De-linking Is De-structive to Patients’ and Taxpayers’ Pocketbooks
We have all encountered that lazy co-worker who stinks at his job but gets the same salary as everybody else. That happens a lot and it probably rankles you. The more appropriate and efficient system occurs when compensation is linked to performance. People work harder and better when they get compensated to do so. It’s not complicated. But sadly, some lawmakers don’t seem to understand this when it comes to your healthcare costs.
A group of Congresspeople have introduced the “Delinking Revenue from Unfair Gouging Act” (DRUG Act), which sounds great but will actually drive up the cost of your medications. They’re targeting “middlemen,” but they mean Pharmacy Benefit Managers, who administer the drug plan that’s part of your health insurance or Medicare Part D. When you give your pharmacist your insurance card and pay $8 for your prescription instead of $80, that’s your PBM at work. They use their economies of scale to get cheaper prices, just like Walmart does.
Currently, PBMs are paid by health plans based on how effectively they secure savings from drug companies and pharmacies. This is called pay for performance and it’s a good thing. But the Senate plan would “de-link” PBM compensation from the drug price, which would result in increasing costs.
A recent report from University of Chicago Professor of Economics Casey Mulligan concluded that the proposed de-linking legislation would “shift billions of dollars annually from patients and taxpayers to drug manufacturers and retail pharmacy companies.” For taxpayers, “Annual federal spending on Medicare Part D premiums would increase $3 billion to $10 billion plus any concomitant increase in Medicare subsidies for out-of-pocket expenses.” And, in the private healthcare market, “the consequences of a delinking regulation for the commercial segment would be similar in both direction and magnitude.”
Billions more public and private dollars would go to Big Pharma and their allies. This legislation ignores the fact that list prices for medications are completely at the discretion of pharmaceutical manufacturers, who raise or lower them for their own reasons. The fact is that PBMs and their buying power are the only real check on drug companies’ otherwise unlimited pricing power – which is precisely why those drug companies oppose them.
As it stands now, the combined value of the various tools PBMs use is estimated to be $145 billion each and every year, according to one study which concludes, “PBM negotiations fuel competition that lowers retail and manufacturing prices.” In fact, research shows that PBMs save the average American nearly $1,000 per year.
This is also true in the public sector. The Department of Labor’s Inspector General found that the agency spent an extra $321 million over a 5-year period on prescription drugs because it didn’t use a PBM. Limiting PBMs is therefore not only ineffective in lowering the cost of medications, but counterproductive.
The drug supply chain is extremely complex, and PBMs are merely one of many players. And they’re not the ones that take the biggest cut of the pie. According to an analysis from Memorial Sloan Kettering’s Center for Health Policy and Outcomes, 67% of the cost of prescriptions went to drugmakers, 15% to pharmacies, 8% to providers, and less than 5% to PBMs.
Inexplicably, the de-linking bill excludes all those other entities that are compensated based on list price and applies exclusively to the only link in the chain that gets paid to save their customers money. So why would Congress take this nonsensical approach? Perhaps the $20 billion Big Pharma has spent on lobbying so far this year has something to do with it.
As a former Congressman, I can tell you that – as in any field – there are good Representatives and Senators, and there are lousy ones. Some promote the interests of their districts and provide constituent services, while others take a different approach. Yet they all get paid the same salary, whether they deliver for their constituents or not. That’s de-linking in action. It doesn’t work to get the best out of workers or lawmakers, and it wouldn’t work to lower your medical bills.
Jason Altmire is an adjunct professor at the Texas Tech University Health Sciences Center. He has been an executive in both the hospital and health insurance industries, and from 2007 to 2013 served three terms in the U.S. House of Representatives.
