If Americans want to pay less for prescription drugs, there is no way to do it without reforming the Pharmacy Benefit Manager industry. Congress should do so by the end of this year.
The PBMs, once known for reducing drug costs, no longer exist. Literally, they are no longer independent companies. They sit inside the insurance giants that own them. Cash machines to help health conglomerates hit quarterly numbers.
For 15 years, I led the trade association representing PBMs when they were independent firms competing to lower costs. PBMs helped build Medicare Part D— one of the most successful and popular public-private partnerships in modern health policy.
Back then, the model reduced patients’ drug costs. Today, out-of-pocket drug costs are rising seven times faster than the underlying cost of the drugs. Brand-name drug prices rose only 2 percent to 5 percent over the past year. Yet, out-of-pocket spending climbed faster — about 35 percent faster than the net price of the drugs.
That gap is no accident. It reflects how PBMs and their affiliates decide which drugs patients can access, how cost-sharing is designed, and how much of a manufacturer’s discount actually reaches the consumer. Spoiler: Very little does.
The modern PBM bears little resemblance to the cost-lowering intermediaries of the past. Today, a single insurer-owned PBM can act as wholesaler, mail-order pharmacy, specialty pharmacy, benefit designer and even a drug manufacturer.
Vertical integration has given insurers end-to-end control — and end-to-end profit — over the pharmaceutical supply chain long before a medication ever reaches a patient.
This is why the legislative proposals matter so much. The PBM Reform Act would ban spread pricing, end retroactive pharmacy clawbacks, and require PBMs to pass negotiated rebates directly to patients or health plans.
The No UPCODE Act targets upcoding schemes in Medicare Advantage that inflate taxpayer spending. And the House-passed Lower Costs, More Transparency Act would finally require PBMs — and their affiliates — to disclose the rebates, fees and spreads they bury out of sight.
None of these reforms is theoretical. They would lower what Americans pay immediately, before deductibles, coinsurance and the pharmacy checkout.
Consumers feel the pain of rising costs. Premiums rise. Benefits shrink. Formularies narrow. The inflation families face at the pharmacy counter does not come from drugmakers. It comes from the multilayered system between manufacturers and patients, a system built by and for the middlemen.
Congress has debated PBM reform for years. The time for academic discussion is over. If lawmakers want to help consumers, they should include PBM reform in the year-end health funding package. Lower drug costs would be the best Christmas present Washington could give the American people.