PBM ‘Disclosure’ Gives Drugmakers and Drugstores Free Hand to Charge Higher Prices

Posted October 1, 2009 at 10:05am

At a time when consumers, small businesses and the federal government are all sagging under the crushing weight of rising health care costs, some politicians are pushing legislation that would increase the cost of prescription drugs. Under the guise of “transparency— and “disclosure,— proposals under consideration in both the House and Senate would undermine competition and give the upper hand to the drugmakers and independent pharmacists to increase prices.[IMGCAP(1)]At their core, these “transparency— measures could force de facto public disclosure of sensitive drug-pricing information, resulting in drug manufacturers being made aware of their competitors’ negotiating strategies. Economists, budget experts and industry officials all agree that the likely result is that drugmakers would raise prices to match their competitors’ highest price for a given drug. The greatest beneficiaries of this type of disclosure are drug manufacturers, not consumers or taxpayers.Does that sound like the right way to make prescription drugs more affordable?No less than the nonpartisan Congressional Budget Office and the Federal Trade Commission have weighed in about the effects of public disclosure of drug-pricing negotiations. Since 2003, the CBO has analyzed the effects of pharmacy benefit manager disclosure on Medicare Part D on three different occasions and has never concluded the proposal will result in savings to beneficiaries or the program. For its part, the FTC has warned that PBM disclosure may pose a risk to “healthy competition— and that “higher prices may be more likely.— While it boggles the mind that this anti-consumer legislation might actually become law, the reality is that drug companies and their drugstore cronies know that weakening pharmacy benefit managers — the companies that bargain drug prices down — will allow manufacturers and independent pharmacies to charge higher drug prices. Currently, PBMs create competition in the pharmaceutical supply chain by forcing brand-name drug manufacturers to compete against one another for placement of drugs on formularies, or preferred drug lists. In doing so, PBMs drive down the cost of prescription drugs by an average of 29 percent. Similarly, PBMs negotiate contracts with 60,000 pharmacies — chain drugstores, independents, supermarkets and big-box retailers — to ensure convenient access to brand-name and generic drugs at an affordable price.The PBM model is achieving measurable results that allow working families, seniors, and private and public programs to reap real savings. Over the past decade, the annual rate of growth in prescription-drug spending has declined by nearly 80 percent, according to the Centers for Medicare & Medicaid Services. While others debate theory about how best to generate savings, PBMs are working — here and now — to deliver for consumers and payers, without sacrificing access or quality.PBMs are also delivering for seniors enrolled in the Medicare prescription drug benefit. Earlier this year, the Medicare Trustees reported that Part D has come in 40 percent below original cost estimates — due in part, no doubt, to the PBM model. Similarly, seniors’ Part D premiums are averaging 33 percent below original projections for 2009. Most importantly, seniors consistently report high satisfaction in the 80 percent to 90 percent range — an approval rating any Member of Congress would envy. While PBM disclosure legislation purports to take aim at PBMs, the real casualties would be an affordable pharmacy benefit for America’s working families, seniors and businesses. Policymakers can and must do better. Mark Merritt is president and chief executive officer of the Pharmaceutical Care Management Association.