Big Pharma, PhRMA, and the Naked Money Grab
In addition to not reducing inflation, the Inflation Reduction Act was a naked attempt to apply socialist price controls to the prescription drug market. Drug makers rightly opposed it before its passage in 2022 as “bad policy that threatens continued research and development and patient’s access to medicines.” I’ll go a step further and describe the policy as un-American.
Puzzlingly, only a year later, PhRMA, the trade association representing drug makers, isn’t spending any resources fighting to change the legislation. Instead, their declared advocacy strategy centers around pushing legislators to stifle their adversary in the market—Pharmacy Benefit Managers (PBMs), who are paid by employers, unions, the government, and health insurance companies to lower drug costs.
It is clear what is happening. Drug makers are preparing to take their licks from the Inflation Reduction Act by finding new ways to increase their revenue. Unfortunately for employers and patients, PhRMA’s strategy involves reaching into their pockets to make up for their missing revenue.
The latest legislative proposal being pushed by PhRMA and their allies in Congress is something they’re calling “de-linking.” The policy would divorce PBMs’ compensation from the amount of savings they generate for their customers, mandating that they only offer their customers fee-for-service contracts. If enacted, this policy would turn PBMs into a passive entity during drug price negotiations, unable to generate value from that process. Ironically, “de-linking” would mandate PBMs simply act as “middlemen” (the moniker PhRMA uses to describe PBMs already) and eliminate any financial incentives PBMs have to squeeze drug makers on behalf of the businesses they represent.
If enacted, “de-linking” would be a major blow to healthcare affordability. The folks who will pay the biggest price for this policy are not PBMs, as some suggest. PBMs—especially the largest three—have plenty of mechanisms to continue generating a profit. Instead, it’ll be PBM customers and patients. Experts close to the PBM industry claim Medicare Part D premiums could go up by $10 billion if “de-linking” was applied to Medicare. Another analysis showed that “de-linking” would increase premiums in the employers-sponsored commercial market by $26 billion.
Not only could we expect patient premiums to go up, but “de-linking” would destabilize contracts for PBM customers, too. Under current value-based contract agreements, PBM customers get to pay a fixed amount to PBMs and, in return, the PBM pays the variable prices charged by pharmacies. This gives PBMs an incentive to negotiate the best deal with pharmacies and it gives PBM customers greater affordability and price stability. It’s a win-win: PBMs can retain a portion of the savings they derive, and businesses know exactly how much they will pay for their employees’ pharmacy benefits regardless of increasingly-costly drug list prices. But if “de-linking” policies were enacted, this contract model would be banned, and PBM customers would be subject to drug price inflation and other market volatility.
Turning PBMs into a passive “middlemen,” as PhRMA intends, will have the same effect that the so-called Affordable Care Act had on health insurance companies. Premiums will go up, and the economy will suffer. We can accurately dub “de-linking” as “Obamacare for the drug market.”
It’s easy to see how “de-linking” serves PhRMA’s short-term interests. The shareholders want to see how drug makers can recoup the losses dealt to them by the Inflation Reduction Act. By snaking their arms into the pockets of employers and consumers through “de-linking,” drug makers will get more profits. But does PhRMA’s advocacy strategy serve drug makers’ long-term interests?
Absolutely not. By limiting PBMs’ ability to control drug costs and making healthcare more unaffordable for employers and consumers, PhRMA will fuel the political appetite for more price controls like those found in the Inflation Reduction Act. Voters are fed up—39% of voters would cross party lines to vote for a candidate they think would lower healthcare costs. They’re going to demand lawmakers find a way to lower drug costs—and they won’t mind if it’s done by government fiat.
When PBMs can no longer be their scapegoats, PhRMA will again be looking down the barrel. That is, if the trade association continues to exist. Some drug makers have realized their strategic error and have left the group, prompting one thought leader to call PhRMA a “dying trade association” as a reproach for their advocacy strategy.
A much better advocacy plan would be for drug makers to join forces with PBMs and stop the advancement of government-run healthcare. For America’s sake, let’s hope these industries figure out how to team up.
Ann Marie Buerkle is a former nurse and congresswoman who served as the Commissioner and Acting Chairwoman of the Consumer Product Safety Commission.
