To help patients save money, Congress needs to tackle the middlemen in health care | Opinion

As a Republican-controlled House of Representatives with a small majority opens for business in January, one member has especially big ideas for saving patients money on prescription drug costs — and the research to back it up.

A year ago, Rep. James Comer (R-KY) released a comprehensive report on the role of pharmacy benefit managers in the nation’s healthcare system. The result does not make for pleasant reading. It is largely a tale of how greedy middlemen have taken advantage of existing legal loopholes and lax oversight to create an industry that raked in $28 billion in profits in 2019 — while providing no actual healthcare to patients.

Only in America can rent seekers dream of milking the system on a scale like this. Come January, Rep. Comer is likely to be wielding the gavel as Chair of the House Committee on Oversight and Reform, where he has been the ranking minority member since 2020. There, he will have a great opportunity to shape reforms that will save Americans real money on prescription drugs.

Insurers use pharmacy benefit managers to negotiate with drug makers on terms for the inclusion of medications in insurance plan coverage. In fact, however, the three biggest PBMs, which account for nearly 80 percent of prescription claims, are co-owned alongside respective massive insurers like Cigna and pharmacy behemoths like CVS Caremark. The result is an interlocking daisy chain for extracting maximum profit from consumers and payers such as employers and federal and state governments — all while deflecting blame for increasing drug costs away from themselves and onto drug makers.

For example, PBMs derive substantial revenue from the share they take of the manufacturer’s “list price” for a medication. The higher the list price, the bigger the cut for the PBM. That creates an incentive for PBMs to favor more expensive medications — exactly what patients don’t need.

Indeed, there’s evidence that to remain competitive with PBMs, drug makers have set list prices higher in expectation of large forthcoming discounts — a move that passes none of the discounts directly to patients but allows PBMs to extract increased revenue for their bottom line.

Insurers, meanwhile, charge coinsurance payments and count toward deductibles patient out-of-pocket costs based on the list price of the medication — not the discounted price the insurers actually pay. Insurers like this arrangement just fine because it allows them to crank up their own revenue without raising premiums.

Insurers and their PBMs also pressure consumers to obtain medications through their own respective pharmacy groups. That can take the relatively benign form of an endless barrage of emails from insurers urging beneficiaries to switch their prescriptions in-house. For instance, Cigna’s marketing campaigns regularly advertise the insurer’s home delivery pharmacy, Express Scripts. In more severe cases, PBMs can discriminate against independent pharmacies by offering lower reimbursement rates and excluding them from insurer networks.

Altogether, this conduct has become so parasitic that more than 50% of each dollar spent on brand-name medicines now goes to middlemen entities. This is indeed a portrait of greed on the make — but not on the part of the drug makers getting scapegoated.

If lawmakers and regulators at the Federal Trade Commission and elsewhere were doing their jobs, this would all be illegal and patients would save big. Instead, many lawmakers have been happy to look the other way while pointing a finger at “Big Pharma” and pocketing campaign contributions from PBMs and allied grifters.

In 2018, researchers found that Medicare Part D recipients paid a total of $2.6 billion more on over 180 generic medications than they would have spent paying cash for the same drugs at Costco. That’s a disgrace to the millions of patients who depend on drug benefits from Medicare and Medicaid to survive.

Rep. Comer hits the nail on the head with his main reform push: meaningful transparency among PBMs. Consumers deserve to know who’s paying what to whom for prescription drugs.

Healthcare reform must allow patients to make informed choices about their care. Greater transparency for PBM practices is the starting point. Next up should be the shocking requirement that drug discounts ostensibly for patients get passed on to patients, not sucked up by middlemen.

Sally C. Pipes (@sallypipes) is president, CEO, and Thomas W. Smith fellow in Health Care Policy at the Pacific Research Institute.