When I worked as a family physician in Vermont, I wrote countless prescriptions to help patients manage their health. If I were still practicing medicine, I would undoubtedly be very concerned about my patients’ ability to pay for their medications. Today, patients often fail to fill their prescriptions due to high out-of-pocket costs.
Lawmakers have been trying to expand access to drugs for years, most recently with last year’s Inflation Reduction Act. However, price-based access issues remain. One major reason is the predatory behavior of pharmaceutical supply chain middlemen—Pharmaceutical Benefit Managers (PBMs). It’s time for our lawmakers to curb their profiteering practices.
In theory, PBMs negotiate rebates for insurance companies and manage prescription drug benefits to ensure drug manufacturers offer the lowest possible prices, which should make drugs more accessible and affordable.
In fact, PBMs have developed a system that results in higher drug prices because their revenue depends in part on the list price of the drug. Drug companies raise list prices because they know they will also offer deep discounts. Because of the link between list price and PBM reimbursement, PBMs tend to favor higher-priced, heavily discounted drugs when selecting which drugs receive preferential treatment on insurers’ formularies.
This is fine for insurance companies for two reasons. First, PBMs and insurance companies are the same thing. The three largest insurance companies either own or are owned by PBMs and control 80% of the market. This is oligopoly.
Second, the insurance company charges customers coinsurance based on the sticker price rather than the actual price negotiated by the PBM. Therefore, insurance companies also have a positive incentive to maintain high bid prices. Since there are no federal rules requiring list price discounts to be passed directly to patients taking the drugs, they don’t do so.
Things get worse. Many drug manufacturers offer coinsurance assistance to patients through drug coupons they produce. What’s outrageous is that PBMs/insurers don’t have to count these coupons toward patients’ deductibles or out-of-pocket caps. This way they can immediately recover the patient’s savings.
The wrongdoing doesn’t stop there. To boost profits, insurance companies and PBMs are increasingly adopting “utilization management” strategies that make it more difficult for patients to obtain prescribed medications.
Many insurance companies require doctors to obtain “prior authorization” before agreeing to cover certain drugs and procedures. Another technique is called “step therapy,” in which insurance companies refuse to cover the cost of certain drugs until patients try less expensive alternatives.
As a doctor, policymaker, and human being, I find all of this not only unethical, but shocking. I have heard the anguished voices of patients who have had to skip doses or forego treatment altogether because of these harmful practices.
Not adhering to treatment can have tragic consequences – researchers have studied this in depth, and they estimate that the reasons for not adhering to treatment are as follows: $495 billion additional medical expenditures and more than 275,000 premature deaths each year.
In other words, the problem of not being able to afford medicines isn’t abstract—it’s about numbers.
PBM abuse is so severe that Democrats and Republicans successfully united in support of a Senate reform bill called the Patients Before Middlemen Act. It would decouple PBM fees from drug prices, getting right to the heart of the problem.
This reform will force PBMs to finally compete to negotiate real savings, not just shuffle rents and exploit loopholes. It is easy to implement and does not require new bureaucracy or complex rate-setting schemes.
We have evidence that PBM reform can effectively reduce costs. After a report showed PBM cost overruns in Ohio’s Medicaid program, the state enacted legislation requiring PBMs to pass on 100 percent of rebates and discounts to health plans — decoupling PBM revenue from discounts. The reforms saved taxpayers $128 million in 2022 and are expected to save $184.4 million by 2023, according to the state’s analysis.
Alarmed by rising prescription costs, West Virginia also adopted a PBM. 2017, State officials break down merged PBM functions, assigning critical tasks such as claims processing to specialist vendors.PBM divestiture, according to West Virginia Department of Health and Human Resources Annual savings of $54.4 million By 2018.
The Senate legislation provides a solid federal foundation for further state reform measures. As a physician, I know this policy has tremendous life-saving potential, and as a former governor, I know how leadership in Washington can spur additional state reforms. This bill accomplishes both.
Howard Dean is the former chairman of the Democratic National Committee and former governor of Vermont.
The views expressed in Fortune Star review articles represent solely those of the author and do not necessarily reflect the following views and beliefs: wealth.
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