other products if health plans started recommending lower cost alternatives. Further, PBMs convinced AbbVie to boost its rebates for Humira to as much as 60% of the drug’s list price. This increasingly creates incentives for PBMs and plans to give preference to Humira, despite the exceedingly high costs for patients – and for plans themselves.

In July 2023, Yusmiry (a Humira biosimilar) launched with a list price of $995 for a two-syringe carton. Conversely, a similar package of Humira would cost $6,600. The IQVIA study showed if plans moved toward biosimilars, health plan costs on just this formulation would drop from the status quo of $10.6 billion per year to $4.5 billion. Further, the cumulative co-pay costs for patients would drop from $1.1 billion to only about $300 million.

Such a move would not be without precedent. Countries such as the United Kingdom, Denmark, and Poland have migrated roughly 90% of their patients to Humira biosimilars since they were allowed to come to market back in 2018. In the U.S., Kaiser Permanente – a health care provider covering 12 million Americans across eight states – made a similar transition this year and experienced $300 million in savings. Kaiser Permanente is able to do so, as it operates its own PBM – separate from the “big three” of CVS Caremark, OptumRx, and Express Scripts – and has aligned incentives.

In just one year, with one drug, PBMs have cost American health plans and patients more than $6 billion by suppressing lower cost alternatives. With Americans feeling the crushing weight of inflation, policymakers ought to be doing what they can to provide relief. PBMs, and the distortionary effect they have on the American health care market, have been allowed to fly under the radar for too long. The consequences are too real for too many families to continue to do nothing.

Dan Savickas is the director of policy for the Taxpayers Protection Alliance.