Lowering Drug Prices with Bipartisan, Market-based Proposals

Most Americans are affected in some way by rising prescription drug and healthcare prices. Whether you’re personally impacted or hear about the effects of rising costs on a family member or friend, you know things aren’t getting better.

The Senate Finance Committee, on which I serve, started working this year on a series of hearings to better understand the complexity of drug pricing, especially in the Medicare Part D prescription drug program. We’ve heard from pharmaceutical experts, federal regulators, and patients. I’ve been surprised at the bipartisan common ground we’ve been able to achieve toward solutions in lowering prescription drug costs.

To lower prescription costs, we should start with how they’re priced. Many people are comfortable interacting with their doctor or pharmacist and have a general understanding of the insurance that covers some of the cost and the drug companies that develop and sell the drugs. But the other component to drug pricing is the pharmacy benefit manager working behind the scenes to negotiate prices and determine access to the federally approved drugs covered by insurance plans.

PBMs are not inherently bad. They were created to advocate for lower prices throughout the system. But the negotiations behind the scenes can sometimes leave patients paying higher prices or restricting access to the latest generic. For example, a patient may have taken a brand-name drug that now has an available generic. Once the generic is approved by the Food and Drug Administration and a doctor prescribes it, patients should reasonably expect to pay a lower price for the generic at the pharmacy. But sometimes patients discover the new generic costs the same as the brand-name drug. How does that happen?

In Medicare Part D, there are typically five tiers of drug prices within the insurance market that dictate the formulary for the costs patients pay at the pharmacy. When a new drug comes to market, the drug manufacturer negotiates with the Part D plan through the PBM to get the new drug into circulation and gain market share. After a period of time, that drug can also be produced in generic form, which usually costs significantly less. However, if you’ve found yourself paying brand-name prices for a new generic, it’s probably because the drug company negotiated the drugs into the same tier. So the patient pays the same price at the counter, but the PBM gets a “rebate” from the branded-drug company for helping block the new competition. That’s not how it’s supposed to work.

In an equally concerning development, PBMs, many of which own a massive network of retail pharmacies, have been merging with insurers. This has decreased competition and limited consumer choice and access to certain drugs. Currently, three PBMs control nearly 80% of market share and that’s growing. When companies vertically integrate in the manner in which PBMs, insurers and big-box retail pharmacies have, consumers lose.

In April, Senate Finance Committee Chair Chuck Grassley (R-Iowa) and I introduced the bipartisan Prescription Pricing for the People Act, which requires the Federal Trade Commission to study recent PBM mergers that have created an anti-competitive environment in the drug industry. On July 25, I joined a bipartisan group of senators to introduce the Phair Relief Act, Transparency for Pharmacists Act and the Right Price for Medicare Act. I have heard from Oklahoma pharmacies that want to provide price transparency to patients, but they are limited in how they can respond by PBM fees, rules and cost issues. We can help fix this anti-competitive mess and improve financial certainty for pharmacies. These bipartisan bills are a step in the right direction. 

We can and should find ways to ensure drug companies have the resources they need to find the next lifesaving drug or treatment. We can and should ensure patients can afford those treatments without declaring bankruptcy. Market-based solutions for pricing coupled with regulatory solutions for transparency can help increase drug options for consumers at affordable prices. 

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