Sunlight Is The Cure For High Drug Prices

Congress is considering legislation to rein in runaway drug prices. But any new law would be just political theater unless it shines a light on how pharmaceutical benefit managers (PBMs) manipulate drug pricing.

We soothe ourselves with slogans about America’s free-market health care. The reality is very different. Insurers and their PBMs rig the system to prop up drug monopolies year after year. Newer, more effective medicines are shut out.

Health insurance CEO pay exploded in 2020—while American life expectancy continued to fall. How are insurers making so much money during an economy-crushing pandemic?

Every big insurer now either owns or is owned by a PBM. These little-known cash cows keep lists of medicines (formularies) that insurance policies cover, negotiate contracts with pharmacies, and process claims. Their earning power can be massive. Fully 60% of CVS’s revenue comes through its PBM Caremark. And Cigna’s 2019 merger with Express Scripts, a mega-PBM, immediately tripled the insurer’s revenues.

PBMs use a slew of tricks to game the system, and most Americans have no idea this is happening. These shadowy and increasingly powerful middlemen employ armies of lawyers and lobbyists to keep the books locked up tight.

One trick is point-of-sale remuneration fees. This means when you buy medicine at your local pharmacy, a PBM skins off an undisclosed portion of the price you pay. They also keep a cut of what the insurer pays the pharmacy, playing both sides for profit. These ruthless tactics drive mom-and-pop pharmacies, so crucial for vaccinating Americans against COVID-19, out of business.

Another trick is “rebates”, which in any other context would be called out for the kickbacks that they are. PBMs negotiate prices with drug makers. When you buy your prescribed medicine, the PBM get a kickback from the manufacturer—but you’ll never see this extra cash. The PBMs pocket it because their priority is growing their profit margins, not lowering your costs or improving your health.

These practices have a long history. They arose due to targeted exemptions from anti-kickback law in the 1980s, aimed at increasing efficiency in medical supply chains. And those original measures may have had merit. But over the decades they’ve spread throughout the system, as mega-PBMs gamed them to fundamentally distort the market. While these new profit-makers grow fat, patients and the state governments that administer health programs are feeling the brunt.

Finally, some states have started to push back—notably Mississippi and Ohio. And West Virginia just became the first to require that the “rebates” get passed on to patients. We not only need more states to follow suit. We need federal action.

One bill currently working its way through Congress is H.R. 3, The Elijah E. Cummings Lower Drug Costs Now Act. It would allow the federal government to negotiate directly with drug manufacturers for lower prices. Although that may control costs in the short run, it wouldn’t reach the deeply entrenched root of the problem: PBMs and their tricks.

The outcry for drug pricing legislation provides an opportunity for real reform. If Washington forces PBMs and insurers to reveal what’s on their books, the public is bound to discover collusive activities that manipulate markets to inflate drug prices. To lower costs, we must shine a light on PBMs’ shady practices.

Marion Mass, MD, is Co-Founder and Executive Vice President of The Practicing Physicians of America.