When Congress returns from recess, they’re expected to turn to legislation targeting pharmacy benefit managers (PBMs) that purports to lower prescription drug costs.
Unfortunately, the legislation could raise costs for patients and especially seniors when drug costs are already too expensive.
Lawmakers run the risk of undermining the effective, proven negotiating power of PBMs who reduce drug prices annually by more than $100 billion.
How exactly do pharmacy benefits, and the companies who manage them, help lower prescription drug costs for hardworking families and employers in the supply chain?
Here’s the 30,000-foot summary: pharmacy benefit companies, or PBMs, are hired by health plan sponsors, such as employers, unions, and government programs to administer prescription drug benefits and negotiate directly with drug companies to bring down drug costs.
275 million Americans benefit from those negotiations, as nearly every employer and health plan chooses to use a pharmacy benefit company because these plans work.
PBMs use several tools at every step of the supply chain to deliver savings for employers, including small businesses, and patients.
For example, they are able to negotiate lower net costs for brand prescription drugs through rebates secured from manufacturers that any of their clients could not secure on their own without the scale made possible by the pharmacy benefit company.
They also design pharmacy networks to maximize accessibility, choice, and quality of service, and create incentives that promote more cost-effective prescribing of drugs and more effective treatment plans for patients.
And they deliver results — pharmacy benefit companies save employers and patients 40-50 percent on prescription drug costs, compared to what they would spend without them, leading to more than $1,000 in savings per person each year.
An industry analysis found pharmacy benefit companies bring down drug costs by $148 billion annually.
No wonder Pharma is working so hard to target the PBM industry.
During a U.S. Senate Finance Committee nomination hearing to be the Trump Administration CMS Administrator, Seema Verma noted, "I am thankful that we have the PBMs in the Part D program that are performing that negotiation on behalf of seniors."
When I served on the U.S. House Committee on Energy and Commerce (E&C), we examined this very issue and came away with the same conclusion on the value of pharmacy benefit companies.
We also know exactly what happens when a PBM isn’t used — costs go up.
A recent Department of Labor Office of the Inspector General report found that the DOL overspent $321.3 million in a six-year span (2015-2020) on prescription drugs for its Federal Employees’ Compensation Program (FECA) because the Office of Workers’ Compensation Programs (OWCP) did not use a pharmacy benefit company.
Targeting pharmacy benefits also does not address the actual problem that Americans face — drug companies keeping prices high by waylaying competition. Instead, Big Pharma is using the prescription drug affordability problem as an opportunity to try to bait and switch Congress into passing legislation that could actually increase costs for patients and employers by making it more challenging for pharmacy benefit companies to secure savings — all while boosting big drug company profits.
Simple math disproves Pharma’s claims about PBMs: 65 percent of every dollar spent on prescription drugs goes to pharma companies and only six percent goes to PBMs.
Yet pending legislation takes aim at the one component of the supply chain that earns its small percent of the drug dollar by driving down the price of pharmacy drugs by an estimated $148 billion.
This legislation could sabotage the ability of PBMs to effectively negotiate for lower prices with pharma companies.
For example, so-called "delinking" legislation would eliminate the very incentives that have proven to work in driving pharmacy benefit companies to secure discounts from Big Pharma.
Proposals to eliminate spread pricing would eliminate popular options for health plan sponsors, forcing millions of small businesses and patients to rework, or even lose, their current prescription drug coverage.
Pending "transparency" legislation that would require pharmacy benefit companies to publicize confidential information on contracts and prices could cause costs to skyrocket.
A recent report from Milliman found that potential disclosure requirements in Medicare Part D could lead to $134 billion in increased costs for the federal government over 10 years as drug companies could give lower discounts on drugs.
These are exactly the unintended consequences Congress should avoid.
We all agree that prescription drugs are too expensive.
But to fix this problem, Congress should focus on the cause — the pharmaceutical companies setting the prices and deriving nearly all the profits — not the PBMs working to lower costs.
To promote competition in the pharmaceutical industry, we need an approach that holds drug companies accountable.
Without PBMs standing up to Big Pharma to lower prices on behalf of consumers, Big Pharma would be left with even more power and discretion to increase the price of drugs.
This is exactly the opposite of the outcome all of us want — and it’s why legislation touting more "transparency" for PBM’s actually benefits Big Pharma and reduces the leverage used against Big Pharma to force them to lower prices.
Republican Ryan Anthony Costello served as the U.S. representative for Pennsylvania's 6th Congressional District (2015-2019).