How an Infrastructure Bill Could Affect Drug Prices

How an Infrastructure Bill Could Affect Drug Prices

It seems strange that a bill that is suppose to deal with the nation’s infrastructure could affect prescription drug prices, but that’s the way Washington works.

In order to get less popular items passed, Congressional members will seek to attach them to legislation that is popular and likely to pass so that even if other members of Congress don’t like a particular provision, they’ll still vote to pass a bill because of its over-all impact.

On top of that, America’s health care system is so complicated with so many working parts that making changes to it can be extremely difficult.  It is often the case that certain changes will benefit one part of the system but hurt another part and there is so much money at stake that the part or parts of the system that might be hurt by a change fight ferociously to stop the change.

That usually means spending hundreds of thousands or even millions of dollars in lobbying to prevent a change.

One of the parts of the U.S. health care system that very few people know about is the PBMs – the Pharmacy Benefit Managers.  But they have a major impact on the prices of prescription drugs.

According to the PBMs, “health care plans hire PBMs to secure lower costs for prescription drugs, passing the savings directly to patients. PBMs are your first line of defense against rising prescription drug costs. They work to ensure lower costs and better health outcomes through affordable access to medicines you need.

“By negotiating with drug manufacturers and pharmacies to control drug spending, PBMs have a significant behind-the-scenes impact in determining total drug costs for insurers, shaping patients' access to medications, and determining how much pharmacies are paid.”

That’s what the PBMs say.  However, critics of PBMs say this:

“Pharmacy Benefit Managers are one of the most problematic, least regulated and least understood aspects of the healthcare delivery system.  Over 80% of pharmaceuticals in the United States are purchased through PBM networks.  PBMs serve as intermediaries between health plans, pharmaceutical manufacturers and pharmacies, and PBMs establish networks for consumers to receive reimbursement for drugs.  Although the primary function of a PBM initially was simply to create networks and process pharmaceutical claims, these entities have exploited the lack of transparency and created conflicts of interest which have significantly distorted competition, reduced choices for consumers and ultimately increased the cost of drugs.”

According to an article in Kaiser Health News, PBMs “negotiate with drugmakers to get significant reductions on a drug’s list price. They pass the bulk of that savings along to Medicare and the insurers, who can pocket some of it and use it to lower overall premiums for customers who buy drug plans in Medicare Part D.

“While customers benefit from a lower premium, it doesn’t mean they actually get a better price for their drugs, said Gerard Anderson, a professor of health policy at Johns Hopkins Bloomberg School of Public Health.

“That’s because a patient’s price is not based on the rebate but on a share of the original list price of the drug. If a drug costs $100, and a patient’s share is 25%, they pay $25, regardless of how big a rebate the PBM got for the insurer.

“It thus serves the interest of the PBM for the drugmaker to raise prices. ‘When the list price goes up, your patient responsibility goes up, so the patient ends up paying more,’ Anderson said. ‘The PBM makes money because, when the list price goes up, the rebate is larger. But the patient loses, because their cost sharing is based often on the list price.’

“Since the PBM controls the formulary that says which drugs are covered in a given plan, Anderson and others point out, it is also in the interest of a drug company to raise list prices if it wants the PBM to give its drugs preferential treatment.

“A wrinkle in federal law allows that to happen. Typically in federal contracting, if someone sets a high price to give the buyer a cut, it’s considered a bribe or a kickback, and it’s illegal. But the law that created the Part D drug program carved out what’s known as a safe harbor to allow such deals in the hope that negotiations would lower overall costs.”

However, a rule issued by the Trump administration would eliminate that “safe harbor” by taking it away from the PBMs and giving the rebate to customers at the pharmacy counter.

However, the PBMs went to court to challenge the rule.  In addition, the Congressional Budget Office predicted that, rather than save money, it would end up costing the federal government $177 billion over 10 years because drugmakers would be less likely to provide as many discounts, causing a spike in Medicare drug coverage premiums.

So, because of the way federal government budgeting works, if the Biden Administration delays the implementation of the rule until 2026, that $177 billion is seen as a savings in government spending. Therefore, that money can be spent on something else until 2026 and is not counted as increasing the federal debt.

As a result, that projected savings will be used by Congress to, in part, pay for the new infrastructure bill.  In addition, some of it will also be used to pay for some of the items in the budget resolution that the Democrats hope to pass without any Republican support.

Yes, it’s all very confusing, but that’s how, in brief, the infrastructure bill could affect prescription drugs.

If you would like a more detailed explanation you can go here: