Why Drugs Are Disappearing From Your Insurance Coverage

For the millions of Americans that take one or more prescription drugs, having a health insurance plan that covers their medications is crucial. The list of covered medications — called a drug formulary — can mean the difference between a $10 copay at the pharmacy and paying thousands out-of-pocket for a vital medication.  

Yet unbeknownst to many patients, insurers can change their drug coverage throughout the year, thereby removing medications that enrollees were promised. When this happens, those who lose access to their medicines are usually barred from immediately moving to a different insurance plan. The problem is widespread and growing: In the last nine years, the number of medications being eliminated from many insurance plans skyrocketed by around 1,584 percent.   

Drug formularies are dictated by pharmacy benefit managers, or PBMs — powerful companies that determine drug benefits on behalf of health insurers, Medicaid Part D drug plans, employers, and other health care payers. These companies negotiate with pharmaceutical manufacturers to determine what drugs health plans will cover and how much the drugs will cost. The three largest PBMs are owned by major health insurance companies, a form of vertical integration that some health care experts worry may be leading to higher drug prices and lower quality care for patients.

For the same reasons, PBMs are incentivized to only keep drugs on formularies that make them the most money.

“PBMs are not interested in the most effective and lowest-cost drugs for patients — they are only motivated by the most profitable drugs to them,” Kashyap Patel, past president of the Community Oncology Alliance, wrote in a 2022 letter to the Federal Trade Commission (FTC) about the harms of the PBM model and their consolidation with health insurers.

As state and federal lawmakers pass legislation in an effort to reform the drug coverage system, PBMs are lobbying like never before. So far this year, the Pharmaceutical Care Management Association, the lobbying group that represents PBMs, has spent over $10.1 million dollars lobbying on this and other issues — a 67 percent increase from the same time last year. 

“In my experience as a practicing physician, one of the greatest administrative burdens I’m facing is sudden, arbitrary changes to a patient’s medication coverage by their health plan,” Steven Furr, president of the American Academy of Family Physicians, wrote in an email. “A patient can be doing well on a specific medication for years, and one day the plan no longer covers it or has a preferred alternative.” 

Ever-Changing Formularies 

Theoretically, PBMs, which were created in the 1960s, should help health plan enrollees save money by negotiating the best drug price with pharmaceutical manufacturers. However, that may not always be the case. 

Along with having the ability to change formularies at any time, PBMs have a financial incentive to discourage insurers from covering generics and other cheaper drugs, because the companies are paid based on the discount they arrange with pharmaceutical companies, known as a rebate. 

For example, an insurer may ask a PBM to find the best price on insulin. The PBM will then find which drug company can offer the insurer the best discount on the drug, as they get paid based on the rebate.

“As PBMs demand larger and larger rebates or discounts, manufacturers offset these reductions by raising the ‘list’ price for their drugs,” retired internal medicine physician Arthur Gale wrote in a 2023 paper. “PBMs encourage this practice because they receive larger financial rebates.” Overall, the higher the insulin price, the bigger the rebate, the more the PBMs will get paid.

Increases in rebates going to PBMs are associated with higher list prices on drugs, according to a 2020 paper from the University of Southern California Schaeffer Center for Health Policy and Economics. 

PBMs are dominated by just three companies — and all of them are affiliated with big insurers. 

CVS Caremark is owned by pharmacy giant CVS Health, which also owns the health insurer Aetna; Express Scripts is owned by insurance giant Cigna; and OptumRx is owned by major insurer UnitedHealthcare. Together, these companies control 80 percent of the prescription drug market. 

Research into the effects of the consolidation of PBMs and insurers is limited, but some worry this development will give PBMs even more unbridled control over prescription drugs. 

“PBM markets require careful scrutiny as less competition and more vertical integration can embolden anti-competitive business practices to the detriment of patients,” the American Medical Association, a lobbying group for physicians and medical students, wrote in a press release last year. 

The three major PBMs also currently exclude a total of 1,836 drugs from their standard formularies, which is up from 109 in 2014, according to Cencora, formerly AmerisourceBergen/Xcenda, a drug distributor. This trend shows no sign of stopping: From 2014 to 2022, the number of medicines excluded by one or more PBM increased by an average of 34 percent per year. Most of these drugs treat life-threatening illnesses, like cardiovascular diseases, diabetes, and different types of cancer. 

Drugs can be excluded for many reasons, including when the U.S. Food and Drug Administration withdraws a medication from the market for safety reasons, or when a generic version of the drug becomes available.

Yet many of these excluded drugs are single-source brand medicines, meaning they don’t have a generic equivalent or alternative available on the market, according to the 2022 report by Cencora. The amount of single-source excluded drugs has also risen by 996 percent from 2014 to 2022. 

“Typically, pharmacy benefit companies will only exclude medications from formularies when sufficient competition exists within drug classes,” Greg Lopes, a spokesperson for the Pharmaceutical Care Management Association, wrote to The Lever in an email. “Often, drugs are excluded because their competitors are willing to negotiate a lower overall cost for their product. In addition, PBMs developed Real Time Benefit Tools to provide physicians and other prescribers the ability to check, ahead of and during a patient’s visit, eligibility and formulary information.”

However, this doesn’t line up with what some doctors are experiencing. “I have seen patients lose control of their previously well-managed diabetes and hypertension because of these tactics, which can result in more office visits, increased health care costs, and in some cases emergency department visits and hospital stays,” Furr wrote in an email to The Lever. 

CVS Caremark, Express Scripts, and OptumRx did not respond to The Lever’s request for an interview. 

