Targeting drug middlemen could create more loopholes
Congress is back in session with a long list of unfinished business. Topping the health-care agenda is legislation that aims to lower the cost of prescription drugs and make their prices more transparent. Although these proposals have rare bipartisan support, lawmakers should proceed cautiously. Some well-intentioned measures could backfire or prove ineffective.
Prescription drug prices in the US have been climbing steadily for decades. About a third of adults say they haven’t taken their medicines as prescribed because of the cost. Patients have also grown frustrated by seemingly arbitrary prices. Why, for example, is the same asthma inhaler $11.99 in one Ohio pharmacy and $1,136 at another? For years, Congress directed much of the blame toward drugmakers — they set the prices, after all. Increasingly, though, fingers have been pointing to the middlemen at the center of a labyrinthine drug supply chain: pharmacy benefit managers.
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PBMs started in the 1960s processing claims for insurance companies. Today, they help clients — namely insurers and big employers — negotiate discounts from drugmakers, known as rebates. PBMs also compile lists of drugs, called formularies, that providers of health benefits agree to cover; establish pharmacy networks that patients can access; and run their own mail-order pharmacies.
Although PBMs are supposed to help lower costs, some of their practices may well do the opposite. PBMs often keep a portion of the rebates they negotiate, which can incentivize them to favor more expensive drugs on their formularies. (A $1 million drug, for example, would fetch a bigger fee than a $100 one.) Manufacturers have been known to give the same drug vastly different prices, knowing PBMs will prefer the higher option. Other practices appear to reduce competition. PBMs restrict network access to pharmacies that, in theory, offer the lowest prices. In so doing, they often steer patients to pharmacies they own or are affiliated with, making it difficult to determine whether patients ultimately pay less at the counter. Though clients have every right to audit their PBMs, the industry has long been criticized for its evasiveness and opacity. Congress thus has good reason to examine PBMs’ business practices. It’s unclear, however, whether eliminating certain tactics will lower costs for patients or simply create new loopholes.
Consider a proposal to “de-link” rebates from a drug’s list price. If clients paid PBMs a flat fee, instead of a proportion of the discount they negotiate, the incentive to inflate prices would disappear, the thinking goes. Yet there’s little evidence to suggest that drugmakers would subsequently lower their list prices. Indeed, they could very well keep those prices steady — evading statutory penalties for raising prices faster than inflation — and recoup fatter profits. (It’s worth noting that the PBM industry has proved adept at navigating such regulations, opting to reroute payments to new intermediaries and business lines.) Or take a proposed ban on so-called spread pricing, which would prevent PBMs from charging health-plan sponsors more for drugs than what they reimburse to pharmacies. Considering the three biggest PBMs own retail or mail-order pharmacies, any such restriction would most likely shift profits without clearly benefiting patients.
The strongest case is for greater transparency, the focus of a health-care bill that passed the House in December. Plan sponsors complain that requests for more data from their PBMs are routinely denied, making it tough to determine whether they’re getting a good deal. But burdensome new public reporting requirements may not help much. The goal instead should be uncovering conflicts of interest or anticompetitive behavior — ideally informed by a Federal Trade Commission review now underway — and ensuring that PBMs’ business interests are better aligned with those of their clients.
— The Editors, Bloomberg Opinion/TNS
