Policymakers Should Dull the Steep Tax of Inflation by Tackling Drug Prices

New government data has families tightening their belts. Compared to April of last year, consumer prices have jumped by more than eight percent. Although this is the first time in eight months that inflation has decelerated (slightly), the pace remains near a 40-year high. To the dismay of Americans struggling to make ends meet and a Biden administration that’s attempting to reverse underwater approval ratings, the solution to the inflation crisis is complicated.  

Out-of-control government spending and loose monetary policy at the Federal Reserve has created a feedback loop that’s difficult to stop. Too much money chasing too few goods is pushing price tags up. From there, workers are demanding higher wages in order to pay for the more expensive products. And that, in turn, pressures businesses to raise prices even further in order to cover higher labor costs.  

Separately, simply the expectation of inflation is creating even more inflation. Consumers are incentivized to buy more now in order to escape higher prices down the road.  

Because policymakers are addressing the inflationary dumpster fire too little too late, there are no good options left on the table. Dramatic interest rate hikes, rather than a gradual increase, are now required to stabilize prices. The consequence will be a shock to the system that increases the cost of borrowing and discourages businesses investment. Entrepreneurs seeking lines of credit will be among those hardest hit.  

In the meantime, as the country anticipates enduring the painful correction process, there are strategies that will help dull the added cost inflation places on families. Reining in the price of prescription drugs is a good place to start. While economy-wide inflation has been squeezing family budgets since early 2021, patients have been coping with rising medicine costs for decades. Since the year 2000, spending on prescription drugs in the U.S. has nearly tripled.  

The question is why? I’ll give you a hint: It’s not the so-called “greedy” pharmaceutical companies. In fact, it’s quite the opposite.  

Drugmakers already offer discounts alongside their products in the form of rebates. The problem is these financial savings don’t reach Americans at the pharmacy counter. The middlemen of the drug supply chain — called Pharmacy Benefit Managers (PBMs) — pocket the money and pass along a portion of it to insurance companies.   

If policymakers take the issue seriously, it’s a scheme that’s easily preventable.  

In fact, the Trump administration previously took executive action aimed to slow the pickpocketing behavior. More specifically, the rule would have forced middlemen to pass along financial savings already provided by drugmakers to patients accessing medicine through Medicare Part D. But unfortunately, the rule’s implementation date has been slow-walked and delayed every step of the way.  

The executive order — nicknamed the rebate rule — deserves fresh attention to pressure decision makers to finally make it a reality. Lawmakers should also consider mimicking the strategy for prescription drugs across the board.  

Persistently high inflation, as well as the inevitable economic shockwaves that will accompany bringing it under control, has families and small businesses stuck between a rock and hard place. Tackling the rising cost of prescription drugs is one way policymakers can provide Americans with some financial reprieve.  

Elaine Parker is the President of the Job Creators Network Foundation, which manages HealthcareForYou.com.