Strange bedfellows agree: PBM pricing reform cannot stop at Medicare, Medicaid

Regular readers of this newsletter know that pharmacy benefit managers have come to be an increasingly consistent focus of my writing. This ties back firmly to my old Cigna days when I quickly learned that the need to satisfy Wall Street’s short-term profit expectations drove all activities and decisions. 

I wrote earlier this month about the fact PBMs extract nearly half of all the money spent by taxpayers and patients enrolled in the Medicare Part D prescription drug program. Numbers like those, which are yielding burgeoning profits for PBMs and their insurance company overlords, have driven historic and bipartisan proposals, which I wrote about last fall, to rein in runaway costs in Medicare and Medicaid. A reminder: three PBMs owned by UnitedHealthcare, CVS/Aetna, and Cigna control more than 80 percent of the pharmacy benefit market. 

The momentum to address PBM profiteering on both sides of the aisle is promising. But it is important that Congress not stop at imposing reforms on PBMs – like greater transparency and ensuring that rebates from drug makers actually make it through to patients – only in Medicare and Medicaid. On this, curiously, I find myself in agreement with a longtime insurance industry ally whose work I used to cite frequently when I was Cigna’s VP of corporate communications. 

Sally Pipes, president of the Pacific Research Institute, came to the U.S. from Canada and–to my former colleagues delight–has been a reliable and vocal critic of health care reforms that might lead the U.S. down the “slippery slope” toward a Canadian-style health care system. Pipes, as I wrote about in 2020 in The Washington Post, was a key source insurers turned to frequently to condemn the creation of a public insurance option during the debate on what became the Affordable Care Act. Pipes argued that our northern neighbor’s government-financed health care system was beyond broken. With her help, the insurance industry succeeded in keeping the public option out of the final bill. 

Today, though, Pipes and her organization have become leading critics of the business practices of PBMs, one of two big cash cows for Big Insurance (the other being the government-run Medicare and Medicaid programs). In Forbes, the Pacific Research Institute’s Wayne Winegarden recently said:

[S]ome conservative groups mistakenly claim that reforming PBM practices would push the healthcare system ‘one step closer’ to a complete socialized system. Nothing could be further from the truth. … PBMs, and their affiliated insurers, earn more revenue when medicines have high list prices because high list prices enable PBMs to negotiate larger discounts. Since PBM compensation is based on the size of the discount, the larger the discounts, the more revenues they earn. Consequently, PBMs prefer drugs with artificially high list prices.

Unfortunately, Winegarden’s essay hasn’t yet reached all of the country’s conservatives. Late last year, a group opposing a compromise on PBM reforms proposed by Senators Bernie Sanders (I-VT) and Bill Cassidy (R-LA) launched attack ads citing the bipartisan nature of the compromise as a negative. The Paragon Health Institute, a new Republican policy think tank that is an outgrowth of the Trump administration, also has argued those reforms – which would require PBMs to be transparent about their pricing of drugs – are anti-free market. 

Understanding this schism among conservative health care thinkers is important, particularly to ensuring PBM reforms moving through Congress ultimately go beyond Medicare and Medicaid to cover all employer-based insurance plans. 

While the percentage of Americans insured through an employer continues to decline, tens of millions of us still receive insurance that way. And high drug costs for patients are increasingly borne by companies–and their workers–in the form of higher premiums and out-of-pocket requirements. Moreover, larger, self-insured companies increasingly are feeling the exploding cost of prescription drugs, driven largely by the  profiteering of PBMs in the drug supply chain. 

As my newfound friends at the Pacific Research Institute write, burdening employers or the federal government with higher drug costs to support higher PBM profits is not a free-market concept – in the public or private sector. Runaway consolidation by the health insurance industry has led to an oligopoly–a market distortion that is the opposite of “free market.” Business-friendly conservatives in Congress should take note of the pro-patient bipartisan reforms senators like Sanders, Cassidy, Ron Wyden, Mike Crapo, and a host of other Ds and Rs are pushing. Those proposals would save the federal government billions of dollars in wasteful Part D spending–and untold sums to private companies and their employees in the employer-sponsored insurance space.

What, truly, could be more conservative than a health care law that addresses fraud and waste–and profiteering–and that would lower prescription drug costs for CEOs and rank-and file workers and their families?