“The program [Medicare Part D] itself does not negotiate drug prices with pharmaceutical companies. Instead, the government partners with pharmacy benefit managers (PBMs) to leverage its market power and reduce drug prices for seniors in Part D. Insurance companies, unions, large employers, and state governments also engage PBMs in similar arrangements. By representing such a wide swath of the purchasers of prescription drugs, PBMs can use their purchasing power to negotiate lower prices from pharmaceutical companies.
[..] the Department of Health and Human Services has issued a rule that would limit their ability to pass back the rebates they negotiate from pharmaceutical companies to plan sponsors in Part D. This rule comes despite the fact that the Government Accountability Office has found that plan sponsors successfully use these rebates to lower costs for patients and the government.
PBMs reduce Medicare Part D costs to beneficiaries and the government by negotiating lower drug prices; rebates are the mechanism for this negotiation. PBMs obtain rebates from drug companies because of the large number of covered lives they represent. The PBMs then pass nearly 100% of these rebate savings—99.6%, to be exact—back to plan sponsors, who use them to lower premiums, which in turn reduces government outlays for Part D.
[..] The rhetoric on the proposed rule erroneously conflates PBM-negotiated rebates with rising drug prices set by manufacturers, which are two entirely different things altogether. The argument is the equivalent of accusing Costco of causing higher prices at other retail stores simply because it negotiates lower prices for its members.
Imagine if a brand name soda manufacturer doubled the retail price of its product and claimed it had no choice because of the discounts offered at Costco. Consumers would be up in arms—and rightfully so. And yet this is what drug companies do when they wrongfully cast blame at PBMs for their own decisions to raise drug prices.
[..] To counter drug companies’ prices, PBMs help lower the net cost of providing prescription drugs to their clients, but the original and ultimate responsibility for setting those drug prices—and raising them year by year—lies with the drug manufacturers who produce them. This dynamic may explain why the pharmaceutical industry has doggedly attacked PBMs and abetted the notion that they are somehow responsible for high drug prices.
A wealth of research shows that PBMs have been effective at saving money:
- In addition to the Government Accountability Office, the HHS Office of the Inspector General has also found that the rebates PBMs negotiate in Part D lower the costs of premiums for beneficiaries.
- A study by the consulting firm Oliver Wyman found that rebates reduced aggregate drug costs in Medicare Part D by $35 billion.
- Even CMS’ own estimates of the effect of the proposed rule conclude that constraining PBMs in Part D would drive up spending by nearly $200 billion over ten years.
It’s also worth noting that PBMs do more than just negotiate rebates that go towards reducing costs. The marketplace structure of Part D incentivizes PBMs (acting at the behest of Part D plans) to steer patients to generic drugs whenever possible to drive costs down. PBMs also have tools that improve the utilization management for beneficiaries who have a high number of prescriptions. One study suggests that these tools can save as much as $2,000 per beneficiary per year.”
Full article, Brannon I. Forbes, 2020.10.7