Issues & Insights

As Obamacare Dodges Another Lawsuit, Policymakers Should Pursue Alternatives To Lower Health Costs

In a seven to two vote, the Affordable Care Act (ACA) recently survived its third major challenge in front of the Supreme Court. The decision is yet another blow to patients who are struggling to afford higher out-of-pocket costs for less personalized care.

More Americans may have insurance cards in their wallet because of the ACA, but that does little good if the recipient is unable to afford ballooning premiums and deductibles. It’s an obstacle that has left middle-class families on the margin, who don’t qualify for government ACA subsidies, hard hit. 

While the ACA continues to repel court challenges, some policymakers are exploring alternative strategies that will help bring patients financial reprieve. Lowering the cost of prescription drugs for consumers is one strategy that is rightly gaining momentum. Spending on pharmaceuticals accounts for nearly 10% of healthcare expenditures in the U.S., which amounts to hundreds of billions of dollars annually. 

Tired of waiting for the federal government to act, some states have already taken it upon themselves to at least begin addressing the issue. West VirginiaNew JerseyNorth Dakota, and Montana are among states that have recently made moves to target the root problem of climbing drug costs: pharmacy benefit managers (PBM), otherwise known as middlemen.   

First arriving on the scene in the 1970s, PBMs helped guide medicine from the production line through health insurance plans to the pharmacy counter. The service warrants fair compensation, but over time, the middlemen realized the considerable leverage they wield as gatekeepers to the consumer market. Using terminology from the board game Monopoly, for medicine to pass go, it must pay $200. PBMs soon began to game the system. 

Fast forward to 2021 and PBMs are profiting on the backs of patients to the tune of about $160 billion a year. Drug manufacturers already provide discounts alongside their products, but instead of the financial savings flowing down to consumers, middlemen are pocketing the money—leaving patients hanging out to dry. In other settings, the behavior would violate federal anti-kickback laws. But after intense lobbying in the early 2000s, PBMs were able to secure an exemption.

The Biden administration and the ruling party in Congress continue to turn a blind eye to the scheme—refusing to level the playing field. States should not sit idle. 

Elected officials should follow in the footsteps of West Virginia and the others mentioned above to stand up for patients by injecting price transparency into the pharmaceutical supply chain; sunlight is oftentimes the best disinfectant. In a perfect world, state legislatures would take it a step further and force middlemen to pass at least some of the financial savings already provided by drug manufacturers to patients at the pharmacy counter. 

The ACA was passed and signed into law with good intentions, but the set of regulations ended up strangling hospitals, doctors, employers and insurance providers with government red tape. And patients are paying the price. While the mess remains to be untangled, policymakers should explore other strategies that will help rein in out-of-control healthcare expenditures. Addressing the role of PBMs should be number one on that list. 

Dr. Chad Savage is an Internal Medicine physician, health care policy advisor and a member of the Job Creators Network.

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1 comment

  • The billion dollar costs of new drug development (which must be passed on to consumers) is absurdly high, because of lengthy FDA regulations. Time to cut new drug regulatory approvals from 15 years to 3 years, maximum. If new drugs could come to market quickly like COVID vaccines, $160,000 cancer drug regimens would shrink to $10,000. Drug prices in general would plummet, as marketplace competition would be speeded up. Less money for middlemen, too, in an environment of drug price deflation. A market-based approach incorporating the COVID vaccine regulatory lessons is the best road to travel.

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