Last week, a House subcommittee held a hearing on pharmacy benefit managers and their impact on the prices patients pay for prescription drugs.
The hearing speaks to voters' concerns. Republicans and Democrats alike have identified the cost of prescription drugs as their No. 2 health care concern, according to polling this month from KFF.
And PBMs deserve congressional scrutiny. These middlemen have used their enormous influence in the drug market to make prescription medications unaffordable for a sizable share of patients.
PBMs are hired by insurers to negotiate with pharmaceutical companies over whether a health plan will cover their drugs — and at what price. They design formularies, or lists of covered drugs, and trade prime placement on those formularies for rebates and discounts from drug makers.
Just three PBMs — Express Scripts, Optum, and CVS Caremark — control 80% of the market. Their dominance gives them significant leverage over drug companies.
The testimony that University of Southern California economist Karen Van Nuys provided at last week's hearing relates how the demand by PBMs for ever-more-generous price concessions has led drug companies to increase the undiscounted "list price" of their brand-name medicines in order to "accommodate those higher rebates."
Her research found that this effect has been particularly pronounced for insulin. Between 2014 and 2018 alone, list prices for insulin jumped 40%. But the net prices that drug firms actually received fell by 31% during that same period.
Where did those savings go? Not to patients. According to Van Nuys, over the same four-year period, "the share of insulin spending captured by PBMs and other intermediaries more than doubled . . . [while] PBMs' share alone grew 155%."
Perhaps more surprising is the effect PBMs have had on the cost of generic medicines. The very purpose of these drugs is to drive down the price of name-brand medications after their patents expire. But according to Van Nuys, PBMs have actually increased the costs of these drugs for health plans and patients.
A 2021 study she co-authored "found that Medicare could have saved $2.6 billion in 2018 on just 184 common generic drugs if they had been purchased at Costco cash prices instead of through Medicare Part D plans."
Sadly, most Americans remain unaware of the nefarious role PBMs play in our health system. This might help explain why a strong majority of voters — 85%, according to a KFF poll — support the Inflation Reduction Act's price controls on certain prescription drugs dispensed through Medicare.
After all, at a moment when most Americans agree that drugs cost too much, government caps on drug prices might appear an intuitive response. But the fact is that drug firms have little control over how much patients pay for medicines. Their ire should really be directed at PBMs and insurers.
Worse, price controls on prescription drugs will only choke off funding for potentially life-saving drug research and development — and result in less innovation and fewer cures in the years ahead.
PBMs have grown rich by limiting access to needed medicines and extracting money from genuinely innovative companies — all while remaining largely invisible to public scrutiny. And they want to keep it that way. This week, Express Scripts sued the Federal Trade Commission, demanding that the agency retract a report critical of PBMs' practices.
Rather than defend their practices, PBMs are trying to silence their critics. Lawmakers — and patients — mustn't stand for that.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.