In an era of inflation fatigue, Americans are desperate for economic relief. From groceries to gas to rent, prices remain elevated, even as broader inflation has finally begun to cool. One of the most persistently frustrating expenses is prescription drugs. The average American now spends over $1,400 per year on medications — a burden on Americans’ wallet that’s grabbed politicians’ attention as the next big campaign issue.
As a result, political candidates are turning their attention to the issue of affordability. It’s a good instinct, and who would object to lower prices and more buying power? But in Arkansas, lawmakers have the wrong solution in mind to the very real problem of drug costs.
Earlier this year, Governor Sarah Huckabee Sanders signed legislation, which has since been blocked in the courts, aimed at curbing the power of pharmacy benefit managers (PBMs), the intermediaries who negotiate drug prices among pharmaceutical manufacturers, insurers, and pharmacies. The law seeks to bar companies like CVS, Cigna, and UnitedHealth from owning both a PBM and a pharmacy — alleging that this vertical integration distorts drug prices and squeezes out smaller, independent pharmacies.
This legislation misreads the economics at hand. PBMs work to contain costs, not inflate them. They negotiate bulk discounts from manufacturers, saving consumers and insurers money.
Yet Arkansas has painted these negotiators as predatory “middlemen” — offering them up as a convenient scapegoat in a time when “doing something,” anything, is applauded more than getting the economic fundamentals right.
But bad policy has consequences.
Restricting ownership of pharmacies by companies who also own PBMs, like CVS, will backfire. The economies of scale offered by these giants allows them to serve customers in more rural, remote areas across states like Arkansas. Under the current U.S. health care model, pharmacy access is inextricably linked to patients being able to obtain the drugs they need. Without them, Arkansans won’t be served by local pharmacies. They’ll be left in a medicine desert.
Although the Arkansas law sits in a legal standstill, the outcome of the state’s efforts will ultimately have national implications. Gov. Sanders’s crackdown may be popular in some political circles, but it’s a dangerous precedent. The cost of medications will truly come down only with marketplace dynamism. Price controls, supply chain interventions and other regulatory measures are flimsy Band-Aids on serious underlying economic conditions.
Markets work best when they’re competitive, not when they’re micromanaged. Banning PBMs from owning pharmacies doesn’t increase transparency or reduce costs; it simply narrows the field of competition.
The reality is that prices are formed by a combination of business decisions by drug manufacturers, insurers, and PBMs — not just the benefit managers. We’ve seen this movie before. From rent control to minimum pricing schemes, top-down mandates always create unintended consequences. Government interventions fail to recognize the ebb and flow of business, from the efficiencies of integration to the entrepreneurial competition of startups.
Rather than gutting PBMs, lawmakers should be focused on reducing regulatory barriers for patients and pharmacists alike, encouraging new entrants to the market and letting consumers choose the most cost-effective options. Reforming scope of practice laws, so pharmacies can offer more services, would lower costs for simple strep throat tests or cold steroids. Expanding access to health savings accounts (HSAs) and letting innovation compete — as seen by Mark Cuban’s Cost Plus Drugs, a direct competitor with PBMs — allow market forces to drive solutions.
Those are reforms rooted in freedom and competition, not bureaucratic interference. They understand the conservative traditions of limited government and free markets.
If the goal is lower drug costs, PBM regulation isn’t the way to get there. Eliminating business models that work, simply because they’re large or integrated, ignores how markets truly function.
Arkansans need more choice, not less. No one wins when the government gets in the way of a system that, despite its flaws, still delivers savings to millions.
Policymakers who want to bring down drug prices should get out of the way. Roll back excess regulations and allow for new health care models. Because when it comes to lowering prices, the invisible hand still beats the iron fist.
Sam Raus is the David Boaz Resident Writing Fellow at Young Voices, a political analyst, and a public relations professional. Follow him on X: @SamRaus1.
Image via Pixabay.