OPINION:
This month, President Biden signed an executive order directing federal health departments to create plans within 90 days to lower prescription drug costs that are burdening so many Americans. Any robust program to meaningfully bring financial relief to patients at the prescription counter must address the root cause of skyrocketing drug prices — pharmacy benefit managers (PBMs).
A new report by one of us (Rep. Buddy Carter) reveals the outsized role PBMs play in making medications unaffordable and inaccessible. Federal health departments can achieve the bipartisan goal of reducing medication prices by taking this opportunity to rein in PBMs’ predatory practices.
PBMs are middlemen between pharmaceutical manufacturers, pharmacies and health insurers. They artificially spike prices, emboldened by a lack of transparency in the drug pricing chain, without providing any value to consumers. The biggest three PBMs, which account for almost 80% of the nation’s prescriptions, are owned by health insurers, creating a massive conflict of interest.
PBMs dramatically inflate drug prices by demanding huge rebates from manufacturers in return for placement on insurers’ lists of covered medications known as formularies. Since 2006, when PBMs took a more active role in the market, drug prices have increased by 313%. Annual rebates now exceed $200 billion, approaching half of the country’s prescription drug market.
In 2020, total gross expenditures for branded medications reached $517 billion. Manufacturers earned only 31% of this spending, while middlemen made 69%. One analysis concludes that $339 out of the $425 cost of a box of insulin pens is rebate dollars. PBMs and their pay-to-play rebate scheme explain why this 100-year-old medication remains unaffordable for so many.
By excluding low-rebate drugs from formularies, PBMs also routinely prevent patients from accessing their needed medications. The three largest PBMs block more than 1,150 treatments from formularies, including a low-cost insulin alternative called insulin glargine. Patients prescribed these drugs often must endure long waits, so-called step therapy (where insurers force patients to try and fail on formulary drugs first), and far higher expenses.
“Several of my medications are no longer on my formulary or have become more expensive so I can’t take them anymore,” says Yuri Cárdenas, a patient from California. “To get that letter in the mail saying that my specialty doctor wants me on this medication and my insurance company is saying ’no’ is extremely frustrating,” says Jessica Wofford, a patient with Crohn’s disease. Angela Deeds, a patient from Virginia, waited 273 days to get her gastroparesis medication. These are just a handful of countless PBM victims nationwide.
PBMs also drive up costs through their aggressive pricing with independent pharmacies. For instance, PBMs routinely engage in spread pricing, paying pharmacies far less than what they charge payers and pocketing the difference. One PBM paid an independent pharmacy in Iowa only $5.73 for a bottle of antipsychotic pills that it billed $198.22 to the payer.
Pharmacy owners have little choice but to agree to such contracts. If they refuse, PBMs may not include them as an in-network pharmacy, likely putting them out of business. PBMs are already vertically integrating the drug market, driving prices higher, by steering patients to affiliated pharmacies through their insurance networks. As a result, 2,300 independent pharmacies nationwide went out of business between December 2017 and December 2020.
Momentum for robust prescription drug pricing reform that tackles PBMs is building. A June decision by the Federal Trade Commission to study PBM practices can act as a precursor to long-overdue antitrust action to stop their inflationary practices. If there were ever an instance when Americans needed this pro-consumer agency and antitrust action, this is it.
Mr. Carter has also introduced legislation in the U.S. House of Representatives to ban PBMs’ spread pricing tactics in Medicaid programs. The Congressional Budget Office determined that such a ban would save federal taxpayers at least $1 billion over 10 years. Bipartisan legislation in the U.S. Senate also seeks to curb these inflationary middlemen. And states such as Florida have taken action to stand up to PBMs and stand up for patients.
Federal health departments can continue this momentum by responding to Mr. Biden’s executive order with robust recommendations to end PBMs’ pricing games and direct the savings to patients through far lower prices at the prescription counter.
• Buddy Carter represents Georgia’s 1st District in the U.S. House of Representatives. Terry Wilcox is the executive director of Patients Rising.
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