On Tuesday afternoon, House Speaker Mike Johnson finalized an end-of-year spending package to avoid a government shutdown and keep federal agencies running through mid-March.
To be sure, the spending package is a big, expensive bill, wrapping in everything from farm aid to bridge repair. I know this makes many of my fellow Republicans uncomfortable.
But the bill includes some crucial measures to rein in pharmacy benefit managers, the intermediaries who sit between drug manufacturers, health insurers, and pharmacies and have played a huge role in driving up prescription drug costs.
These efforts are long overdue. In fact, earlier this month, I joined the heads of 20 prominent conservative organizations urging Congress to pass free-market reforms just like these. So it's critical for lawmakers to pass the CR.
Insurers hire PBMs to manage drug benefits and negotiate discounts with manufacturers, which they provide in exchange for favorable placement on insurance-company formularies. In theory, this should save patients money. In reality, PBMs have engineered a system in which they pocket the savings while deliberately inflating drug prices and limiting patient choice.
The problem stems, in part, from a warped incentive structure. PBMs rake in a share of their profits through rebates and fees charged to drug companies, in amounts based on a medicine's list price. Since more expensive medicines generate higher rebates and fees, PBMs have a clear motive to place pricier drugs on formularies instead of lower-cost alternatives.
The result is that patients often don't have access to more affordable or generic medicines -- even if those drugs would be better for their wallets or health. A recent Federal Trade Commission report detailed 300 instances in which large PBMs favored a medication that cost at least $500 more per claim than a safe, cheaper alternative.
It's not just people with illnesses who pay the price for this warped incentive structure. These middlemen also engage in an opaque practice called "spread pricing," whereby they bill insurers more than they actually pay pharmacies to dispense medication -- and keep the difference. PBMs use this unscrupulous tactic in their contracts with state Medicaid programs, costing taxpayers money.
In Ohio, spread pricing in Medicaid contracts accounted for more than $224 million in PBM profits over a single year. In Kentucky, PBMs hung onto more than $123 million in a year via this method. In Maryland, the figure was $72 million.
These are unacceptable costs at a time when government spending is growing out of control.
Meanwhile, as PBMs consolidate, they're shielding themselves from any outside competition. This is especially hard on small, independent drug stores, often the cornerstones of local communities. Each PBM owns pharmacies, to which they often direct patients to fill prescriptions. And they reimburse their own drug stores at much higher rates than independent ones. Today, the three largest PBMs account for roughly 80% of the market, administering drug benefits for more than 270 million Americans.
Put simply, PBMs have squeezed competition from the pharmaceutical supply chain to grow their profits at the expense of patients and taxpayers. Americans are tired of it.
The bipartisan proposals included in the CR tackle PBMs role in driving up costs for patients and taxpayers alike in Medicare and Medicaid.
One proposal would delink PBM fees from a drug's list price within the Medicare prescription drug benefit. This would help fix the broken incentives that drive up costs and limit the number of medications available to patients. It would also ensure that PBMs pass the discounts they negotiate with drug companies on to patients, instead of keeping the money for themselves. That would help reverse the rising out-of-pocket costs that have left Americans struggling to afford their prescriptions. And it would reduce government spending.
Another would prevent PBMs from undercutting independent drug stores and eliminate spread pricing – an effort that will save taxpayers approximately $1 billion over the next 10 years.
On Monday, President Donald Trump emphasized his desire to "knock out" these prescription drug middlemen, explaining that they "don’t do anything." Republican legislators have an opportunity to rein in PBM's outrageous behavior. In the coming days, Speaker Johnson and President Trump need Republican votes to get it over the finish line by supporting the year-end spending bill.
