Americans pay the most money for prescription drugs out of any nation in the world. Between 2000 and 2015, the United States’ per capita spending on prescription drugs increased from $429 per year to $1,104. Now, one may try to discount this number as a result of inflation, however, prescription drug companies have been known to hike the price of their drugs by an average of 10.5% per year, which is much higher than the average 2% inflation rate.
At the heart of the problem are the pharmacy benefit managers, or PBMs. These organizations act as the middlemen that negotiate the price that hospitals, pharmacies, and insurance companies pay for prescription drugs.
One would think that pharmacy benefit managers would have an incentive to negotiate the best prices for both you and your health insurer, right? Well, given the increasing price of prescription drugs, this is too often not the case.
PBMs in many cases purposefully keep drug prices high as a result of Big Pharma actively providing kickbacks to PBMs, hospitals, and doctors in the form of so-called rebates. The goal of these payments is to reduce PBM’s incentive to put lower-priced drugs on formularies in place of medications that would be more expensive if not for the kickbacks.
Here’s how it works: pharmacy benefit managers are used by commercial insurers for both Medicaid and Medicare Part D. Originally, these PBMs used their formulary power, management tools, and price concessions to benefit — through negotiating lower drug prices — the insurers and patients they serve. In turn, PBMs are supposed to pass the savings on to the insurers allowing them to increase benefits and lower premiums.
However, the Medicare Payment Advisory Commission has consistently raised concerns that pharmacy benefit managers are choosing to not pass the rebate revenue to insurers, suggesting that PBMs are charging much more for generic drugs than they are paying pharmacies.
And yes, there are currently no laws on the federal level that allow transparency into this practice. But there is hope on the horizon — and it comes from Congress.
Senator’s Chuck Grassley (R-IA) and Ron Wyden (D-OR) recently introduced bipartisan legislation to reduce the active price gouging of prescription drug prices through the Prescription Drug Pricing Reduction Act. Thus far, the bill has made a big splash in the Senate and passed the Senate Finance Committee with a 19-9 vote.
The legislation seeks to reduce the price of prescription drugs through several measures, one of which is to increase the transparency of pharmacy benefit manager practices and drug manufacturer pricing decisions, providing visibility into the rebate deals that keep prices artificially high. This transparency, in addition to other measures, will help ensure that states, the federal government, and beneficiaries are getting the best possible deal.
The bi-partisan bill allows for a unique opportunity for Congress to finally address the skyrocketing price of prescription drugs and demonstrate that they are willing and able to stand up to Big Pharma and their panhandling middlemen.
Not only is the Grassley-Wyden legislation good policy, but a “yes” vote may also benefit republican Senators who have a tough race heading into 2020, such as Senator Martha McSally (R-AZ) as well as Senator Cory Gardner (R-CO).
No matter which direction the bill heads, Americans who are affected by prescription drug price gouging are sure to pay close attention to how the Senate handles this legislation. Hopefully, they’ll get it right.
State Representative Wayne Sasser is a pharmacist and serves as a Republican member of the North Carolina General Assembly.
