OPINION:
CVS, the largest drugstore chain in the country, recently announced it will alter its medicine pricing formula come 2024. The change is seemingly a strategy to preemptively address legitimate transparency concerns around the industry that are circulating among policymakers, physicians, and patient advocates.
But despite the move from CVS, the drug supply chain still sorely needs sunlight. Congress and government regulators shouldn’t take their eyes off the ball.
At the center of the debate are pharmacy benefit managers, known as PBMs. These entities are the doorkeepers between drugmakers and the consumer market and are often dinged for contributing to inflated medicine prices. Why? Because they largely operate in a black box — controlling the price, accessibility and variety of medicine available to patients.
For those unfamiliar with the PBM business model, it bears an uncanny resemblance to another intermediary you’re likely acquainted with: Ticketmaster.
The entertainment platform became the target of customer rage last year as Taylor Swift fans tried to buy tickets to the pop sensation’s Eras Tour. Not only was there a service meltdown, but the situation underscored the monopolistic position of the platform and its power to inflate ticket prices.
More specifically, Ticketmaster and its parent company, Live Nation Entertainment, control 70% of the ticketing and live events market. And because of the industry domination, the platform is notorious for driving up ticket prices for concerts, sporting events and other shows. The true cost of attendance is masked by service fees and “convenience” charges.
Translation: The company enjoys a captive audience, has exclusive contracts, and can therefore charge absurd prices.
The Senate recently subpoenaed Ticketmaster so lawmakers could better investigate the funny business. The chairman of the subcommittee said that “American consumers deserve fair ticket prices without hidden fees and predatory charges. … The public deserves to know how Ticketmaster’s unfair practices may be enabled by its misuse of monopoly power.”
Although drug pricing policy isn’t as sexy as pop-star controversy, PBMs deserve similar scrutiny. Like Ticketmaster, just three PBMs control 80% of the prescription market. And it’s leading to nasty results for patients.
Expenditures on prescription drugs in the U.S. have ballooned over the past two decades as the middlemen realize huge profits while gaming the system. Because of an exemption from federal anti-kickback laws dating to the early 2000s, PBMs are able to siphon billions of dollars annually from the drug market — money that should be passed down to patients as savings.
Moreover, PBMs use their death grip on the market to boost the use of more expensive medicine over cheaper alternatives. Why? Because their moneymaking formula is largely based on the price point of products rather than a flat fee. A new economic analysis confirms that PBMs influence the prescribing patterns of doctors to make it happen.
In the homestretch of 2023 and beyond, federal policymakers are considering several pieces of legislation that will address questionable PBM behavior.
The House took a big step forward Monday evening, voting 320- 71 to pass the Lower Costs, More Transparency Act. The bill, if also approved by the Senate, would inject a dose of transparency into the drug supply chain. In addition, the Protecting Patients Against PBM Abuses Act reorients revenue formulas in Medicare Part D away from price-based calculations.
Other proposals take steps toward reforming the rebate system, so that patients realize discounts that drugmakers already provide as savings.
Ticketmaster continues to feel the heat from angry fans and lawmakers who think their business practices are less than ideal. Although the issue lacks pop-culture buzz, health care middlemen require similar treatment. To borrow from Taylor Swift’s lyrics, patients won’t be “Out of the Woods” until policy reform is pushed over the finish line.
• Jamey Bowers is an owner and partner at Berman and Co.
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