Drug manufacturers are root cause of high drug costs; PBMs drive costs down

It should come as no surprise that pharmacy benefit managers (PBMs) applaud Congress for recent bipartisan action to further delay the rebate rule as part of legislation to address gun safety and mental health. In the long-running debate on lowering prescription drug costs, the rebate rule is the poster child for the counterfactual on how to achieve that objective.

Whenever I write, I like to rely on solid facts and evidence. So once again, I will cite several data points, all of which come from government agencies and objective, reputable third-party sources that underscore that the rebate rule does not reduce drug costs. The Congressional Budget Office (CBO) calculated that the rebate rule would increase taxpayers costs by $177 billion over 10 years, and the U.S. Department of Health and Human Services Office of the Actuary issued a report that Medicare beneficiary premiums would increase by as much as 25 percent, to the benefit of drug companies who would see their profits increase.

Obviously, any policy that raises drug costs for Medicare beneficiaries should be carefully considered. Especially now, given that most older people live on fixed incomes, the recent 15 percent increase in Medicare Part B premiums, and what may be persistent inflation, the rebate rule should be permanently repealed.

We acknowledge that too many patients cannot afford their prescription drugs, and Congress and the administration rightly continue to examine policies that would help reduce drug costs. And we also recognize the importance of pharmaceutical innovation to bringing new treatments to the market for patients. We need affordability, and we need access to medications. This brings us to the bigger picture dynamic beyond the rebate rule that should be addressed.

Unfortunately, instead of engaging in a constructive, pro-solution dialogue, the pharmaceutical industry continues to push a false narrative on the role of PBMs. It is commonplace to see a news article announcing a new seven-figure drug manufacturer advertising campaign. While flashy and ubiquitous, these campaigns boil down to political noise heard in Washington D.C. that distracts from recognizing a simple fact: that only drug manufacturers have the power to set the list prices for their products.  

To repeat, health care can be complex, but what’s easy to grasp — even with distracting seven-figure advertising campaigns — is which entities can set and raise prescription drug prices: It’s drug companies themselves.

Here are two more empirical, objective studies that demonstrate this fact. Studies published in the Journal of American Medical Association (JAMA) show that drug companies are raising list and launch prices with wild abandon. One analysis found that for 500 drugs launched between 2008 and 2021, launch prices increased from an average $2,115 per year in 2008 to $180,000 per year in 2021. A separate study found that list prices of brand drugs on the market increased by 159 percent from 2007 to 2018.

Given this eye-opening information on drug company price setting, it’s no surprise they are the primary drivers of a narrative attempting to deflect blame for escalating drug prices.

The irony of this finger pointing is that PBMs are the only entity in the drug supply and payment chain dedicated to lowering drug costs for patients. Without PBMs, prescription drugs would be unaffordable for millions of patients.

PBMs use their expertise and market scale to negotiate with drug manufacturers for rebates and discounts. The savings achieved through PBM negotiations are passed along to the employers, unions, and others sponsoring health benefits, who typically use them to lower premiums or to reduce the cost sharing consumers pay at the pharmacy. In Medicare Part D, PBMs pass along 99.6 percent of rebates to Part D plan sponsors, and in the commercial market, they pass along 90 percent or more.

And now for the objective, third-party evidence to confirm this dynamic: the U.S. Government Accountability Office (GAO) and the U.S. Department of Health and Human Services Office of the Inspector General (HHS OIG) recently released reports showing that PBM-negotiated rebates lower prescription drug costs in Medicare Part D.

We urge policymakers, and everyone interested in lowering prescription drug costs, to rely on objective organizations, like the CBO, the GAO and the HHS OIG, for accurate data that can help guide decision-making on policies to bring down prescription drug costs.

While looking at the facts, don’t forget another important truth, which is that drug companies alone set and raise drug prices.

JC Scott is president and CEO of The Pharmaceutical Care Management Association (PCMA), the national trade association representing America’s pharmacy benefit managers.