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Congress has reconvened and one of the hot topics in 2024 in the area of healthcare is prescription drug pricing, which has drawn considerable attention from lawmakers.
Former U.S. Sen. Pat Toomey of Pennsylvania doesn’t expect major legislation to pass in this election year, but he’s keeping his eye on narrower “rifle shot” proposals that are often tucked into broader bills.
Lawmakers have been busy examining various aspects of the healthcare system and how they affect consumers, including pharmacy benefit managers.
What are pharmacy benefit managers?
Pharmacy benefit managers, or PBMs, play an important role in prescription drug pricing, as Toomey explains.
“Pharmacy benefit managers are companies that negotiate drug prices on behalf of the sponsors for health insurance plans,” he says, noting that employers typically offer insurance for their workers.
“And very often, the health insurance plans will cover prescription drugs. And when they do, very frequently, the employer will turn to a pharmacy benefit manager – PBM – to help them negotiate better prices from the pharmaceutical companies than they could negotiate on their own.”
PBMs have been around for decades and play a key role in the supply chain.
“I think the single most important thing that it’s important to take away from this discussion is there’s a reason that employers choose,” to hire PBMs, Toomey says. “They don’t have to use PBMs. Not everyone does, but most of them choose to use PBMs because they know the result is lower costs.”
He adds: “Because they know the result is lower costs, if they lower cost for them, that means lower costs for their workers – means lower costs for healthcare.”
What is Congress considering?
Congress has been working on a wide range of health care bills.
The House last month passed a health care package that includes new regulations of PBMs, as well as codifying health care transparency rules. It remains unclear what will happen with it in the Senate.
The Senate Finance Committee also moved forward legislation late last year.
Toomey is concerned that lawmakers considering new regulations may inhibit the ability of PBMs to negotiate lower prices.
“And if that ability is constrained, which many of these legislative ideas are designed to do…then the PBMs will not be able to do it as effectively,” he says.
He points to a study by the Congressional Budget Office that showed how PBMs save money for sponsors of the health care plans that use them, as well as a recent Labor Department review.
Last year, the Department of Labor’s inspector general found that the agency overspent $321.3 million over a six-year span on prescription drugs for the Federal Employees’ Compensation Act (FECA) because its Office of Workers’ Compensation Programs didn’t use a PBM.
Cutting health care costs
Toomey takes issue with those that deride PBMs for acting as a “middleman” in drug pricing.
“I mean if you as a worker have a health insurance plan that covers prescription drugs provided by your employer, you’ve probably saved significantly – some estimates are over $1,000 a year – because of what the PBM did,” Toomey says.
Toomey points out that there is nothing inherently wrong with middlemen in economic terms.
“Do we go to the farm and pick our vegetables ourselves? Not usually. Most of us go to a supermarket, where the food has been picked and packaged,” he says.
Lawmakers have also talked a lot about the need for transparency, so consumers know what they are paying for.
“A consumer ought to have a lot of transparency about the product that they’re buying, the quality of it, what it costs, what it does,” Toomey says.
But from a regulatory standpoint, he cautions that some proposals consider “forced disclosure of negotiations between businesses – maybe a PBM and an employer.”
He argues that could undermine overall efforts to bring about lowering prices by getting the government involved in a mandate that’s seldom implemented in other areas of commerce.
Unintended consequences
Toomey and other lawmakers have noted that legislation by Congress is rarely perfect once it passes into law and can have unintended consequences.
He says it’s “very, very common, especially in the healthcare space,” due to the complex marketplace.
“If the government just wades in and slams its fist down on one of the participants, then it almost always has a disruptive effect elsewhere,” he says.
He suggests that often happens with new rules issued to deal with Medicare and Medicaid.
Toomey says that’s why it’s important to have a lot of transparency as legislation is vetted and discussed by Congress.
“By the way, the big unintended consequences if there is some significant curtailment on PBMs, is going to be higher healthcare costs, higher insurance premiums,” he says. “I’m pretty sure most members of Congress don’t want to vote for something that’s going to raise the cost of prescription drugs for their constituents. But that’s exactly what will be happening if they pass some of these bills.”
Looking ahead
Toomey is optimistic about the future and notes that Americans have access “to the highest quality medicines in the world.”
He hopes that lawmakers will continue to try to reach common ground on issues that will help keep people healthy and lower costs.
“I would suggest you do things like allow pharmaceutical companies to have full expensing of research and development,” he says. “That’s how they bring new medicines to market – we should lower the cost of doing that.”
He also suggests that the FDA could be more efficient in getting drugs to the market.
“So there are things that we can do to allow this really important sector of our economy to thrive without the government coming in, picking one sector of this and dictating the terms of the business relationships,” he says. “I think that latter approach is a bad idea.”
