Biden administration announces “comprehensive” plan to fix high drug prices

Prescription drugs sit on a pharmacist’s counter. Photo by John Moore/Getty Images.

The U.S. Department of Health and Human Services last week issued its plan to address high drug prices as part of President Joe Biden’s push to take on anticompetitive practices across the economy.

But while it addressed in detail abusive practices by drugmakers, it was a lot more superficial about the practices of much-larger corporations that serve as drug middlemen and as some of the country’s largest insurers.

The report, “Comprehensive Plan for Addressing High Drug Prices,” was produced by HHS and forwarded on Thursday to the White House Competition Council pursuant to Biden’s July 9 executive order Promoting Competition in the American Economy.

The council held its first meeting on Friday.

The report notes the harm being done by rapidly inflating prices in the $370 billion drug marketplace, where medicine costs almost twice as much as it does in other countries in the Organization for Economic Cooperation and Development, a 38-member group of mostly developed economies.

“Americans pay too much for prescription drugs,” it says. “We pay the highest prices in the world, which leads to higher spending. Higher spending puts pressure on private and government payers to raise premiums or make benefits less generous. Lack of affordable access to prescription drugs and other health care services leads to worse health outcomes.”

Most of the solutions it offers deal with manufacturer abuses.

For example, it takes on a practice called “pay for delay,” in which a maker of a brand-name drug with exclusive access to the market pays generic competitors to delay bringing their products into the fray, thereby keeping up prices.

The report also proposes methods to promote production of generic and biosimilar drugs and it proposes to bring down costs through direct negotiations between huge programs such as Medicare and the companies that make them.

However, the report is much lighter on proposals about what to do about pharmacy benefit managers — middlemen who handle the transactions. That marketplace is dominated by three corporations that are among the country’s 15 largest and they’re also huge players in insurance and pharmacy.

The rebates the companies, known as PBMs, negotiate with manufacturers have been shown to increase the list prices of brand-name drugs, and the companies are also suspected of playing a big role in keeping prices of generics artificially high.

Critics have said that a lack of transparency in PBM rebate negotiations leads them to believe the companies are profiting handsomely at the expense of everyone else.

“We’ve been working for years to create clarity in the supply chain,” James Gelfand, senior vice president of ERIC, a group of major employers who provide insurance to 10 million people, said in an interview last month. “You’ve got the drugmaker, who gives us a number for what the drug costs. But by the time it gets to us, nobody can explain where this number came from or why it is that number. So we’ve been trying to do our best to peel away the onion and get a better understanding.”

For their part, the PBMs say they use their clout to bring down prices for consumers. But they’ve fought to keep rebate information secret, including, apparently, by creating new purchasing organizations that will form yet another link in the supply chain.

The HHS report released last week acknowledged the importance of PBMs in drug pricing.

Referring to questionable practices by drugmakers, the report says, “They also pay PBMs rebates to cover their drugs, with no guarantee that the savings will be passed on to patients.

“PBMs use their market power to collect fees from independent pharmacies. The three PBMs that manage 77% of prescription claims have consolidated with major health insurance companies, and one of them is also the largest pharmacy/mail-order chain. Firms in the pharmaceutical supply chain currently have limited or no incentives to reduce drug costs and challenge anti-competitive actions.”

Despite those concerns, the report doesn’t advocate for scrutiny by trust-busting agencies such as the Federal Trade Commission or the Justice Department’s Antitrust Division. It does, however, mention one transparency initiative.

The U.S. Centers for Medicare and Medicaid Services is requiring PBMs representing health plans in the ACA marketplace to provide rebate and other information. “Data collection from PBMs is expected to begin in 2022,” it said.

Marty Schladen is a reporter for the Ohio Capital Journal, which first published this story.

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