President Donald Trump pledged to make medicines more affordable during his 2024 campaign. And now, he's about to deliver.
His administration, along with its allies in Congress, is developing a plan to "knock out" the middlemen in the drug supply chain who inflate costs for patients.
The middlemen he's referring to are the pharmacy benefit managers (PBMs) who negotiate prices with manufacturers and decide which drugs are covered by health plans.
In theory, PBMs' negotiations should result in lower prices for patients. But in practice, they often lead to higher costs.
That's because PBMs can maximize their own earnings by steering patients toward more expensive medicines — which come with larger hidden discounts for the PBMs — even when other cheaper options are available. A recent House Oversight Committee report identified over 1,000 instances in which PBMs favored a higher-priced medication over a more affordable one.
This lack of transparency enables nearly every actor in the supply chain to gouge patients. Entities that play no part in developing new medicines — including many hospitals as well as insurer-PBMs and other middlemen — collect over half of the money spent on prescription drugs in America.
Hospital conglomerates, for instance, have been abusing a federal program known as 340B to purchase tens of billions of dollars' worth of discounted medicines, reselling them at egregious markups, and pocketing the difference instead of passing that money to patients.
The program, which Congress authorized in the early 1990s to help a relative handful of low-income and rural community hospitals, has grown exponentially. It now accounts for about 10% of total gross drug spending, and studies have shown that the expansion of 340B increases costs for taxpayers.
It also inflates the total cost of big companies' self-insured health plans — which collectively cover about 100 million Americans — by over $5 billion each year.
Congressional Republicans are planning to advance the president's agenda by including PBM reform, and possibly 340B reforms as well, in the upcoming reconciliation bill.
Democrats often argue that the United States should follow the example of Canada and Europe by instituting price controls on drugs. In fact, former President Joe Biden's Inflation Reduction Act has started to do just that.
But that's a terrible idea. Just as Europe's imposition of price controls decades ago caused it to lose its status as the world's leading drug innovator to the United States, we'd risk ceding our current leadership in life sciences to China.
Instead, it's far smarter to target middlemen who don't perform research and development. Cutting them down to size would save patients and taxpayers tens of billions — while allowing biotech companies to reinvest their revenues into new lifesaving research and development.
President Trump's efforts to rein in pharmacy benefit managers and reform the abuse of the 340B program are welcome and long overdue. By eliminating the perverse incentives that drive up costs, we can ensure patients get the medicines they need without undercutting the research that makes those treatments possible.
Drew Johnson is one of America's leading taxpayer advocates and government watchdogs. He was recently the Donald Trump-endorsed Republican nominee for Congress in Nevada's 3rd congressional district. Previously, Johnson exposed wasteful government spending as a budget policy scholar at think tanks, including the Taxpayers Protection Alliance, the National Taxpayers Union, and the National Center for Public Policy Research. Read More of His Reports — Here.