If you wanted to design a health insurance system to keep drug prices high, you’d build exactly what the United States has today: a marketplace where patients never see real prices, can’t compare options, and are steered toward expensive drugs because pharmacy benefit managers (PBMs) profit the most from them. Instead of competition disciplining prices, backroom negotiations determine what medicines people take and how much they pay—and consumers bear the cost.
Drug prices can be inflated by various factors, but the most important today is that most medicines are disconnected from the market forces that would drive prices down. The medicines patients routinely take—and what those medicines cost—are determined not only by doctors, but also by PBMs and pharmaceutical manufacturers behind closed doors. Patients are cut out, often leaving them purchasing more expensive drugs that generate larger rebates for PBMs instead of less expensive generic alternatives. This disconnect prevents consumers from choosing lower-cost medicines.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization that advocates for consumers through evidence-based analysis and data. Follow Justin on X @JustinLeventhal.