By Sally C. Pipes
As a Republican-controlled House of Representatives with a small majority opens for business in January, one member has especially big ideas for saving patients money on prescription drug costs — and the research to back it up.
A year ago, Rep. James Comer (R-KY) released a comprehensive report on the role of pharmacy benefit managers in the nation’s healthcare system. The result does not make for pleasant reading. It is largely a tale of how greedy middlemen have taken advantage of existing legal loopholes and lax oversight to create an industry that raked in $28 billion in profits in 2019 — while providing no actual healthcare to patients.
Insurers use pharmacy benefit managers to negotiate with drug makers on terms for the inclusion of medications in insurance plan coverage. In fact, however, the three biggest PBMs, which account for nearly 80 percent of prescription claims, are co-owned alongside respective massive insurers like Cigna and pharmacy behemoths like CVS Caremark.
The result is an interlocking daisy chain for extracting maximum profit from consumers and payers such as employers and federal and state governments — all while deflecting blame for increasing drug costs away from themselves and onto drug makers.
There’s evidence that to remain competitive with PBMs, drug makers have set list prices higher in expectation of large forthcoming discounts — a move that passes none of the discounts directly to patients but allows PBMs to extract increased revenue for their bottom line.
Insurers, meanwhile, charge coinsurance payments and count toward deductibles patient out-of-pocket costs based on the list price of the medication — not the discounted price the insurers actually pay. Insurers like this arrangement just fine because it allows them to crank up their own revenue without raising premiums.
Insurers and their PBMs also pressure consumers to obtain medications through their own respective pharmacy groups. That can take the relatively benign form of an endless barrage of emails from insurers urging beneficiaries to switch their prescriptions in-house. In more severe cases, PBMs can discriminate against independent pharmacies by offering lower reimbursement rates and excluding them from insurer networks.
Altogether, this conduct has become so parasitic that more than 50% of each dollar spent on brand-name medicines now goes to middlemen entities.
If lawmakers and regulators at the Federal Trade Commission and elsewhere were doing their jobs, this would all be illegal and patients would save big. Instead, many lawmakers have been happy to look the other way while pointing a finger at “Big Pharma” and pocketing campaign contributions from PBMs and allied grifters.
Rep. Comer hits the nail on the head with his main reform push: meaningful transparency among PBMs. Consumers deserve to know who’s paying what to whom for prescription drugs.
Healthcare reform must allow patients to make informed choices about their care. Greater transparency for PBM practices is the starting point. Next up should be the shocking requirement that drug discounts ostensibly for patients get passed on to patients, not sucked up by middlemen.
Sally C. Pipes (@sallypipes) is president, CEO, and Thomas W. Smith fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.