Going After Pharmacy Benefit Managers Won't Lower Drug Prices

It is not uncommon for interventionist policies to have the opposite of their intended — or at least stated — effect.

For example, policies intended to protect the environment sometimes do damage, such as when California's byzantine rules make it difficult to do controlled burns or clear detritus, which has greatly contributed to the damage done by wildfires. Recent analysis suggests that the Inflation Reduction Act will end up spending well over $1 trillion in the next decade, which considerably adds to the inflationary fuel already in the economy.

The latest example of such counterproductive efforts can be seen in recent attempts to ostensibly reduce the price of prescription drugs. Led by Sen. Bernie Sanders, I-Vt., the Pharmacy Benefit Manager Reform Act (S.1339) would "provide for increased oversight of entities that provide pharmacy benefit management (PBM) services on behalf of group health plans and health insurance coverage."

If it became law, the bill would give the government more control over PBMs, a group that is often blamed for the high cost of prescription drugs. The bill sailed through committee by an 18-3 vote a few weeks ago and is expected to come to the floor later this month.

PBMs are third-party administrators of prescription drug plans for insurance companies, government programs, businesses, and others. They perform a variety of functions, like running the plan's drug formulary and prescription claims, but the most important thing they do is negotiate discounts between drug manufacturers and beneficiaries.

Pharmaceutical companies don't like having to negotiate with entities that have a modicum of market power and wish they would go away, and they paint them as being nothing but "middlemen" that simply take from the system and contribute nothing of value.

Eliminating PBMs would, they insist, free up money that could go to patients. Sanders' bill would tie PBMs up so they could no longer negotiate.

The pharmaceutical companies are running a full-court press against PBMs, and they've been labeled as "beyond unethical" "or mysterious middlemen" and they have been carpet bombing social media with these claims. Indeed, when Sanders announced his bill, he promised "to crack down on the greed of pharmacy benefit managers" which supposedly has led to increased profits in the sector.

However, Sanders' claims don't hold up to scrutiny. PBM rebates have saved Medicare Part D patients as much as $145 billion, according to a Government Accountability Office study in 2016, a number confirmed by the White House's Council of Economic Advisers. Insurers, unions, and private companies that self insure also save billions of dollars, especially those companies that cannot negotiate lower prices from Big Pharma on volume.

The mathematical model PBMs use to save their customers' money is called spread pricing, which allows employers to pay flat rates for prescription drugs, regardless of where the drug is dispensed.

The arithmetic is straightforward: An employer and a PBM agree on a price for a specific medicine, say $10. Should a beneficiary go to a pharmacy where the drug costs $15, the employer saves $5. However, if the beneficiary visits another pharmacy which puts the drug's price lower than $10, the PBM will collect $10 regardless. The difference helps fund the PBMs cost of doing business.

Independent pharmacists also dislike PBMs because they often implement the direct delivery of prescriptions, which results in people being more diligent about staying on their medications. The practice improves health outcomes and saves money but reduces income for the independent pharmacists, who want the practice curtailed.

When I was a young man, one of the things liberals hated about Republicans was that they ran cover for Big Pharma. Now, we're on the other side while "Big Pharma finds an unexpected friend in Bernie Sanders."

Reducing drug prices has been practically a mantra for both parties over the last few decades, but Congress has been largely ineffectual in its attempts to achieve such a thing. Reducing the power of PBMs would allow pharmaceutical companies to have less opposition when it raises prices, and it's difficult to see how less competition would somehow engender lower prices.

Jared Whitley is a longtime politico who has worked in the U.S. Congress, White House and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. Read Jared Whitley's reports — More Here.