Guest opinion: More regulation will not lower drug costs
The worst inflation in 40 years has increased costs for every household and business across the country and led politicians at every level of government to search for a way to reduce prices for everything from gas to prescription drugs — and some policymakers are aiming at the wrong target in their actions to lower drug costs.
Gov. Ron DeSantis issued executive order (EO) 22-164 on July 8, 2022. The EO directs all executive agencies to include new, restrictive provisions in all future contracts with pharmaceutical benefit managers (PBMs). The EO prohibits spread pricing and reimbursement clawbacks, directs agencies to include data transparency and reporting requirements, and directs all impacted agencies to amend all contracts to the extent feasible with these same provisions. The EO misses the mark on reducing drug costs by a wide margin.
PBMs are quite popular and administer drug plans for about 270 million Americans who obtain their health insurance from employers, unions, state governments, insurers, and other entities. PBMs utilize various tools like rebates, pharmacy networks, drug utilization review, formularies, specialty pharmacies, mail-order and audits to drive down drug costs, improve quality, increase patient medication adherence, and prevent fraud. Since PBMs provide such widespread benefits, they are able to use significant negotiating power to get substantial price discounts from pharmaceutical companies based on volume. The savings are passed on to health plan sponsors, like employers and consumers. PBMs save patients and payers an average of $962 annually, including 40-50 percent savings on prescription drugs and related medical costs compared to plans that do not use PBMs.
Several reports have confirmed the value of PBMs for consumers, including a May 30, 2019, University of Pennsylvania Wharton School issue brief on preferred pharmacy networks by Ashley Swanson, PhD, which found that preferred pharmacy contracting reduces Medicare Part D costs by about 1 percent. She concluded that the use of such cost-saving practices across the entire healthcare system would create even greater savings.
An August 14, 2019, Government Accountability Office (GAO) report reviewed the use of PBMs in Medicare Part D. Drug plan sponsors in 2016 used PBMs to provide 74 percent of drug management services and sponsored the remaining 26 percent themselves. Gross Part D spending of $145 billion was reduced by 20 percent to $116 billion due to PBM-negotiated rebates and other price concessions.
Florida is not only attempting to use PBMs as a scapegoat for high drug costs, but also trying to get the Food and Drug Administration (FDA) to implement the state’s drug reimportation law as means to lower drug costs. Drug reimportation would open up the floodgates to unregulated drugs, putting patients at risk. The FDA estimates that nearly 99.1 percent of drug products entering the U.S. through international mail in 2019 were non-compliant with agency standards, and 10 percent of medicines worldwide are estimated to be counterfeit. Patients should feel confident that their pharmaceuticals are not counterfeit and that their medicine is safe and effective.
Florida’s plan for drug reimportation is also problematic since countries like Canada are not willing to export drugs to the U.S. A January 16, 2020, Canadian Financial Post article stated that drug manufacturers “are unlikely to permit their Canadian wholesalers or distributors to undercut their prices in the U.S. by exporting drugs that they have supplied specifically for the Canadian market. Indeed, the wholesalers may be contractually prohibited from exporting any product they purchase from manufacturers,” and the Canadian “federal government has already vowed to protect Canadians’ drug supplies and access to medication.”
Florida’s policies to lower drug costs have good intentions, but they won’t result in the anticipated outcomes. Instead of over-regulating PBMs, which are an integral, cost-saving, and successful part of the healthcare ecosystem or bringing in drugs from other countries, elected officials in the state should be supporting efforts to expedite the federal drug approval process. Taxpayers, consumers, and patients should beware of claims from government officials that they know what is best for them. Lowering drug costs should be achieved through marketplace reforms, not heavy-handed laws or burdensome regulations.
Christina Smith is Director of Health and Science Policy for Citizens Against Government Waste.
This article originally appeared on Fort Myers News-Press: More pharmaceutical company regulations will not lower drug costs
