While members of Congress agree on the need to try to rein in the prices of prescription drugs, there is less consensus as to how this might be accomplished. Unfortunately, some of the ideas currently being considered would have the unintended consequences of reducing competition in the marketplace, and ultimately raising drug prices even higher.
One such misguided idea is a bill the Senate Commerce Committee will consider this week that would give the Federal Trade Commission the authority to limit the ability of pharmacy benefit managers (PBMs) to negotiate lower drug prices from drug companies. If passed, it would serve to increase drug costs and worsen health outcomes for many people who take prescription drugs.
Today, pharmaceutical companies have considerable power to set the prices for their drugs. Pharmacy benefit managers, with the collective bargaining power of millions of Americans, can use their leverage to negotiate lower prices. If the two parties can’t reach an agreement, the PBM often has the ability to exclude a manufacturer’s drug from preferred placement on a formulary, thus preventing the pharmaceutical company from reaching a large segment of the market and leaving it with greatly reduced sales. To prevent this, as part of negotiations, drug companies must put forward price reductions–a victory for patients.
The Federal Trade Commission has undergone a seismic ideological transformation under the Biden Administration, pivoting from its previous objective of keeping prices low and protecting consumers towards a more overt political agenda. To this end, it has greatly increased its scrutiny on the perceived market power of vertically-integrated industries such as health insurance and PBMs. Rather than focus on consumer well being, the FTC’s proposed interventions are intended first and foremost to reduce the market power of PBMs, even though one outcome from doing so would be increased costs of prescription drugs for healthcare plans and their members.
A summary of academic research that we published last year showed that efforts to limit the power of PBMs would increase drug costs by tens of billions of dollars every year, and research from the Congressional Budget Office and the Government Accountability Office has shown that hindering PBMs’ negotiating power against big drug companies carry a high price tag for patients and taxpayers. For instance, one proposal from the Trump Administration to limit the use of PBMs in Medicare Part D would have cost seniors and taxpayers $177 billion in higher drug costs and steeper Part D premiums.
Republicans have railed against overreach and policy whiplash at the FTC, but some Senate Republicans have signed onto legislation that would empower Chair Lina Khan’s FTC to disrupt market competition in the prescription drug market and increase prices for consumers. Khan’s agenda prompted Commissioner Christine Wilson, the last Republican-appointed FTC commissioner, to announce her resignation this week, saying that she refused “to give their endeavor any further hint of legitimacy by remaining.”
The PBM Transparency Act would eliminate or restrict many of the commonplace tools that pharmacy benefit managers use to keep drugs affordable and protect American patients from rising drug prices. Members of Congress will no doubt spin these restrictions as being pro-consumer, but in the Alice in Wonderland world that apparently governs economic regulations these days, the mere fact that a business practice saves money and improves health outcomes is irrelevant to the political agenda FTC Chair Khan – and the senators backing her agenda with this bill – are inclined to pursue.
Congress should drop its attacks on Americans’ pharmacy benefits and look for genuine solutions to the high prices of prescription drugs that aren’t thinly disguised favors for stakeholders.
Anthony Lo Sasso, a professor of economics at DePaul University, co-authored this article.
