When they ran for office, congressional candidates from both parties pledged to bring down prescription drug costs. And unlike most campaign trail promises -- which are usually little more than hot air -- this pledge actually could soon become a reality.
That's because both parties actually agree on one of the most effective reform strategies -- curbing the power of the middlemen largely responsible for soaring prices. Pharmacy benefit managers, or PBMs, are inflating what patients pay for drugs to pad their own bottom lines.
Congress is considering several bipartisan, common-sense reforms for holding PBMs to account. Legislation could even pass before the end of this year -- to the great benefit of millions of patients and small business owners nationwide.
PBMs are companies employed by insurers to design and administer prescription drug "formularies." In other words, these companies are in charge of deciding which medications are covered by a health plan and making sure insurers reap maximum profit from them.
Over the years, the industry has consolidated to an alarming degree. Today, the three largest PBMs -- CVS Caremark, OptumRx, and Express Scripts -- control nearly 80% of the market. Each of those PBMs either owns, or is owned by, one of the nation's three largest insurers.
The purpose of PBMs is to use their buying power to obtain discounts and rebates from drug makers. Pharmaceutical companies doled out $334 billion in rebates and discounts on brand-name drugs in 2023 alone.
But please don't think those discounts get passed on to patients at the pharmacy. They don't.
In the first place, they are largely illusory. Because drug makers know they will need to offer discounts, they increase the list prices of their drugs accordingly. It's like a department store that's trying to market a pair of jeans that the store hopes to sell for $30. Rather than actually advertising it for $30, it's more tantalizing to price them at $60 -- but then offer shoppers a 50%-off sale.
Those theatrics are fine with the PBMs, whose revenue depends in part on the size of the discount they negotiate. And it's fine with insurers, who can force patients to pay inflated out-of-pocket copays or coinsurance based on the list price of the drug, not the actual, discounted price. Because PBMs operate in secret, patients have no idea how much their health plan is actually paying.
In addition, because PBMs stand to earn more from negotiating rebates on more expensive brand-name medicines, they often pad their profits by steering patients towards those costlier drugs and away from more affordable generics.
In recent years, PBMs have also enriched themselves by charging pharmacies and small businesses ever more extravagant fees for their "services."
Add it all up, and PBMs have created a system that forces patients and companies to pay twice for their medicines. First, in the form of premiums and administrative fees. Then out-of-pocket at the pharmacy counter.
For small businesses in particular, this kind of exploitative PBM behavior has come at an enormous financial cost. According to one recent survey, 88% of small firms believe that medication costs are too high. In another study from 2019, fully 40% of small businesses cited the cost of prescription drugs as among the top two challenges to providing health coverage for their workers.
So it's no wonder that small businesses have been clamoring for reform.
The good news is that lawmakers from both parties agree on the need for an overhaul of the PBM industry. And once November's elections are over, Congress will have an opportunity to pass reforms before the end of the year.
One proposed bill would shed new light on the secretive tactics PBMs use to maximize their own profits at the expense of patients and employers. It would also de-link PBM compensation from the price of a given drug under Medicare Part D, removing the incentive for PBMs to block access to low-cost generics.
A separate bill would base patients' out-of-pocket drug costs under Part D on the discounted net price of a drug. That would ensure that PBMs and insurers share drug rebates and price cuts directly with patients, instead of hoarding them for themselves.
With these two bills, lawmakers have a chance to deliver the cheaper medicines that they promised on the campaign trail.
Angela Dingle is president & CEO of Women Impacting Public Policy, a national nonpartisan organization that advocates on behalf of women entrepreneurs.
