Issues & Insights
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Markets, Not More Middlemen, Will Lower Drug Prices


Senate Democrats are trying once more to push through pieces of their Build Back Better legislation through a partisan reconciliation process, with its trillions of dollars in bad policy ideas. It’s a testament to their invincible ignorance of economics that even when they do identify a problem Americans are having, the big-government solutions they design only make matters worse.

Take prescription medications for seniors. Of course, Medicare beneficiaries need relief from soaring costs. It’s a policy crime that many Americans don’t take medications as prescribed because they can’t afford them.

But the Democrats’ proposed solution in Build Back Better is government-imposed price setting masquerading under the term “negotiation.” That’s because they are so vested in their master narrative that more government intervention is the solution to all problems.

Hopefully, the findings of a devastating new report will refocus Washington’s attention on the real profiteers in drug pricing. Spoiler alert: It’s not the companies that invent your medicine.

“The Pharmaceutical Supply Chain, 2013-2020,” recently released by the Berkeley Research Group (BRG), reveals the narrative-busting discovery that of all the money spent on prescription medicines in the United States each year, less than half goes to drug makers.

That’s right, for all prescriptions, branded and generic, just 37% of spending goes to the drug companies. Even for the newest, most innovative, and expensive brand-name drugs — the ones whose prices Democrats cherry-pick to cite in justification of their price-control schemes — revenue to drug makers amounts to merely 49.5% of spending.

It’s time for an honest account to seniors of what’s making prices high, and this study has the answer: More than 50% of the $350 billion Americans spend on prescription medications every year is now being pocketed by industry middlemen — supply chain entities, government agencies, health insurers, and the for-profit Pharmacy Benefit Managers (PBMs), the companies that negotiate the lists and prices of drugs insurance companies cover.

In fact, as the BRG study shows, middlemen’s capture of total pharmaceutical spending has risen by 37% over the decade since President Obama’s Affordable Care Act. That’s the real driver of increasing costs for seniors. The share going to drug makers has been declining, not rising.

The implications of this report are enormous. First, it confirms previous warnings about the price controls Democrats want to include in Build Back Better. If the last decade of government intervention in health care has merely succeeded in enriching a shadow industry of corporate go-betweens, there is no reason to believe that government-imposed price controls will be any more effective in bringing down patients’ out-of-pocket costs.

By injecting more government into this system, Build Back Better would only empower more middlemen — creating more opportunities for operators, rent-seekers, and influence peddlers. It would also dull the cutting edge of American medical innovation. It costs on average more than $2 billion to bring an idea in a lab to fruition at the pharmacy. Drugmakers must price their successes to fund research into future cures and treatments. No one will be willing to make such investments if an obscure panel of government officials will be deciding what the price will be. This would be especially harmful to seniors, who rely on innovative therapies more than anyone else.

In addition to rebutting the phony narrative supporting Build Back Better’s price controls, The BRG report also squarely identifies the proper target for serious congressional reformers — the PBMs. They are the ones profiting most from government intervention in the pharmaceutical market. It’s their fees and profits that are picking the pockets of seniors and other patients

Requiring PBMs to disclose the discounts they negotiate and pass the savings on to patients would immediately and dramatically lower out-of-pocket costs, and do so without threatening America’s world-leading pharmaceutical innovation ecosystem. Healthcare middlemen have made billions working the system for their own benefit for far too long. It’s time for Congress to end their ride on the gravy train.

Saul Anuzis is President of 60 Plus, the American Association of Senior Citizens.

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