Buried on page 55 of the bipartisan gun bill Congress passed this week: A provision to further delay the implementation of a rule to lower prescription drug prices. It’s another demonstration of the lobbying power of drug supply middlemen known as pharmacy benefit managers (PBMs) and why it’s so hard to achieve real reform to lower medication costs. No wonder Americans hold Congress in such low regard.
The gun legislation delays the implementation of a Health and Human Services rebate rule finalized in 2020 until 2027. The rule requires PBMs to pass along their massive rebates received from drug manufacturers to Medicare patients in the form of lower costs at the prescription counter. Originally slated to take effect at the beginning of this year, Congress already delayed the rule until 2026 as part of the bipartisan infrastructure law passed last year.
The gun bill kicks the can further down the road at the behest of the PBM lobby that wants to continue profiteering off this rebate scheme. In 2019, PBMs made $28 billion in profits off the backs of patients.
Little known to the general public, PBMs are oligopolistic middlemen between pharmaceutical manufacturers and insurance companies. They control the prescription drug supply chain and drive up drug costs by demanding massive kickbacks (known as “rebates”) from drugmakers in return for access to insurers’ preferred list of covered drugs (known as formularies).
For instance, if a manufacturer sells a drug for $100, but the PBM requires a $75 rebate to access the insurer formulary, the drug’s list price rises to $175. These extra costs are then passed on to patients. In total, these rebates account for nearly 50 percent of list prices, artificially increasing drug prices by nearly $200 billion annually.
To understand why PBMs are the main reason for increasing drug prices, consider that net drug prices (sticker prices minus rebates) have actually fallen over the past several years. In other words, rebates account for the entire increase in medication costs.
The divergence between list prices and net prices absent rebates is especially apparent with insulin, whose increasing costs have attracted significant political attention. According to a recent JAMA study, insulin list prices rose by 40 percent since 2014, but net prices, absent rebates, fell by more than 30 percent.
Last year, a Senate Finance Committee report revealed that between 2013 and 2018, insulin rebates charged by one PBM increased from 2 percent to 56 percent of the list price. Drawing on this report, the nonprofit drug research organization 46Brooklyn finds that rebates made up 80 percent ($339) of the $429 list price of a standard box of insulin pens. No wonder insulin prices have become unaffordable for so many.
Despite the gun bill setback, patients have reason to hope that PBM reform is on the horizon. Last month, Sens. Maria Cantwell (D-Wash.) and Chuck Grassley (R-Iowa) introduced bipartisan legislation to prohibit some of PBMs’ most inflationary pricing practices and require them to disclose others to the Federal Trade Commission. And earlier this month, the FTC voted to move forward on a long-awaited study of PBM practices, potentially a precursor to Executive Branch action to reign them in.
In the meantime, patients can bypass this cartel and enjoy substantial prescription drug savings by visiting direct primary care physicians or independent pharmacies. Many direct primary care doctors save patients hundreds to thousands of dollars each year by sidestepping the inflationary PBM rebate system entirely by contracting with independent pharmacies that work directly with drug wholesalers. Until lawmakers put PBMs in their crosshairs, however, patients will unfortunately have to work at cross purposes with Congress on this vital issue.
Dr. Molly Rutherford is an independent physician practicing in Kentucky and a member of Job Creators Network.