NRPLUS MEMBER ARTICLE I t’s true that, in 2021, U.S. health-care spending grew to $4.3 trillion — nearly $13,000 per person, or 18.3 percent of GDP. And it’s also true that, in a recent report, the Congressional Budget Office (the nonpartisan agency within the legislative branch that conducts economic analyses) noted that prescription-drug costs have nearly doubled since 1980.
However, pharmaceutical interests are spending significant amounts of money to put the blame for these prescription-drug-price increases on pharmaceutical-benefit managers (PBMs) — the companies that manage America’s health plans — rather than the actual culprits that the CBO’s report seemed to uncover, the drug companies themselves.
The CBO report gave two principal reasons for the surge in prescription-drug prices: “higher launch prices for new drugs and growth in the prices of individual drugs already on the market.” In other words, drug manufacturers increase the entry costs of prescription drugs and continue to raise their prices over time.
Pharma is trying to make the case that the reason for these price increases is that the PBMs are, through a process known as “spread pricing,” taking too much of the cost savings they secure from manufacturers for themselves, which is raising the list prices of drugs. This isn’t true.
As Senator Rand Paul (R., Ky.), a medical doctor, made clear, small businesses and start-ups often choose spread pricing because PBMs take on additional risks for themselves. There’s nothing wrong with that, and it’s not increasing the cost of drugs much at all. The drug companies are squarely responsible for those cost increases.
In fact, according to a 2018 analysis, of the $480 billion spent on prescription medications in 2016, $323 billion — more than 67 percent — went straight into pharma companies’ profits, while just 4 percent went to PBMs. As Andrew Langer, the president of the Institute for Liberty, put it, “Pharma basically is eating more than half the pie, while complaining about the one guy with a measly slice in the corner.”
The amount these drug companies are charging American patients is astounding. Take a look at some of the examples Senator Bernie Sanders (I., Vt.) highlighted in a recent Fox News op-ed:
Novo Nordisk is charging Americans with diabetes $12,000 for Ozempic while the exact same drug can be purchased for just $2,000 in Canada. Eli Lilly is charging the American people nearly $200,000 for Cyramza to treat stomach cancer — a drug that can be purchased in Germany for just $54,000. Sanofi is charging America over $200,000 for Caprelsa to treat thyroid cancer — a drug that can be purchased in France for just $30,000. Gilead is charging Americans with non-Hodgkin’s lymphoma $424,000 for Yescarta — a therapy that can be purchased in Japan for just $212,000.
The data speak for themselves: While they haven’t been able to stop every manufacturer-induced cost increase, the rise of PBMs since the 1980s has helped significantly in restraining the artificial inflation of prescription drugs’ shelf prices.
A 2003 review from the Government Accountability Office found that “the average price PBMs obtained from retail pharmacies for 14 brand name drugs was about 18 percent below the average price paid by customers without third-party coverage.” Sixteen years later, a 2019 GAO study supported these findings. It concluded that the drug-price rebates PBMs negotiated “offset Part D spending by 20 percent, from $145 billion to $116 billion.”
The data don’t support the drug industry’s arguments against PBMs, and members of Congress should think twice before supporting the PBM regulatory bill that the major drug companies are clamoring for Congress to move before the year’s end. Putting it on President Biden’s desk for his signature will only exacerbate the pain that the American people are experiencing at the pharmacy counter.
In the words of Senator Paul: “Instead of lowering drug prices, this bill will likely put more money in the pockets of the big pharma CEOs.”
Indeed, and that’s an outcome that everyone should seek to avoid.