You’ve probably seen a commercial recently on TV. A doctor is writing a prescription for a patient when a man in a suit appears and introduces himself as a pharmacy benefit manager (PBM). The smirking, lollipop-sucking man then informs the patient that she needs to go to the pharmacy he prefers so he can make more money.
The message is that PBMs are slimy insiders who profit off others’ medical needs. It’s a slick commercial until you notice the disclaimer at the bottom: paid for by PhRMA. As in Big PhRMA, the powerful lobbying group that represents American drug companies.
The well-heeled PhRMA has been crusading against PBMs for years, and lately, the Biden administration has joined in. The Federal Trade Commission (FTC) announced in September they were suing the country’s three largest PBMs, alleging they “abused their economic power by rigging pharmaceutical supply chain competition in their favor, forcing patients to pay more for life-saving medication.” Congress is joining in, too, with some members pushing hard to pass PBM regulations before this congressional session adjourns.
Big PhRMA and big government clearly don’t like PBMs, but everyone else should. Because contra the TV spots and the Biden administration’s nonsense, PBMs are a powerful ally for American patients. They negotiate with big drug corporations to keep costs down.
PBMs are companies that work with small businesses, pharmacies, Medicare Part D, and other healthcare-providing institutions that Americans interact with every day. They’re guardians of a sort, standing between those institutions and Big PhRMA, managing prescription drug benefits to make sure patients get a good deal. As CVS puts it, “PBMs are one of the few parts of the prescription drug supply chain specifically dedicated to lowering costs.”
The truth is that PBMs protect consumers from the depredations of drug companies. If they weren’t valuable, businesses wouldn’t use them.
It’s also true that PBMs, as the Biden administration alleges, are pretty big—they administer health plans for more than 275 million Americans. But they need that power to stand up to Big PhRMA. And it works: research has found that PBMs save the average patient more than $1,000 every year, and for every $1 spent on their services, they reduce costs by $10.
It should be obvious why PhRMA hates PBMs: without them, the drug companies could raise prices as high as they like. As for big government, the feds seem to think they should be the sole negotiator when it comes to drug costs, not the more effective private-sector PBMs.
The FTC’s suit against the PBMs is ridiculous. It alleges that PBMs, determined to profit off rebates on drugs, labored to exclude lower-priced insulin products in favor of higher-priced ones, driving up the cost of insulin for diabetics. Never mind that insulin prices have been falling in recent years, and while insulin used to be much more expensive, this was thanks to markup by the drug companies, not PBMs.
The FTC provides no evidence to support its claim that PBMs worked to keep insulin prices high. In fact, as a dissenting Republican FTC commissioner noted, the agency’s investigation into the PBMs was “politicized” and “plagued by process irregularities and concerns over the substance.”
In other words, this was a case of Democrats on the FTC starting with a conclusion and working backward. The FTC’s study into the PBMs was so fishy that the agency’s top economist abruptly resigned the day before the FTC voted to commission it.
What about those drug rebates, which PBMs are supposedly using to line their pockets and buy even more lollipops? As the Wall Street Journal noted back in September, “The FTC says PBMs use rebates to inflate their profits, but this is contradicted by the complaint’s admission that they pass on 90% to 98% of rebate dollars to their clients — i.e., employer, union and Medicare Part D plans. A recent study by the healthcare research firm Nephron Research found that rebates accounted for only 13% of PBM profits in 2022.”
Far from enriching executives, those rebates are saving patients money. No wonder an Inspector General report for the Department of Labor found that the DOL had overspent on prescription drugs by more than $321 million over the course of just six years. The reason? It had failed to use a PBM.
The drugmakers — not PBMs — are responsible for the vast majority of the purchase price of Americans’ medications. If anyone should be accused or price-gouging, it is them.
In addition to saving money, PBMs are also saving lives. By preventing medication errors and breaking down barriers to care, they help extend patient longevity.
No surprise, then, that Big PhRMA is fuming and big government is jealous. At a time of painful inflation, the last thing Americans need is to be at the mercy of the drug companies. As Donald Trump and his health secretary nominee Robert F. Kennedy Jr. prepare to shake up Washington, they should make one thing crystal clear: Big PhRMA is on notice. PBMs are here to stay.
The American people voted for Trump in part because of his promise to take on Big Pharma. While Kamala Harris paid lips service to the cause, she promised to continue the same Biden status quo on PBMs.
Trump and his incoming Federal Trade Commission Chair and Health and Human Services Secretary should work on quickly closing the books on the Biden administration’s baseless PBM lawsuit and ending the federal government’s discouragement of their use. Doing so would make Big Pharma cringe, yes, but it would make the rest of us better off.
Thomas Stratmann is a Distinguished University Professor of Public Choice, Political Economy, Law and Economics, Health Economics, and Experimental Economics at George Mason University. He holds an appointment at both GMU’s Department of Economics and Antonin Scalia Law School.
