Reining in the true culprit behind critical medicine shortages

Drug shortages in the United States have reached crisis levels. The Food and Drug Administration reports that nearly 140 medicines are currently in short supply. That figure includes more than a dozen cancer drugs, which has forced doctors and patients to confront the dangerous possibility of rationing.

These shortages threaten the lives of thousands of Americans and the health of many more. Yet policymakers cannot seem to agree on a cause or solution. Some have blamed supply chain bottlenecks and quality concerns at overseas manufacturing plants.  Other lawmakers think that giving the FDA new powers, like requiring drugmakers to report spikes in demand, is the answer.Yet in the midst of all this debate and finger-pointing, policymakers have largely overlooked one of the key causes of the crisis -- the increasing power of pharmacy benefit managers, or PBMs.PBMs are middlemen in the pharmaceutical distribution chain who negotiate drug prices on behalf of multiple health insurers and administer those insurers' drug benefits. PBMs keep a portion of the savings they extract from drugmakers for themselves, and share the rest with the insurers and corporate health plans that hired them.The problem is that PBMs' compensation is often calculated as a percentage of a drug's nominal "list" price -- rather than a flat fee that compensates them for the administrative burden of managing health plans' drug benefits.This status quo incentivizes PBMs to steer patients towards drugs with higher list prices and avoid generic medications, which are much cheaper and usually just as effective. A study of Medicare Part D drug formularies published in JAMA found that 72% gave more favorable coverage to at least one name-brand drug compared to its generic alternative.It's been difficult to hold PBMs accountable because they typically don't disclose the value of the savings they extract, making it nearly impossible to gauge the extent to which they're being paid off by manufacturers.Additionally, the three largest PBMs -- CVS Caremark, Express Scripts, and OptumRX -- accounted for nearly 80% of prescription drug claims in 2020, according to an analysis by Health Industries Research Companies. That market dominance means generic manufacturers can find it difficult to sell their products if they're spurned by the big three.The bottom line is that PBMs have used their outsized purchasing power to effectively break the drug market. Generic drug makers already operate at low profit margins. PBMs are making it even harder for them to do business.These hostile conditions for manufacturers underlie our emergency-level shortages. Sure, quality and supply chain problems have an impact, but fundamentally, we need a level playing field for generic makers, so that more of them stay in the market.There's no reason that a drug like cisplatin -- a cancer treatment that the FDA approved in 1978 -- should be in short supply. Yet this past June, 70% of academic cancer centers reported a shortage, in part because monopolistic PBM practices have caused manufacturers to stop making it.Having more producers would reduce the risks posed when any one manufacturer shuts down production. But to reinvigorate the marketplace, we must stop PBMs' anti-competitive practices. That will require congressional action.The solution is not to impose new reporting burdens on drug manufacturers, a stop-gap measure at best. A free market only works effectively with a free flow of information, which means that we must bring transparency to PBMs' shady practices as a first step toward reining them in. Lawmakers should also consider delinking PBM earnings from drug prices, so that they no longer benefit from driving up costs for patients. And they should consider requiring PBMs to share the savings they extract from drugmakers in the form of lower copays or coinsurance.With the health of so many Americans in the balance, it's time for legislators to act.Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All" (Encounter 2020). Follow her on Twitter @sallypipes.

This article originally appeared on Fort Myers News-Press: Reining in the true culprit behind critical medicine shortages