Managing prescription prices

MYRNA BROWN, HOST: Coming up next on The World and Everything in It: middlemen and drug prices.

Last week, the Federal Trade Commission released an interim report that accused certain workers in the prescription drug supply chain of artificially inflating drug prices.

MARY REICHARD, HOST: Those workers are called pharmacy benefit managers, or PBMs. They have great influence over where prescription drugs go and at what price.

Think of a talent agency in Hollywood. Not a perfect analogy, but they negotiate between talent and studios… much as PBMs negotiate among insurance companies, pharmacies, and manufacturers to try to lower drug prices.

BROWN: The Wall Street Journal reported last week that the FTC is poised to sue the three largest pharmacy benefit managers for unfair business practices. Meanwhile, President Joe Biden has touted his efforts to lower drug prices by cutting out PBMs altogether.

Some analysts wonder whether that action is based on evidence or politics. WORLD Radio’s Mary Muncy has our story.

JOE BIDEN: He wants to get rid of… the ability for us to negotiate with Big Pharma companies.

MARY MUNCY: During last month’s presidential debate President Joe Biden accused former President Donald Trump of wanting to keep drug prices high. Then Biden touted his own record on lowering drug costs by allowing Medicare to negotiate directly with pharmaceutical companies for the first time.

BIDEN: We got it down to… $35 dollars for insulin instead of $400 dollars.

The administration changed the rule two years ago with the Inflation Reduction Act, and now it’s starting to go into effect. Right now, the legislation only applies to ten high-cost drugs, things like heart medication and blood thinners—and those negotiations will finish in 2026. Then the administration plans to expand that to more drugs.

Biden says just the insulin savings will be significant.

BIDEN: That reduced the federal debt by 160 billion dollars in the next ten years because the government doesn’t have to pay the exorbitant prices.

President Biden’s plan effectively cuts out pharmacy benefit managers.

After the change, several pharmaceutical companies sued the administration, saying the rule is unconstitutional and could stifle innovation by effectively implementing price controls.

So what are PBMs and why are they there?

AARON KESSELHEIM: It is an organization that is oftentimes an outshoot of your health insurance company that manages your prescription drug insurance coverage.

Aaron Kesselheim is a primary care doctor, lawyer, and professor at Harvard Medical School.

KESSELHEIM: They take steps to try to ensure that you are taking the medications that your physician prescribes you, and they negotiate with pharmaceutical companies regarding the price of the drug.

The first PBMs started in the 70s and became more common over the next 20 years as drug prices started to rise and insurance companies began covering prescription costs.

KESSELHEIM: We don't have a system of negotiating drug prices at the at the government level, as as happens in every other high-income country.

So, PBMs started to act as buyers clubs—negotiating bulk prices between insurance companies, manufacturers, and pharmacies.

Kesselheim says PBMs started off as helpful middlemen, but over the last two decades, they’ve likely become too integrated to effectively negotiate.

KESSELHEIM: PBMs have merged with each other, and they have merged with other players in the pharmaceutical supply chain, including specialty pharmacies and larger general purpose insurance companies.

The FTC’s report says that vertical and horizontal integration means PBMs don’t have the right incentives to get the lowest prices for consumers.

And now, the report says three of the largest PBMs manage nearly 80 percent of the prescriptions filled in the U.S.

KESSELHEIM: I think that's why the FTC exists; to try to ensure that consolidation occurs for the benefit of consumers, rather than in ways that can, that can hurt, hurt consumers.

Kesselheim pointed to PBMs allowing the list prices of drugs to be high and then negotiating rebates. He says that works for a lot of patients, but hurts those who don’t have insurance or who have to pay their coinsurance based on the list price.

Kesselheim says the Inflation Reduction Act could also help fix that.

KESSELHEIM: What Biden is suggesting we do is negotiate the list prices to try to restrain the list prices from from getting too high.

He says the model could be expanded to the private market.

But not everyone thinks PBMs are the problem.

JOEL ZINBERG: No one forces any of the participants in the drug distribution market to use PBMs.

Joel Zinberg is a physician and economist with the Competitive Enterprise Institute.

ZINBERG: Most of the health plan sponsors are pretty sophisticated entities, yet they've all chosen to use PBMs. And then, same token, all the other participants, the men, the manufacturers, the wholesalers, they're all negotiating with PBMs, and they're doing it because they find value in the PBM services.

The FTC has investigated PBMs before and not only did they find fair trade practices, they also reported that PBMs were saving consumers money.

But the FTC’s interim report didn’t grapple with that research. Instead, one of the commissioners that voted for releasing the report said they based most of their findings on public comments. Another one said releasing an interim report is rare and they didn’t have enough information to analyze the market.

ZINBERG: They've relied on two case studies of cancer specialty drugs, without any indication that these are generalizable to the entire market.

FTC Commissioner Melissa Holyoak dissented in the vote to release an interim report. She accused the commission of using inflammatory language for political purposes.

ZINBERG: Melissa Holyoak said that this report fails to address how PBM practices are affecting consumer prices, and she's absolutely right on that score, and that's what's missing.

Zinberg says it doesn’t always make sense to cut out the middlemen. Stores like Costco provide value for consumers, because they have a lot of buying power and can negotiate discounts for buying in bulk. He says the same principle holds for PBMs, and even as PBMs, pharmacies, and manufacturers integrate, he says there is enough competition in that market to keep consumer costs low.

For now, the FTC says it will be conducting more research and it’s not certain what its next action will be.

But no matter what the outcome, Kesselheim says the goal should be to help patients.

KESSELHEIM: I think the PBMs play a very important role in the healthcare marketplace right now. But they've also developed those negotiating strategies in ways that don't always help every patient. And that's the kind of… opportunity for the Federal Trade Commission to investigate to make sure that that on net, they help patients rather than hurting them.

Reporting for WORLD, I’m Mary Muncy.

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