When I worked as a family physician in Vermont, I wrote countless prescriptions to help patients manage their health. If I were still practicing, I’d undoubtedly be worried sick about my patients’ ability to pay for their medicines. Too often, patients today fail to fill scripts because of high out-of-pocket costs.
Lawmakers have worked hard to expand access to medicines over the years, most recently in last year’s Inflation Reduction Act. However, price-based access problems remain. One big reason is the predatory practices of middlemen in the drug supply chain–pharmacy benefit managers (PBMs). It’s high time for our lawmakers to bring their profiteering to heel.
In theory, PBMs negotiate rebates and manage prescription drug benefits for insurers, securing the lowest possible prices from drug manufacturers, which is supposed to make medications more accessible and affordable.
In reality, PBMs have crafted a system that leads to higher drug prices because their revenues are based in part on a drug’s list price. Drug companies raise sticker prices in the knowledge that they will also be offering large discounts. Because of the link between list prices and PBM compensation, PBMs tend to favor higher-priced drugs with bigger discounts when selecting which drugs get preferential treatment on insurer formularies.
That’s fine with insurers, for two reasons. First, PBMs and insurers are one and the same. The three biggest insurance companies either own or are owned by PBMs, and they control 80% of the market. It’s an oligopoly.
Second, insurers collect co-insurance from their customers based on list prices, not the actual prices PBMs negotiate. Thus, insurance companies similarly have a positive incentive to keep list prices high. Since there are no federal rules in place to require discounts from list prices to be passed on directly to the patients taking the medication, so they aren’t.
It gets worse still. Many drug makers offer patients assistance with their co-insurance through coupons for the medication they produce. Outrageously, PBMs/insurers don’t have to count those coupons toward the patient’s deductible or out-of-pocket cap. They can claw patient savings right back that way.
The unscrupulous practices don’t end there. In an effort to pad their bottom lines, insurers and PBMs increasingly employ “utilization management” strategies that make it more difficult for patients to access the medicines their doctors prescribe.
Many insurers require doctors to obtain “prior authorization” before they agree to cover certain medicines and procedures. Another technique is known as “step therapy,” in which insurers refuse to pay for certain medications until a patient has tried lower-priced alternatives.
As a doctor, a policymaker, and a human being, I find all this not just unethical, but also appalling. I’ve listened to the pain in the voices of patients who have to skip doses or abandon treatment altogether because of these harmful practices.
Non-adherence to treatments takes a tragic toll–one that has been well-studied by researchers, who estimate non-adherence accounts for roughly $495 billion in additional medical spending every year–and causes more than 275,000 premature deaths.
In other words, the problem of unaffordable drugs isn’t abstract–it has a body count.
PBM abuse is so bad it has managed to bring Democrats and Republicans together in support of a reform bill in the Senate called the Patients Before Middlemen Act. It would delink PBM fees from drug prices, striking directly at the heart of the matter.
This reform would force PBMs to finally compete to negotiate genuine savings, not just shuffle rents around and exploit loopholes. It is easy to implement and requires no new bureaucracies or complicated rate-setting schemes.
We have evidence that PBM reform can work to meaningfully bring down costs. Following a report showing cost overruns by PBMs in the Ohio Medicaid program, the state enacted legislation requiring PBMs to pass along 100% of rebates and discounts to health plans–delinking PBM revenue from discounting. Per an analysis by the state, these reforms saved taxpayers $128 million in 2022 and are projected to save $184.4 million in 2023.
Alarmed by escalating prescription costs, West Virginia also took on PBMs. In 2017, state officials broke up consolidated PBM functions, assigning key tasks like claims processing to specialized vendors. According to the West Virginia Department of Health and Human Resources, the PBM carve-out generated savings of $54.4 million per year by 2018.
The Senate legislation provides a solid federal foundation for further state reform initiatives. As a doctor, I know this policy’s tremendous life-saving potential, and as a former governor, I know how leadership in Washington can spur more state reform. This bill achieves both.
Howard Dean is the former chair of the Democratic National Committee and former Governor of Vermont.
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