It is no secret that the cost of prescription drugs is a major concern for Americans today. Around 79% of the public agree that the price of prescription medication is unreasonable. But while much attention is focused on the role of drug manufacturers, a new report details how almost half of consumer spending on brand-name drugs goes to providers and Prescription Benefits Managers (PBMs), who act as the middlemen that administer prescription and medical plans. To lower consumer prescription costs, policymakers need to take a holistic approach and look at entire supply chain.
The recent study by the Berkeley Research Group analyses the cashflow and supply chain of brand-name prescription medications without generic equivalents between 2013 and 2018. Despite the fact that brand-name prescription spending has increased dramatically in recent years, the study illustrates how PBMs and providers are receiving a larger and larger share of that spending.
Between 2013 and 2018, middlemen increased their share of cashflow from brand-name drug purchases by 12.5%. If this trend continues, in a few short years the majority of brand-name sticker prices will be for everything except the actual medicine. While competition among drug companies helps to drive down costs, an increasing amount of the discount is captured by middlemen and isn’t being passed on to consumers.
As drug prices continue to rise, and PBMs claim more and more revenue, consumers across the nation are struggling to keep up with the costs. Almost 30% of Americans who take prescription medication say they have skipped doses or split pills to make ends meet.
And soaring prescription drug prices are just one of the many healthcare costs that countless American consumers cannot afford. More than 13% of American adults say they know a family member or friend who has died in the past five years because they couldn’t afford their broader healthcare bills.
Because a handful of PBMs manage major prescription plans, they represent the biggest source of customers to pharmacies. When PBMs provide pharmacies with access to such a large groups of potential customers, they can exert significant leverage over them. This leverage means that, when manufacturers give discounts and rebates PBMs, PBMs can shut out any savings to pharmacists, which means that patients pay more.
Despite promises of lower prices, middlemen such as PBMs have increasingly come under scrutiny due to their lack of transparency and high profits. A report by the American Consumer Institute details how the interests of PBMs are fundamentally misaligned with the interests of both consumers and employers who sponsor prescription drug plans.
Through a lack of transparency and opaque pricing, insurance companies, pharmacists and consumers have little information on what PBMs actually pay manufacturers for a particular prescription drug and what manufacturer discounts are given to PBMs for these drugs.
That lack of transparency allows PBMs to set insurance plan formularies that maximize their profits, rather than minimizing patient costs, and it encourages a price squeeze on pharmacies, as well as advantaging mail order prescription services that are owned by the PBMs. With PBMs profiting on all sides, price transparency, which will heighten price competition, is the answer to eliminating the abuse by these middlemen.
A majority of Republicans and Democrats say that both parties are not doing enough in Congress to lower the cost of prescription drugs. As the November election approaches, candidates for the Democratic party nomination and the Trump administration have touted their plans to lower the cost of prescription medication. But many of these proposals myopically take aim at the innovators and researchers who develop life-saving cures, but not the middlemen who piggyback off American innovation. Transparency will heighten competition and lower drug prices without resorting to government price regulations that would discourage vital research and investment in life-saving medications.
Given the devastating impact of unaffordable prescription medication for millions of Americans, the entire prescription supply chain deserves scrutiny. While manufacturers are just one link in the prescription drug supply chain, PBMs stand out as the major element to consumer price gouging.
If lawmakers from both sides of the aisle are serious about reining in the rising costs of prescription medication, they need to address the problem holistically, and transparency is the answer.
Oliver McPherson-Smith and Steve Pociask write for the American Consumer Institute, a non-profit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.
This piece was published and can be read in The Hill’s Congress Blog.