In case you missed it, an expert witness who testified before the U.S. House Committee on Oversight and Accountability during a hearing yesterday on pharmacy benefit companies underscored that misguided policies targeting pharmacy benefits will lead to higher prescription drug prices.
During the hearing, expert witness Rena M. Conti Ph.D., associate professor in the Department of Markets, Public Policy, and Law at Boston University, was asked what would happen if Congress targeted pharmacy benefit companies without holding big drug companies accountable for high prescription drug prices:
Congressman Maxwell Frost (D-FL-10): “Professor Conti, as an expert on drug pricing and affordability, can you tell us [if] breaking up PBMs without addressing the drug manufacturers’ role [will] guarantee that drug list prices will fall to more affordable levels?”
Dr. Conti: “No, in fact we expect prices will go up.”
Dr. Conti also explained why drug companies are able to raise the price of drugs: “Drug prices are set high in the United States because simply drug manufacturers can charge them and we will pay them.”
Pharmaceutical Research and Manufacturers of America (PhRMA), who also testified, used the hearing as an opportunity to target pharmacy benefit companies in an effort to avoid accountability for drug prices.
Let’s take a look at some of the various inaccurate claims made by the pharmaceutical industry during the hearing:
PhRMA Claim: “Seven cents out of every healthcare dollar is what is attributed to brand name medicines.”
Fact: Drug manufacturers retain 65 percent of the prescription drug dollar and according to The Schaeffer Center for Health Policy and Economics at the University of Southern California (USC). The gross margin on brand drugs for manufacturers is a whopping 76 percent compared to just two percent for pharmacy benefit companies.
PhRMA Claim: “Typically, rebates exceed 50 percent or more on average for prescription medicines.”
Fact: Average rebates are nowhere near 50 percent. The vast majority of prescription drugs actually do not have rebates. Rebates are only negotiated on brand name drugs that face competition, so many of the most expensive branded medications have no rebates. One study published in the JAMA Health Forum that looked at rebates for commercial market plans found that median rebate percentages were 22 percent for large group plans in 2019.
PhRMA Claim: PBMs are part of a “highly consolidated, vertically integrated market.”
Fact: The pharmacy benefit company market is competitive and diverse, with 73 full-service pharmacy benefit managers (PBMs) in the marketplace, up from 66 in 2019. Recent research has even found that in the commercial market, the top two pharmacy benefit companies across every state include 14 different PBMs. In fact, Congressman Burlison (R-MO-07) compared the pharmacy benefit market to the home improvement market:
“We’ve heard a lot about the 80 percent number. And while it sounds extremely disturbing, I just looked up in the short time that I’ve had…are you aware…that Lowe’s, Home Depot and Menards compose 87 percent of the home improvement market? Can you imagine the impact on consumers? Oh my goodness. Can you imagine how much they are putting the squeeze on Black and Decker and DeWalt right because if DeWalt and Black and Decker want to sell their products they’ve got to deal with Lowe’s and Home Depot, right?”
PhRMA Claim: Pharmacy benefit companies “limit patients’ ability to access lower-priced medicines.”
Fact: 90 percent of prescriptions filled are generics, in large part thanks to pharmacy benefit companies who promote access to generics and competition from more affordable options. According to University of Chicago economist Casey Mulligan, the work PBMs do to promote competition results in an estimated additional 15 percent of drugs dispensed as generic. When generics are available, they are dispensed 97 percent of the time. A peer-reviewed research study also concluded that, “Overall, we found that most [Medicare] Part D plan formularies are designed to encourage the use of generics rather than their brand name counterparts.”
PhRMA Claim: Pharmacy benefit companies “make their money on rebates and fees that are tied to the list price of a medicine.”
Fact: Pharmacy benefit companies pass 99.6 percent of rebates back to plan sponsors in the Medicare Part D program and 90 percent in the commercial market. Plan sponsors, like employers and unions, choose how they use rebates, most of the time they are used to lower premiums, improve beneficiary health and wellness offerings, and make cost sharing more affordable for patients.
PhRMA Claim: Pharmacy benefit companies earn high profit margins.
Fact: According to a recent report from the Competitive Enterprise Institute (CEI), “A study of profits across the flow of funds in the drug distribution system found that PBMs’ net margins— revenues received less payments made and other expenses— were two percent, less than other participants in the system such as manufacturers (26 percent), pharmacies (four percent), and insurers (three percent), and only exceeding the net margins of wholesalers (0.5 percent). Moreover, PBM’s net margins were lower than margins in similar industries.”
Additionally, during the hearing U.S. Congressman Robert Garcia (D-CA-42) said:
“The eight Big Pharma players…earn $110 billion in profits in 2022 and by the way according to the Senate Finance Committee, paid only two percent in taxes.”
And what’s the pharmaceutical industry’s top policy objective? A plan to end performance-based incentives for pharmacy benefit companies for successfully securing savings on prescription drugs for plan sponsors and patients. Economist Casey Mulligan found this misguided proposal would boost Big Pharma profits with an additional $10 billion every year for drug companies, while costing patients and payers up to $18 billion.
A separate white paper from Matrix Global Advisors (MGA) Alex Brill analyzed how and why pharmacy benefit companies function and provide value, and how the various anti-PBM policies will actually increase costs. Brill writes:
“As Congress ostensibly works to lower drug prices, it has considered a range of policy proposals but seems fixated on PBMs. Ironically, it has at its fingertips the opportunity to pass meaningful policies that address drug prices. Brand drug manufacturers are known to use various tactics to block competition and maintain their monopoly power on lucrative drugs, including manipulating the regulatory system and using strategies known as patent thickets and product hopping… It is vital that lawmakers recognize and pursue effective strategies that promote competition and reject policies that could yield the opposite.”
Lawmakers should reject misguided policies targeting pharmacy benefit companies that would increase prescription drug costs and only serve Big Pharma’s agenda to skirt accountability and keep prices high.
Read what economists said in a recent op-ed explaining the misunderstood role of pharmacy benefit companies HERE.
See PCMA’s guide to understanding the role and value of pharmacy benefit companies HERE.
PCMA is the national association representing America’s pharmacy benefit companies. Pharmacy benefit companies are working every day to secure savings, enable better health outcomes, and support access to quality prescription drug coverage for more than 275 million patients. Learn more at www.pcmanet.org