Crack down on PBMs inflating drug costs

by Howard Dean

U.S. Sen. Raphael Warnock just introduced a bill that would cap Americans’ out-of-pocket spending on insulin at $35 a month. The legislation would be a godsend to patients battling diabetes. Many of them currently face hundreds of dollars in monthly out-of-pocket costs — an unaffordable burden for many low- and even middle-income Americans. These patients often skip injections and self-ration their insulin at enormous risk to their health, since untreated diabetes can lead to blindness, limb amputations and even death. Diabetes patients account for a quarter of all U.S. health care spending.

It’d be political malpractice for my fellow Democrats to not pass this much-needed bill — but it’d also be a huge mistake to stop there.

Hundreds of common medicines — not just insulin — are unaffordable for ordinary Americans because middlemen in the drug supply chain inflate patients’ out-of-pocket costs. Shining sunlight on these middlemen’s practices would help all patients, not just those with diabetes.

Some of the health care industry’s most powerful actors exist in the shadows. These pharmacy benefit managers, or PBMs, work on behalf of insurance companies and haggle with drugmakers for bulk discounts.

Since PBMs decide which medicines are included on insurance plans, they have immense leverage. In 2020 alone, drug companies gave out $187 billion in discounts and rebates, largely to PBMs. Those discounts often reduce the net price of various brands of insulin by 70%.

A tremendous win for patients, right? Wrong. PBMs keep a share of those discounts for themselves and pass the rest on to insurers, which use the savings to reduce premiums by a few dollars per month for all enrollees. That delivers only minor benefits to sick patients who rely on prescription medicines.

And because PBMs generally pocket a set percentage of the discounts, they’re incentivized to pressure drug companies to raise nominal “list” prices — but then demand bigger rebates. That’s why the net, after-discount price of insulin has actually gone down in recent years, even as list prices and patient out-of-pocket costs have climbed. This business model inflates patients’ out-of-pocket spending. Imagine a drug company nominally charges $100 for a particular medicine, but a PBM negotiates the real, discounted price down to $30.

A patient with a 20% coinsurance obligation would still pay based on the list price, so he’d fork over $20 — instead of the $6 he’d owe if his coinsurance were 20% of the net price! These practices have raised eyebrows at the Federal Trade Commission, where President Joe Biden-appointed Chair Lina Khan is fighting for an investigation into PBMs’ immoral and anti-competitive practices. The FTC has even gone as far as asking for the public’s input about how PBMs are driving up costs while restricting access.

This is a winning issue for Democrats as eight in 10 Americans say they pay too much at the pharmacy counter, according to the nonpartisan Kaiser Family Foundation. Americans gave Democrats the White House and majorities in both houses of Congress — it’s time to deliver. Sen. Warnock and his Democratic colleagues deserve praise for tackling the insulin affordability crisis. Patients die every year because they can’t afford to fill their prescriptions. But lawmakers shouldn’t overlook the middlemen responsible for the high out-of-pocket costs of hundreds of drugs, not just insulin.

It’s time we crack down on companies that see no problem with lining their pockets while patients are dying.

Howard Dean is the former chair of the Democratic National Committee and former governor of Vermont.