OPINION:
In a free market, transparency is like the oil that keeps an engine running smoothly and efficiently. It helps keep prices in line with consumer expectations — fueling an economy that benefits businesses, employees and families.
But as some have unfortunately experienced, when the oil dries up, engine parts begin to grind, and fixing the damage becomes expensive quickly.
Patients struggling to afford their prescription medicines are experiencing this engine failure in real time. And the situation is in dire need of a mechanic.
How bad is the engine damage? According to a recent study from the Federal Reserve, 1 in 10 Americans skipped taking a prescribed drug in the last year because of high costs.
Such a significant portion of people taking health risks is alarming but not surprising. Expenditures on prescription drugs in the U.S. have grown by nearly half in just 10 years.
And the largely unknown middlemen of the drug supply chain called pharmacy benefit managers, known as PBMs, are largely to blame.
Outside the purview of ordinary Americans, PBMs are executing a scheme that inflates the cost of medicine at the expense of patients. The middlemen use their considerable leverage as doorkeepers to the consumer market to demand that drugmakers provide rebates (translation: discounts) alongside their products.
In a perfect world, these discounts would be passed down to patients as financial savings at the pharmacy counter. But unfortunately, the exact opposite is true. These middlemen pocket the rebates, which now exceed $200 billion every year.
In a recent Senate Finance Committee hearing, Sen. Chuck Grassley, Iowa Republican, commented on the shady PBM behavior, saying that “their business practices are very opaque.”
To understand the driving role middlemen play in jacking up the cost of prescription medicines, consider the mismatch between the price of drugs with and without PBM meddling.
According to an analysis of approximately 1,000 brand-name drugs, the sticker price of medicine has risen every year in recent memory. But at the same time, net prescription drug prices — the sticker price minus PBM funny business — have actually declined for five consecutive years. Add the plague of high inflation, and real drug costs dropped by nearly 9% in 2022.
Real-world examples mirror what the data suggests. Mark Cuban’s new venture is a prime example of how the free market — unabated by middlemen and flush with transparency — can deliver medicine to patients at lower prices.
In 2022, the “Shark Tank” investor launched an online pharmacy that now provides more than 1,0000 medications to consumers — many at lower prices than what patients can access through traditional channels.
For example, the cancer medication Imatinib sells for $12 on the platform when the retail price is more than 200 times that. What’s the trick? As the website proudly publicizes on its homepage: “No middlemen. No price games. Huge drug savings.”
How can policymakers address the backdoor scheme perpetuated by PBMs? The first step is transparency. Not just for patients, but for employers, plan sponsors and pharmacies as well. Sunlight is the best disinfectant.
Investigations into the role middlemen play in the drug supply chain are already ongoing. The Federal Trade Commission launched an investigation of PBMs last year “aimed at shedding light on several [PBM] practices that have drawn scrutiny in recent years,” including “complicated and opaque” behavior.
The pressure is also on from a bipartisan group of lawmakers seeking to rein in drug supply chain middlemen with transparency and accountability.
A handful of bills have been introduced this year in both chambers of Congress that take steps in this direction — including the Protecting Patients Against PBM Abuses Act. Notably, the legislation includes data reporting requirements around PBM rebates that will shine a spotlight on behavior that is unfolding in the shadows.
Ongoing investigations and legislative proposals are all fine and good. But now lawmakers need to translate this bipartisan kumbaya moment into concrete public policy that makes it over the finish line.
The prescription drug market is suffering from a lack of transparency — and patients are paying the price. Shedding sunlight on the clandestine behavior of PBM middlemen is a good first step to remedy the situation. The drug market engine is in need of oil.
• Jamey Bowers is an owner and partner at Berman and Co.
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