Light starts to shine on opaque drug pricing tactics

Late last month, the Federal Trade Commission announced it would seek public comments on the ways pharmacy benefit managers distort the prices of prescription drugs.

PBMs deserve the scrutiny, as they’re to blame for much of the rise in prescription drug costs. Insurers hire PBMs to negotiate drug prices with manufacturers and determine which medicines end up on a plan’s formulary. To guarantee their drug has a spot on the list, pharmaceutical firms routinely offer these gatekeepers deep discounts on medications. Savings on insulin, for example, can reach up to 70% .

But patients often don’t benefit from those savings at the pharmacy counter. Instead, PBMs pass a portion of the discounts they receive on to the insurance company, which uses them to lower premiums marginally. PBMs pocket much of the rest. Per-prescription profits of Express Scripts, the second-largest PBM , jumped 500% between 2003 and 2016. PBMs and other industry middlemen received more than half of every dollar spent on brand medications in 2020.

Of course, these intermediaries don’t want consumers to know how much they could be saving on their prescription drugs, so they shroud the negotiation process in secrecy, leaving patients to pay higher coinsurance and copays based on their prescription’s pre-discount price.

It doesn’t have to be this way. By one estimate, passing manufacturers’ discounts on to consumers could save a patient up to $800 in out-of-pocket costs each year.

Public officials finally appear to be turning their gaze on PBMs’ pricing chicanery. Good. Greater transparency in the market for prescription drugs can yield lower prices for consumers.

Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in health care policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All. Follow her on Twitter @sallypipes.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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