Attacking PBMs Won’t Solve President Biden’s Inflation Problem
What is a president to do when, after insisting on trillions of dollars of excessive, wasteful spending, the resulting record-setting inflation drives his approval ratings into the ditch in an election year? Well, if it’s President Biden, the answer is clear: Step 1) blame someone else, preferably fiendish corporations; and 2) announce a program, campaign or “Strike Force” that will valiantly combat and vanquish the evil doers.
Last week, the Biden administration announced the launch of a joint Federal Trade Commission/ Justice Department “Strike Force” through which, we are told, “President Biden is fighting to lower costs for American consumers—and he is taking action to address corporate price gouging.” But, of course, corporate price gouging is not the source of inflation. Reckless overspending and super-easy monetary policy is. And the “Strike Force” attacks on American businesses will likely make the problem worse.
Consider the administration’s demagoguery about prescription drug prices and the role of Pharmacy Benefit Managers (PBMs) in the medicine supply chain. According to SSR Health, a data analytics firm that tracks drug prices, accounting for negotiations and concessions, net drug prices in the first three quarters of 2023 were actually down, while the overall rate of inflation over that time period is up 4.4 percent. Much of that decline in pharmaceutical prices can be attributed to savings generated by PBMs. University of Chicago Professor of Economics Casey Mulligan, Ph.D., concluded that PBMs lower prices by about $148 billion every year. A separate analysis from Visante, a health care consultancy, found that PBMs help save patients, health plan sponsors, and payers $1,040 per person every year. That includes savings across Medicare Part D, Medicaid, and commercial insurance.
For employers who are plan sponsors, these savings are essential, supporting the ability of American businesses to invest in their growth, the competitiveness and quality of their benefits, and the wellbeing of the employees they cover.
An October 2023 national survey of more than 700 employers from the Coalition for Affordable Prescription Drugs (CAPD), found 93 percent say PBMs “do a good job negotiating cost savings.”
That makes sense considering, If PBMs didn’t save employers money, employers wouldn’t hire them. Nevertheless, the administration disparages PBMs as “middlemen,” accusing them of driving higher prescription drug prices, not being transparent, and hindering competition.
To dramatize the political theater of their narrative, the White House recently hosted a “listening session’ claiming to focus on “lowering healthcare costs by focusing on middlemen”—by which they meant PBMs. Turns out, the “listening session” was only interested in listening to one point of view—that of their own administration officials, and those with an axe to grind against PBMs and who just happen to support President Biden’s re-election.
Led by the Biden administration’s Director of the National Economic Council, Lael Brainard, the “listening session’s” attendees included two Biden cabinet secretaries, a Democrat governor, a couple of pharmacists, and Mark Cuban who has launched a drug distribution company that competes with PBMs. Brainard and the cabinet secretaries delivered Biden campaign talking points; the Democratic governor talked about his state’s own misguided attempts to target PBMs; the struggling pharmacists complained that they can’t compete; and Mark Cuban gave an infomercial in support of his new pharmaceutical venture. Immediately afterward, Cuban gave an unequivocal endorsement of Joe Biden for re-election, rounding out the political theater.
Missing from this discussion was any acknowledgment of the important role that PBMs actually play in keeping prescription drug costs lower than they would otherwise be. Had they invited a representative of the industry, they might have learned that PBMs provide free market solutions to the challenge of delivering medicines to the American people. They help health plan sponsors administer their prescription drug benefits, and they lower the costs to those sponsors. The savings to sponsors mostly get passed along to consumers in the forms of lower insurance premiums and co-payments.
Among the ill-conceived proposals championed by this administration’s progressive allies on Capitol Hill are policies that: prohibit market-based incentives that allow PBMs to share in the savings they negotiate; eliminate payment options for employers to choose how they pay for their PBM services; mandate 100-percent pass-through of savings secured through rebates, even though plan sponsors already have that choice when designing their benefits; and impose new public disclosure requirements on business-to-business deals that would only undercut the leverage PBMs have to secure savings.
PBMs have become one of the favorite scapegoats for the Biden administration and anti-corporate zealots in Washington. They are a preferred target for deflecting attention from the inflation disaster President Biden helped create. Republican lawmakers should not help the Biden administration with their attempted diversion. And they certainly should not be accomplices to the administration’s plans to disrupt the delivery of medicines in ways that will result in higher healthcare costs for their constituents.
Pat Toomey served as a U.S. Senator from Pennsylvania from 2011 to 2023 and in the U.S. House of Representatives from 1999 to 2005. He serves as an adviser to the Pharmaceutical Care Management Association.
