Democrats can still pull off a victory before year’s end: Lowering drug costs once more

Democrats have a golden opportunity to lower drug prices — again — before the next Congress begins on Jan. 3.

Democrats and Republicans alike support two bills that’d rein in pharmacy benefit managers — the gigantic and secretive “pharmaceutical middlemen who squeeze small pharmacies’ profits and raise costs for consumers,” as Vice President Kamala Harris described them during the campaign. If congressional leaders bring the bills up for a vote during the post-election lame duck session, they’ll almost certainly pass — and thus save Americans billions of dollars at the pharmacy.

Americans of all political stripes want lawmakers to rein in PBMs, who are inflating prescription drug costs at patients’ expense. One recent poll conducted by Morning Consult found that over two-thirds of registered voters think Congress should consider passing PBM reform legislation before the end of the year.

It’s no mystery why so many Americans feel this way. Currently, around one in four adults struggle to afford their prescribed medicine, while about three in ten don’t adhere to prescriptions due to cost, according to the health policy research group KFF.

Pharmacy benefit managers perform several tasks within the health care industry. They negotiate drug prices with manufacturers on behalf of insurers, process prescription claims, and manage formularies — insurers’ lists of covered drugs. But somewhere along the way, the companies realized they could ring up steep profits at the expense of patients.

PBMs decide which medicines get covered by insurance plans, and they use that gatekeeping power to extract massive discounts from drug manufacturers. The PBMs pocket a percentage of those savings as income.

This gives them a warped incentive to put the most expensive medicines on formularies, with little regard for cheaper alternatives. The higher a drug’s nominal “list” price, the bigger the discount, and the more the PBM makes.

And the rest of the savings from PBM negotiations generally aren’t passed on to patients at the pharmacy. In fact, insurance companies typically set coinsurance and copay amounts based on a drug’s original list price, not the negotiated price. According to a 2022 report from the University of Southern California, patients pay up to 20% more for generic drugs than they would if they got to benefit from PBM savings.

In July, the Federal Trade Commission published an investigation into the sector, in which it reported that a “vertically integrated and concentrated market structure has allowed PBMs to profit at the expense of patients and independent pharmacists.”

That “market structure” is the result of big insurers, PBMs, and pharmacies teaming up — by means of mergers and acquisitions — to control the industry. Each conglomerate favors its own pharmacies, which pushes smaller ones out of the market. These tactics helped shutter nearly 2,200 pharmacies between December 2017 and December 2020, leaving dozens of communities, many of them rural, with limited access to medication.

Fed up with this behavior, lawmakers are now proposing common-sense reforms.

One bill would eliminate the perverse incentive for PBMs to put more expensive drugs on formularies — by delinking PBM compensation from the list price for drugs. Instead of earning a percentage of a drug’s list price, the middlemen would receive a flat fee.

Another legislative proposal would make sure that any savings negotiated by PBMs are passed on to patients at the pharmacy counter. This bill would require that patients pay coinsurance rates based on a drug’s negotiated, discounted price, rather than on its full list price. The proposal would cut out-of-pocket costs for Medicare Part D patients with asthma and congestive heart failure.

These two strategies — delinking and sharing the savings — would achieve the ultimate goal of cutting patients’ out-of-pocket costs.

Washington is about to look a whole lot different. But there’s no reason that the two bipartisan PBM reform bills need to wait. Congressional leaders from both parties agree on the need to pass PBM reform, and the current “lame duck” legislative session is an ideal opportunity to do so.