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David Balto: End the link between PBMs and drug prices


It’s not a secret that our prescription drug pricing system is broken. To address the root of the problem, the Biden administration recently convened a listening session seeking insights from experts on substantive solutions to improve patient access and affordability.


Rightly so, the session focused primarily on the adverse effects of restrictive policies implemented by health insurance and pharmacy benefit managers (PBMs). Patients and consumers still grapple with the issue. These policies limit access to crucial medicines and treatments, resulting in delayed wellness and increased financial burdens.


It was good to see the administration convene this listening session, including the Federal Trade Commission, which has been investigating harmful PBM practices. It is hoped the discussion keeps the focus on finding solutions that end the perverse incentives that have PBMs reaping greater profits when drug costs are higher.


After months of debating reform measures to hold PBMs accountable, Congress has the opportunity to get to the heart of how these health insurance middlemen drive drug costs skyward. It can’t come at a more critical time as PBM profits continue to skyrocket to astronomical levels — numbers truly remarkable when you realize these middlemen are merely moving information and money.


You know this legislation is hitting the unregulated middlemen where it hurts because their lobbyists are using misdirection and scare tactics to prevent it from advancing.


This bill, the Delinking Revenue from Unfair Gouging (DRUG) Act, would demolish a system in which PBMs are pushing drug manufacturers to set higher list prices for pharmaceuticals. Linking PBM revenues to the manufacturers’ original “list” price is one of the most egregiously anti-consumer practices in health care. By holding formulary placement over their heads, the PBMs can successfully demand large rebates and other fees from manufacturers. Adding insult to injury for consumers, out-of-pocket cost-sharing requirements are usually based on the original list price rather than the discounted price that the PBMs pay.


Consumers are losing in two ways: First, they see their prescription drug costs increase as PBM profits continue to soar. Second, they are being victimized by formularies that are populated by drugs that generate more revenues for the PBMs and are being denied access to cheaper generics and biosimilars.


The bipartisan DRUG Act would de-link PBM revenues from drug prices in the private marketplace and Medicare, and it would have PBMs paid a flat fee that is based on a fair-market value for the services they provide. It’s a fair approach that would yield a more conventional, functional marketplace for prescription medications. Not surprisingly, the PBMs are strenuously objecting.


The Pharmaceutical Care Management Association, the lobbyists for the PBM industry — an “industry” dominated by three giant corporations (CVS Caremark, Optum and Express Scripts) that determine the pricing of 85 percent of all pharmaceuticals sold in the United States — have paid for and published a study showing that de-linking PBM revenues from drug prices would raise health insurance premiums by $26 billion and provide a financial windfall for drug companies.


This is nonsense, of course. Health insurance premiums are based on the totality of health care costs. Retail prescription drug purchases account for just 9 percent of health care spending, half devoted to physician and hospital charges.


The notion that subtracting excessive PBM profits from drug pricing will elevate health insurance premiums doesn’t pass a laugh test. The PBM lobby argues that de-linking will remove the incentives PBMs have to negotiate lower drug prices. Yet, when PBMs were first created, negotiating lower prices was precisely what they did before mergers and acquisitions created a three-corporation oligopoly, and they used their leverage to drive prices and profits higher.


It is unconscionable that this broken system has persisted for so long. The White House and Congress have the opportunity to fix this mess, reduce prescription drug costs and give more Americans affordable access to the health care they need.


Author: David Balto

Formerly a senior official at the Federal Trade Commission and “one of the leading experts on healthcare competition and regulation” according to the Federalist Society, Washington, D.C.-area attorney David Balto serves as the director of the Coalition to Protect Consumer Choice. He wrote this for InsideSources.com.

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