Research and polls consistently show that Americans are extremely concerned about the ever-increasing cost of prescription drugs. A recent study by the U.S. Department of Health and Human Services found that the average drug price increased by nearly $600 per drug in just one year, from January 2022 to January 2023. Coloradans are no exception. More than 50% of Coloradans are concerned that they may not be able to afford the essential medications they rely on. This is especially true for the more than 60% of Coloradans who live with at least one chronic illness.

It’s no surprise, then, that there is a great deal of attention at the federal and state levels to develop policies and initiatives to reduce these costs. Here in Colorado, the creation of the Prescription Drug Affordability Board (PDAB) aims to do just that.

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However, the PDAB fails to account for a key player in the healthcare system that effectively drives up prescription drug prices. Miraculously, these players, known as pharmacy benefit managers (or “PBMs”), have been raising costs and pocketing the profits for decades—all while remaining largely under the radar in healthcare debates.

PBMs act as intermediaries between patients, public and private insurers, pharmacies and drug manufacturers. In this role, they deal with almost every aspect of our health care system. Although they are supposed to work to secure lower prices for consumers from pharmaceutical companies, they often pocket those savings, resulting in millions and even billions in profits.

Although the public may not be aware of their existence, PBMs play a key role in setting prescription drug prices and deciding which drugs become included in a drug schedule and available to patients. For example, PBMs negotiate with prescription drug manufacturers on behalf of insurance carriers to reduce drug costs. PBMs then set the cost the patient must pay out of pocket based on a drug’s original list price rather than the discounted price they negotiated with the manufacturer, and pocket the savings.

In some cases, the patient’s copayment for a prescription is higher than the full retail price of the drug – more savings that are passed on to the PBM. PBMs also set the reimbursement rates paid to pharmacies for filling prescriptions. All too often, PBMs profit by reimbursing pharmacies at lower rates than the pharmacy paid for the drug. This puts small, independent pharmacies out of business and creates serious equity issues for low-income communities.

A recent New York Times investigation found that the largest PBMs consistently act in their own financial interests at the expense of their clients and patients. This included pushing drugs onto patients with higher out-of-pocket costs, delaying or even preventing patients from getting their prescriptions filled, and charging employers and government programs many times the wholesale price of a drug.

In fact, PBMs generate some of the highest profits of any company in the prescription drug supply chain. Three large PBM companies cover 80% of the market, giving them a near monopoly on pricing. In the same study, the New York Times also found that if these three largest PBMs were stand-alone companies, they would each be among the top 40 U.S. companies by revenue.

Through these complex pricing systems, hidden fees and other tricks, PBMs have managed to increase profits and reduce savings for consumers largely unnoticed – but it’s time for a change.

At the federal level, lawmakers are currently considering bipartisan bills to restrict PBMs nationally, and Colorado state lawmakers have taken steps to at least require PBMs to offer competitive rates in the state with the passage of HB21-1237.

But there is still a lot to do.

The Prescription Drug Affordability Board has the opportunity and responsibility to look at the bigger picture to reduce the high cost of prescription drugs for Coloradans who rely on medications for very complex and chronic conditions. At the very least, the PDAB should consider PBM programs when it comes to reducing costs and saving Coloradans money.

Real reform of our health care system requires a comprehensive, multifaceted approach that looks at the system as a whole—and looks behind the complex and opaque curtain that is the PBMs. If we are to continue working to significantly reduce drug costs for Colorado families, the PBMs cannot be ignored.

Sara Froelich is executive director of the Chronic Care Collaborative.