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This Common-Sense Legislation Would Drive Down Patient Drug Costs

Incubate Coalition

Lawmakers have an opportunity to solve a hot-button issue before Christmas -- the needlessly high prices patients pay for prescription medicine. And they can do it without resorting to price setting or other policies that discourage investment in pharmaceutical innovation.

 

Two bipartisan bills before Congress would lower costs for patients and hold pharmacy benefit managers (PBMs) to account for inflating drug prices.

 

PBMs serve as middlemen between drug companies and insurers. They negotiate discounts from the manufacturers and decide which drugs will be included on health-plan formularies. As payment for this service, PBMs take a percentage of the agreed discount, and those discounts are bigger when the drug has a higher list price. Additionally, the administrative fees PBMs receive are based on a percentage of a drug's list price, which gives PBMs the perverse incentive to select higher-priced drugs for formulary placement.

 

Regrettably, while the PBMs pocket high fees, the savings they negotiate don't get passed on to patients. Despite the discounts, health plans still charge patients out-of-pocket costs that are proportional to a drug's full list price.

 

In short, this payment system gives doctors and patients little choice but to select the expensive drugs that PBMs prioritize for the formulary -- regardless of effective alternatives and all while delivering none of the negotiated savings to patients.

 

And since this broken system only incentivizes PBMs to negotiate the best deal for themselves and their clients -- not to ensure that patients get the drug that's best for their needs -- it also has ripple effects for investing in drug development.

 

When PBMs restrict formularies, that makes it harder for biotech startups to compete in the healthcare market. Patients will miss out on life-changing drugs, and the venture capitalists who fund these startups won't recoup their investment. They'll fund alternate projects, and startups may not receive the necessary capital to transform their ideas into new medications.

 

Lawmakers should urgently pass the bills aimed at addressing these issues and could do so in an end-of-year legislative package. The Modernizing and Ensuring PBM Accountability Act would change the way PBMs make money by delinking their payment from the list price of a drug. Meanwhile, the Better Mental Health, Lower Cost Drugs, and Extenders Act would require PBMs and health plans to pass savings from drug discounts on to patients.

 

These two common-sense, bipartisan proposals would force a murky, cost-inflating industry to operate transparently and bring direct savings to patients across the country.

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