Biden administration plan to cut high drug prices mostly quiet on middlemen

By: - September 14, 2021 6:00 am

Prescription drugs sit on a pharmacist’s counter. Photo by John Moore/Getty Images.

The U.S. Department of Health and Human Services last week issued a plan to address high drug prices as part of President Joe Biden’s push to take on anticompetitive practices across the economy.

Although it addressed in detail abusive practices by drugmakers, the plan was more superficial about the practices of some of the country’s largest insurers, as well as corporate behemoths that serve as drug middlemen.

The report was produced by HHS and forwarded last week to the White House Competition Council pursuant to Biden’s July 9 executive order that seeks to promote competition in the economy.  

The council held its first meeting on Friday.

The report notes the harm being done by rapidly rising prices in the $370 billion drug marketplace, where medicine costs almost twice as much as it does in other countries in the Organization for Economic Cooperation and Development, a 38-member group of mostly developed economies.

“Americans pay too much for prescription drugs,” the report reads. “We pay the highest prices in the world, which leads to higher spending. Higher spending puts pressure on private and government payers to raise premiums or make benefits less generous. Lack of affordable access to prescription drugs and other health care services leads to worse health outcomes.”

Most of the solutions it offers deal with manufacturer abuses.

For example, it takes on a practice called “pay for delay,” in which a maker of a brand-name drug with exclusive access to the market pays generic competitors to delay bringing their products into the fray, thereby keeping up prices.

The report also proposes methods to promote production of generic and biosimilar drugs, and it proposes to bring down costs through direct negotiations between Medicare — the nation’s largest drug buyer — and drug manufacturers.

The plan is much lighter on proposals vis a vis pharmacy benefit managers — middlemen who handle the transactions and are known as PBMs. That marketplace is dominated by three corporations that are among the country’s 15 largest, and they’re also huge players in insurance and pharmacy industries. That industry has been facing new, bipartisan scrutiny in recent years. 

The rebates that PBMs negotiate with manufacturers have been shown to increase the list prices of brand-name drugs, and the companies are also suspected of playing a big role in keeping prices of generics artificially high.

Critics have said that a lack of transparency in PBM rebate negotiations leads them to believe the companies are profiting handsomely at the expense of everyone else. 

“We’ve been working for years to create clarity in the supply chain,” said James Gelfand, senior vice president of ERIC, a group of major employers who provide insurance to 10 million people, in a recent interview. “You’ve got the drugmaker, who gives us a number for what the drug costs. But by the time it gets to us, nobody can explain where this number came from or why it is that number. So we’ve been trying to do our best to peel away the onion and get a better understanding.”

For their part, the PBMs say they use their clout to bring down prices for consumers. But they’ve fought to keep rebate information secret, including, apparently, by creating new purchasing organizations that will form yet another link in the supply chain.

The HHS report released last week acknowledged the importance of PBMs in drug pricing.

Referring to questionable practices by drugmakers, the report says, “They also pay PBMs rebates to cover their drugs, with no guarantee that the savings will be passed on to patients.” 

The report continues: “PBMs use their market power to collect fees from independent pharmacies. The three PBMs that manage 77% of prescription claims have consolidated with major health insurance companies, and one of them is also the largest pharmacy/mail-order chain. Firms in the pharmaceutical supply chain currently have limited or no incentives to reduce drug costs and challenge anti-competitive actions.”

Despite those concerns, the report doesn’t advocate for scrutiny by trust-busting agencies such as the Federal Trade Commission or the Justice Department’s Antitrust Division. It does, however, mention one transparency initiative.

The U.S. Centers for Medicare and Medicaid Services is requiring PBMs representing health plans in the Affordable Care Act marketplace to provide rebate and other information. “Data collection from PBMs is expected to begin in 2022,” according to the report.

This article was originally published by Ohio Capital Journal, which is part of States Newsroom. Follow Ohio Capital Journal on Facebook and Twitter.

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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017 and coming to the Ohio Capital Journal in 2020. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.

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