Few Regulations

Regardless of these ramifications, there are very few federal regulations with respect to midyear formulary changes for commercial insurers who sell plans on the Affordable Care Act marketplace, according to Sabrina Corlette, co-director of the Center on Health Insurance Reforms at Georgetown University’s McCourt School of Public Policy. 

“Plans can pretty much do what they please, within some broad parameters,” said Corlette.  

For example, insurers must make their midyear formulary changes in accordance with federal essential health benefits standards, which only require them to ensure their drug formulary “covers a range of drugs across a broad distribution of therapeutic categories and classes” and “provides appropriate access to drugs that are included in broadly accepted treatment guidelines.” 

Medicare Part D plans, the part of Medicare that helps cover prescription drug costs, are also allowed to remove drugs from their formulary midyear, as long as they abide by a list of rules set by the federal Centers for Medicare and Medicaid Services (CMS), which oversees all federal health programs. 

“Medicare Part D is a public-private enterprise, whereby private plans administer the benefit on behalf of the government,” CMS wrote to The Lever in an email. “The individual private plans establish their own formularies consistent with CMS requirements. Part D plans can make certain changes to their formularies during the year.” 

To remove drugs from the formulary, plans must receive approval from the CMS. They also must either provide written notice to affected enrollees at least 60 days prior to when the formulary change is effective, or supply enrollees with a 60-day supply of the newly excluded medication when the enrollee requests a refill. 

CMS states that Part D plans should only remove a drug from their formulary if enrollees taking the drug are exempt from the change for the remainder of the contract year. Additionally, enrollees that are currently taking the drug may request an exemption from the formulary change. However, many people are not aware of this option and not all requests to remain on the drug are granted. 

Some health care experts argue CMS’ regulations are not enough and that it’s time for the FTC, which oversees antitrust and consumer protection matters, to get involved.

“The FTC has allowed this massive consolidation among PBMs and insurers, creating a virtual monopoly in the prescription drug market,” Patel, the former Community Oncology Alliance president who critiqued the PBM market model, wrote to the commission in 2022. “Additionally, CMS continues to take a ‘hands-off’ approach to PBMs and their Medicare Part D Plan Sponsors.”

In the summer of 2022, the FTC launched an investigation into PBMs and their opaque practices.  

Lobbying Hard Against Legislation

It’s not just doctors who are expressing concerns over the power of PBMs. 

All 50 states have placed some form of regulation on PBMs, with some either banning or regulating midyear formulary changes. 

In 2020, Minnesota lawmakers proposed a bill that would limit midyear drug formulary changes, and they sought to include the measure in a 2021 health care omnibus bill.

The Pharmaceutical Care Management Association pushed back. The organization's director of state affairs, Michelle Mack, argued the bill would “restrict our ability to put downward pressure on pharmaceutical manufacturers to limit the increase of prescription drug costs and work with our clients to effectively manage formularies on their behalf.” She also claimed it would “cost Minnesota health care payers $75 million over five years.”

The formulary limitations were excluded from the final health care omnibus bill signed by the Minnesota governor.  

PBMs have also come under scrutiny in Congress for their roles in high drug prices. 

The bipartisan Pharmacy Benefit Manager Transparency Act of 2023, for example, aims to make prescription drug pricing more transparent and requires PBMs to pass 100 percent of rebates to the insurance plan or payer. The Senate Commerce, Science and Transportation Committee voted 18-9 this March to send the bill to the full Senate. 

Another bipartisan bill, the Modernizing and Ensuring PBM Accountability Act, would increase transparency and prohibit PBMs from deriving their money from the sticker price of a drug covered by Medicare Part D plans. The idea is that this change would remove the incentive for PBMs to include pricier drugs on formularies, potentially lowering the cost for consumers who pay a percentage of the drug’s sticker price. The bill was approved by the Senate Finance Committee by a vote of 26-1 in July.

The Patients Before Middlemen Act, which was referred to the Senate Finance Committee in June, also aims to delink PBM compensation from drug prices and instead pay them a flat fee, which sponsors hope will help bring down inflated drug costs for Medicare Part D beneficiaries. To ensure compliance, PBMs would have to pay the federal government any money they collect that goes over this fee.  

“For too long, PBMs have held a vice grip over the prescription drug supply chain, price gouging hard working families and seniors alike,” Sen. Bob Menendez (D-N.J.), a Patients Before Middlemen Act sponsor, said during a Senate Finance Committee session this summer. “Through the current perverse incentive structure, whereby they turn a profit as a percentage of the list price of a prescription, PBMs wield their influence to have health insurers cover more and more expensive drugs even when cheaper options are available.” 

Consequently, the Pharmaceutical Care Management Association, the association that represents PBMs, spent more than $10 million on lobbying in the first three quarters of 2023. That’s compared to $6 million in the first three quarters of 2022.

The pharmaceutical industry’s ongoing campaign against PBMs may also be contributing to this increase in lobbying spending. 

“This year, Congress has held an unprecedented number of hearings focused on PBMs as Big Pharma continues its extraordinarily high advertising spending to blame-game others for high drug costs,” Lopes, the Pharmaceutical Care Management Association spokesperson, wrote in an email to The Lever. “The misguided proposals backed by drug companies would do absolutely nothing to reduce prescription drug prices and would in fact drive drug costs higher for patients and employers.”

Still, many patient advocates and doctors say that the power of PBMs, including their ability to make midyear formulary changes, must be reined in. 

“The bottom line is that formularies must be stable and be made known to physicians and pharmacies prior to implementation,” said Furr, of the American Academy of Family Physicians. “Frequent changes create confusion and frustration for patients and physicians leading to non-compliance, adverse reactions, increased costs, and erosion of patients’ confidence.”