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Democrats have a golden opportunity to lower drug prices — again — before the next Congress begins on January 3.
Democrats and Republicans alike support two bills that’d rein in pharmacy benefit managers — the gigantic and secretive “pharmaceutical middlemen who squeeze small pharmacies’ profits and raise costs for consumers,” as Vice President Kamala Harris described them during the campaign. If congressional leaders bring the bills up for a vote during the post-election lame duck session, they’ll almost certainly pass — and thus save Americans billions of dollars at the pharmacy.
Currently, around one in four adults struggle to afford their prescribed medicine, while about three in ten don’t adhere to prescriptions due to cost, according to the Kaiser Family Foundation.
Pharmacy benefit managers perform several tasks within the healthcare industry. They negotiate drug prices with manufacturers on behalf of insurers, process prescription claims and manage formularies — insurers’ lists of covered drugs. But somewhere along the way, the companies realized they could ring up steep profits at the expense of patients.
PBMs decide which medicines get covered by insurance plans, and they use that gatekeeping power to extract massive discounts from drug manufacturers. The PBMs pocket a percentage of those savings as income.
This gives them a warped incentive to put the most expensive medicines on formularies, with little regard for cheaper alternatives. The higher a drug’s nominal “list” price, the bigger the discount, the more the PBM makes.
And the rest of the savings from PBM negotiations generally aren’t passed on to patients at the pharmacy. In fact, insurance companies typically set coinsurance and copay amounts based on a drug’s original list price, not the negotiated price. According to a report from the University of Southern California, patients pay up to 20% more for generic drugs than they would if they got to benefit from PBM savings.
In July, the Federal Trade Commission published an investigation into the sector, in which it reported that a “vertically integrated and concentrated market structure has allowed PBMs to profit at the expense of patients and independent pharmacists.”
That “market structure” is the result of big insurers, PBMs, and pharmacies teaming up — by means of mergers and acquisitions — to control the industry. Each conglomerate favors its own pharmacies, which pushes smaller ones out of the market.
Fed up with this behavior, lawmakers are now proposing common-sense reforms.
One bill would eliminate the perverse incentive for PBMs to put more expensive drugs on formularies — by delinking PBM compensation from the list price for drugs.
Another legislative proposal would make sure that any savings negotiated by PBMs are passed on to patients at the pharmacy counter.
Washington is about to look a whole lot different. But there’s no reason that the two bipartisan PBM reform bills need to wait. Congressional leaders from both parties agree on the need to pass PBM reform, and the current “lame duck” legislative session is an ideal opportunity to do so.
Howard Dean is the former chair of the Democratic National Committee and former governor of Vermont. This piece originally ran in Salon.
