Cantwell Calls for Shining a Light on “Black Box” in Prescription Drug Pricing Market
May 6, 2022
Little-known PBMs boost drug prices at the expense of consumers
Cantwell continued drumbeat on protecting consumers and empowering FTC to police
WASHINGTON, D.C. – U.S. Senator Maria Cantwell, (D-Wash.), Chair of the Committee on Commerce, Science, and Transportation, called for action to increase transparency and shine a light on the little-known drug pricing practices of pharmacy benefit managers (PBMs) as consumers struggle with higher costs of medication and independent pharmacies are driven out of business.
“These companies—who most Americans know nothing about—set drug costs, decide what drugs will be included in your plan, and determine how drugs are dispensed,” Sen. Cantwell said during a subcommittee hearing today. “And these companies have abused their responsibility to protect Americans from this drug pricing crisis.”
“We want to shine a bright light here,” she added. “We want to understand how PBMs affect drug prices for consumers.”
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PBMs have been described as the “black box” in the market for prescription drugs. They are behind-the-scenes middlemen in drug pricing transactions and are the entities with all the information about the real price for prescription drugs. PBMs work with drug companies to develop formularies, a list of covered drugs, based on what drug companies will offer the greatest rebates back to PBMs. Insurance companies base their prescription coverage on these formularies and PBMs get to determine what portion of the rebate makes it back to consumers, creating the incentive for PBMs to keep drug list prices high.
This lack of transparency enables PBMs to engage in a practice known as “spread pricing,” in which PBMs charge a higher price for a drug than the amount reimbursed by the pharmacy, and PBMs pocket the difference. This practice also shortchanges pharmacy profits, driving local, independent pharmacies out of business.
“Let me be clear. I'm a big fan of the pharmacies… they are part of our healthcare delivery system,” Sen. Cantwell said. “So, the notion that some people want to have mega-conglomerates control pharmacy drugs by mail and control the market and have a continued concentration—mark me down as not a fan. PBMs keep these fees and rarely pass them on to consumers, thereby raising the costs for pharmacy, pharmaceutical market as a whole.”
Today, fewer than five PBMs control more than 80% of the drug market for more than 260 million Americans.
Cantwell, who has been working to give the Federal Trade Commission (FTC) more authority to protect consumers from fraud and deceptive practices, asked David Balto, a healthcare competition expert and former attorney at the FTC, what the committee needs to do in order to ensure transparency and properly police the market.
“The FTC act is broad, it prohibits unfair methods of competition and unfair trade practices, and Congress can specify what some of those practices are,” said Balto. “The Commission needs its powers strengthened by identifying some of those practices that they should look at as unfair methods of competition or unfair trade practices.”
Cantwell has a history of working to lower prescription drug costs by addressing the role of PBMs. In 2017, Cantwell joined Sen. Bernie Sanders (I-Vt.) and introduced the “Affordable and Safe Prescription Drug Importation Act.” The bill aimed to lower prescription drug costs by allowing Americans to safely import medicines from Canada. In April 2021, Cantwell introduced “Prescription Pricing for the People Act” with Sen. Grassley (R-Iowa), a reintroduction of the 2017 bill. It would direct the FTC to issue a report addressing whether PBMs charge certain payers a higher price than reimbursement rates for competing pharmacies and steer patients to pharmacies in which the PBM has an ownership stake.
View Senator Cantwell’s opening statement and the first round of question and answer video, and the second round of question and answer video.