By Sabrina Wong
This past Tuesday, executives from seven major drugmakers such as Merck, Pfizer, Johnson & Johnson, and AbbVie went to Washington for Senate hearings on lawmakers’ concerns over drug pricing practices.
It’s no secret that drug prices in the US are significantly higher than those of other countries around the world; for example, US pharmaceutical spending per capita is $1,208, as compared to the median of $554, when compared to a cohort of 35 OECD nations. Other countries place strict price controls on medications, which drugmakers have no choice but to comply with. In fact, the Trump administration has pushed out policy changes aimed at lowering drug prices, most notably by tying drug costs to their counterparts in other countries. However, drugmakers argue that these price decreases would severely cut funding for their research and development initiatives, ultimately blocking innovation in pharmaceutical research.
Executives at the hearing also defended themselves from the scrutiny of lawmakers by essentially pointing fingers at “middlemen” companies that are known as pharmacy benefit managers, or PBMs. The medication prices that consumers see on the market aren’t paid in full to drug companies; instead, drugmakers pay a rebate—a percentage of the list price—to PBMs like ExpressScripts, CVS’s PharmaCare, and UnitedHealth Group’s OptumRx, who negotiate those rebates. PBM companies also manage prescription drug payouts, draw up contracts with pharmacies, and work with health insurance companies and government agencies to reduce drug expenditures. The data on rebates negotiations is very limited, heavily guarded as trade secrets.
Drugmakers claim that PBMs have been abusing their power by negotiating higher rebates and absorbing the excess savings instead of reducing prices for consumers. The Senate has put plans in place to put executives from leading PBMs on trial in the coming weeks. Gaining clarity on PBM practices will ultimately help lawmakers decide where to direct their policy change efforts, a task that is currently proving to be difficult given the conflicting evidence at hand.
As Washington gears up for the 2020 election cycle, the shift in focus to health care is poised to intensify greatly. There is widespread bipartisan support for medication price reform. However, given the murkiness of drug pricing practices, it is unclear whether politicians will have the leverage to negotiate with major pharmaceuticals and their lobbyists.