Pharmacy Benefit Managers Are Politicians’ Next Health Care Scapegoat - The American Spectator | USA News and Politics
Pharmacy Benefit Managers Are Politicians’ Next Health Care Scapegoat

This Thursday, the Senate Commerce Committee will hold a hearing to advance the Pharmacy Benefit Manager Transparency Act. The brainchild of Sens. Maria Cantwell (D-Washington) and Chuck Grassley (R-Iowa), its purported aim is to reduce health care costs. But history shows that congressional action routinely increases the cost of health care, and this legislation is no exception.

The bill targets Pharmacy Benefits Managers (PBMs), companies that work to reduce pharmaceutical prices. PBMs have many functions, but one of the more crucial ones is negotiating rebates and discounts from drugmakers. Those price reductions are passed along to health insurance companies and their customers. In exchange for negotiating lower prices, PBMs get to keep a portion of the rebates.

That is beneficial to patients and policyholders. One study found that PBMs save patients 40 to 50 percent on their prescription costs and other health care expenses. Another found that they provide $240 billion in benefits to insurers and their members. Research from the Pew Charitable Trusts shows that the rebates PBMs pass along to insurers increased from 78 percent in 2012 to 91 percent in 2016. PBMs reduced Medicare Part D expenditures by 20 percent, according to the Government Accountability Office.

PBMs’ political opponents, such as lobbyists for drugmakers and their allies like the National Community Pharmacists Association, have generated plenty of negative press for PBMs. Remarkably, drugmakers have claimed that the rebates have forced them to raise their drug prices. They have convinced Congress that forcing PBMs to pass along all of the rebates to insurers will result in lower prices.

It will be patients who suffer if Congress buys that argument and passes the PBM Transparency Act. Why would PBMs spend as much time and resources as they do now negotiating lower drug prices if they receive fewer benefits from such negotiations in the future? In short, incentives matter. If PBMs make less money on drug negotiations, they will devote more resources to their other functions, such as processing and paying prescription drug claims and managing drug formularies. Smaller rebates would no doubt benefit drugmakers, but the higher drug prices that result will ultimately fall on patients.

PBM opponents have also complained that PBM practices lack transparency and have convinced members of Congress that forcing PBMs to open up their processes for all to see is the way to go.

Yet the Act’s transparency provisions will also cause drug prices to rise. The reason is that the Act requires PBMs to provide “full and complete disclosure of … the cost, price, and reimbursement of prescription drugs to the health plans and pharmacies.” This provision will, in effect, reveal the prices PBMs negotiate with drugmakers. That, in turn, will increase the leverage that drugmakers have in the negotiations. Consider a scenario in which a PBM negotiates a $20 rebate with Drugmaker A for each dose of its diabetes medication. However, it is only able to extract a $10 rebate for a similar medication from Drugmaker B. When the transparency mandated by the Act forces the PBM to reveal its rebates, what will Drugmaker A’s reaction be other than to demand the PBM give it the same deal as Drugmaker B? That process will play out across all negotiations between PBMs and drugmakers, resulting in higher drug prices for insurers and patients.

History shows time and again that congressional legislation only increases health care costs. For example, Obamacare was supposed to reduce the price of health insurance. But since the Obamacare exchanges came online in 2013, the average price of insurance premiums has more than doubled. It will be much the same story with drug prices if Congress passes the Pharmacy Benefit Manager Transparency Act.

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