Over the course of 18 years serving in Congress, I’ve seen that policies can sound good but have negative, unintended consequences. This is especially true in the healthcare industry where Congress is considering proposals that would limit a market-based mechanism that lowers the costs of prescription drugs. Specifically, members are proposing to restrict how pharmacy benefit managers (PBMs) negotiate savings for their clients and get compensated for their work. Other proposals seek to force PBMs to disclose sensitive, business-to-business pricing information. Some of these disclosures would undermine PBMs’ core function as a counterbalance to drug companies.
On the left, some members oppose PBMs because they see them as an impediment to achieving their goal of a government-run healthcare system. Some Republicans, working to address the real problem of high drug costs, believe PBMs have too much power. I’m here to tell Republican lawmakers: expanding the government’s role in our healthcare system could result in unintended consequences that are bad for patients. Here’s why.
PBMs are hired by employers and insurers to negotiate lower drug costs for plan sponsors (usually employers) and patients. If you get a prescription drug plan from your employer, odds are that a PBM negotiated the costs and likely secured significant savings for you. Several proposals in Congress would undermine how this market functions.
The proposals targeting PBMs aim to eliminate PBMs’ ability to earn a percentage of the savings they negotiate and/or force PBMs to disclose negotiated prices in business-to-business transactions. These measures would reduce PBMs’ capacity to generate savings in future negotiations. Other proposals empower the Federal Trade Commission to micro-manage negotiations between sophisticated private sector counterparties, even potentially setting price controls.
Before passing these proposals into law, Republicans should pause and ask: would these measures actually lower costs? Most evidence suggests they would do the opposite. The last administration proposed a “rebate rule” which would have restricted PBMs’ ability to negotiate. The CBO found that, had this rule gone into place, premiums would have increased and taxpayers would face new costs of nearly $200 billion over 10 years.
A comprehensive study from the Government Accountability Office in 2003 found that health plans that used PBMs had significant cost savings, reducing drug spending by as much as 9 percent. A more recent report from the Department of Labor's (DOL) Inspector General found that by failing to use a PBM, DOL spent hundreds of millions more on prescription drugs than it should have. The best evidence suggests PBMs lower costs, and if the government destroys their business model, consumer prices will very likely rise.
Even the argument that PBMs are “middlemen,” and therefore unworthy of earning a fraction of drug sales revenues, isn’t persuasive. Car dealers, grocery stores, and wholesalers could also be called “middlemen,” but no one suggests they should be severely curtailed merely because they don’t produce the products they sell. These entities provide an important service or function in the distribution of their services or products. Likewise, PBMs provide a service by representing multiple, often regional, insurance companies which allows the PBMs to aggregate buying power and negotiate price concessions that smaller parties would be unlikely to obtain.
Most fundamentally, Republicans should consider that there is a reason this market exists. Sophisticated employers voluntarily hire PBMs to save money on prescription drugs. If PBMs didn’t lower the cost of drugs, employers wouldn’t use them. It’s as simple as that.
Voters elected a Republican House majority in 2022, which shows that many Americans still believe in limited government and private market solutions. Should Republicans repay voters by passing an expansion of government interference in healthcare that will result in higher prescription drug prices for their constituents?
Republicans should focus on healthcare reforms that allow the free market to innovate, improve the quality of care, and drive down costs. We should be encouraging more competition, not allowing the government to dictate business models, price controls, and winners and losers in our healthcare system.
Pat Toomey served as a United States Senator from Pennsylvania from 2011 to 2023 and United States House of Representative from 1999 to 2005.
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