A Bipartisan Fix for the Prescription Drug Market

REALCLEAR HEALTH

It is no secret that health care policy is a frustrating topic on Capitol Hill.  That frustration reflects the worry felt by Americans searching for affordable health insurance and pharmaceutical options amid an opaque, complex and costly system.  While Republicans and Democrats agree our health care system is broken, we often have very different ideas about what reforms will sustainably reduce costs and improve patient outcomes.  

One thing we have long agreed on, however, is the need to crack down on pharmacy benefit managers (PBMs), the middlemen who negotiate between and set prices for insurers, drug manufacturers, pharmacies and patients.  PBMs were created to help manage the complexity of the prescription drug supply chain.  Positioned at the center of the market, PBMs can exact large concessions from manufacturers and pharmacies. 

Unfortunately, those savings are not always passed on to patients and taxpayers.  For years, reports have shown that lack of transparency and perverse incentives increase costs and reduce options for patients.  For instance, PBMs often give special terms to their affiliated pharmacies and charge opaque, unreasonable fees to others. 

Consolidation in the insurance market has worsened these problems.  Because most of the major PBMs share corporate ownership with insurers and pharmacies, they have little reason to use their negotiating power to drive down prices.  Instead, vertical integration incentivizes PBMs to steer patients to affiliated pharmacies and highly rebated treatments, regardless of price or effectiveness.

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