Pharmacy benefit managers or “PBMs” have come under intense legal and regulatory scrutiny in recent years. Each of the major PBMs has been targeted by public and private litigation including a major ongoing task force comprised of U.S. Attorneys and Attorneys General from twenty states. Moreover, more than 30 bills to regulate PBMs have been introduced in state legislatures since 2002. This paper provides an economic analysis of PBM regulation. I analyze the economic arguments put forward on both sides of the regulation debate and evaluate the existing empirical evidence on PBM conduct in the context of these arguments. I also use stock price data to show that consumer and investor responses to litigation and regulation developments have imposed substantial market discipline on PBMs. In response to customer and investor concerns, PBMs have changed their business models to address transparency and conflict issues in advance of broad-based regulation. This suggests that litigation is acting in the PBM market as a more adaptive and flexible catalyst of change than broad-based regulation.
- Pharmacy Benefit Manager,
- Law and Economics,
- event study,
Available at: http://works.bepress.com/kevin_green/1/