OPINION:
Earlier this year, