Competition is what’s needed to break drug pricing fever
Decades of drug price inflation have reached a fever pitch that finally has lawmakers in both political parties itching for action. But, as is often the case in Washington, good intentions don’t always equate to good ideas or outcomes.
The government’s drug price controls enacted last year in the Inflation Reduction Act are already killing innovation, as drug makers abandon research into therapies for certain cancers and blindness. A study warns the law will result in 135 fewer new drugs, and that may well be a conservative estimate.
While government-based price controls choke competition and innovation, Medicare’s market-based prescription drug benefit, where plans compete for consumers, has proven to be an effective model in improving medication access and affordability.
Twenty years ago today, President George W. Bush signed Medicare Part D into law, establishing prescription drug coverage for America’s seniors and allowing private insurance plans to compete for their business. As then-chairman of the Senate Finance Committee, I was the Senate author of this bipartisan victory that created the voluntary, patient-focused benefit. Rather than stifling competition, Part D encourages health plans to vie for patients’ business by offering a broad array of options that meet their unique needs. This year, 804 standalone prescription drug plans were available nationwide.
Today, 52 million seniors voluntarily participate in a Part D plan, and 13 million seniors benefit from the plan’s low-income subsidy, which further reduces their out-of-pocket costs. Over the life of the program, the average monthly premium for a Part D plan has been between $27 and $36.
Health plan access and affordability have been hallmarks of the Part D program, as has good stewardship of taxpayer dollars. The Congressional Budget Office (CBO) projected Part D would cost taxpayers $550 billion in its first decade. The actual cost was $353 billion, or 36 percent less than projected–a unicorn in government programs. CBO attributes Medicare’s recent slowdown in spending primarily to the increased share of lower-cost generic medications on Part D plans.
The Part D model has shown that empowering patients with health plan transparency and choice can bring about significant savings for patients and taxpayers. These patient-centered principles can be applied to the latest front in the fight to improve prescription affordability and shine needed sunlight on backroom middlemen in the drug industry: pharmacy benefit managers (PBMs).
Sen. Ron Wyden, Democrat-Oregon, and I first highlighted the opaque actions by these supply chain intermediaries in a 2021 Senate report examining the inexplicable rise in the cost of insulin–a century-old drug that is critical to the health of millions. PBMs’ obscure tactics encourage drug makers to inflate prices to push greater rebates and score preferential treatment on insurance plans across the entire industry. PBMs take a cut of the bloated prices, but shroud the true value, benefit and profit from the public.
Since our report, four separate Senate committees have approved complementary proposals to address PBMs on broadly bipartisan bases. In the last few months alone, 68 senators have supported at least one of these four proposals, all of which are awaiting further action from Senate Democratic Leader Chuck Schumer, D-New York..
The Senate has an opportunity to seize on this rare consensus and take action to reduce costs for patients and taxpayers alike. We should let the successes of Part D’s patient-centered approach guide us.
Bringing transparency to the PBM industry would empower patients, employers, and insurers to make informed decisions based on the true value (if any) PBMs provide. When consumers are empowered, they can demand change or pursue better alternatives, unleashing market forces that foster innovation and apply downward pressure on prices.
Just as competition kept prices low for Part D plans, we’re beginning to see how consumer choice can shake up the PBM industry and prompt much-needed savings. Some employers recently cut ties with the PBMs that set their insurance coverage for promoting costlier drugs over more affordable generics. A California-based insurance provider dropped traditional PBMs altogether in favor of a more transparent model.
Health care policy is exceedingly (and often, unnecessarily) complicated, offering the perfect cover for players looking to keep prices high for their own gain. A good dose of competition goes a long way in reducing drug prices. It’s worked for 20 years of Medicare Part D, and it’s the right prescription moving forward.
U.S. Sen. Charles Grassley, a Republican, represents Iowa.