Health care costs are rising at an unsustainable rate. As a former small business owner, I’ve experienced these rapidly rising costs first-hand. Over the years, I’ve also heard from doctors (like my father), pharmacists and countless patients about different factors that unnecessarily drive health care costs higher. One frequent complaint is that middlemen create waste, especially in the area of prescription drugs.
For many Americans, the structure surrounding the pricing and delivery of prescription drugs is murky and confusing. The system suffers from a lack of transparency that has facilitated waste and overspending. Most Americans have never heard of the pharmacy benefit managers (PBMs) that serve as the middlemen between drug manufacturers and health care plans. Patients don’t know why one drug might be included in a plan and cost less while another drug costs more, and they’re unaware of the system of prescription fees paid by manufacturers or who gets these fees. That’s why Congress should take steps to shed light on the system — and reduce waste and overspending in the process.
The Pharmacy Competition and Consumer Choice Act (H.R. 1971/S. 1058) accomplishes these goals. This bipartisan legislation does not increase spending or place onerous regulations on businesses. Its cost-saving mechanism is a simple requirement to bring transparency to the often-shadowy operations of PBMs. While PBMs are supposed to save money for plans and patients, they serve as middlemen making vital decisions that often drive up health care costs.
Employers, the government and other health plan providers contract with PBMs to manage the prescription drug components of their plans. However, this system often results in increased costs. The Office of Personnel Management’s inspector general has testified that the federal government is likely not getting a good deal from PBMs due to the lack of transparency. The following two examples illustrate some of the ways that PBMs are pursuing financial gain at the expense of the health plan providers (and ultimately the patients) that are supposed to be the “clients.”
First, PBMs often receive rebates and other revenue (fees, etc.) from drug manufacturers for promoting a particular medication. However, much of those savings can be pocketed by the PBM rather than passed along to plan providers and patients. For example, the PBM may be retaining significant revenue from manufacturers that it decides to categorize as something other than a rebate.
Second, the PBMs routinely charge the plan provider more for a claim than they reimburse the pharmacy — a practice called “spread pricing” — without notifying the plan provider of this information. As a Wells Fargo Insurance Services executive recently told Employee Benefit News, PBM spread pricing can drive the $300 annual cost of medication therapy for a patient with hypertension up to $2,000 or above. Yet most people are unaware of this practice even though they pay for this extra cost.
These practices drive up the price of government-sponsored plans — a price borne by taxpayers — and force people with private plans to pay higher insurance premiums.
While the PBMs claim transparency would lead to increased costs, the HR Policy Association estimates that using a transparent PBM contract saves employers up to 9% annually. That’s because in a transparent system if a PBM is not passing through rebates as promised or is engaging in spread pricing, plan providers can shop for a PBM that will give them a better deal. Transparency lets the markets work — and brings costs down for patients.
Both Republicans and Democrats claim reducing health care costs as a top priority. The Pharmacy Competition and Consumer Choice Act is a bipartisan measure that will bring down costs while avoiding many of the current ideological debates in Congress. It is a simple solution that can be an important first step to reducing health care costs while fostering bipartisan discussion about additional areas where we can eliminate waste and be responsible stewards of the taxpayers’ money.
Rep. Austin Scott, a Republican, represents Georgia’s Eighth Congressional District.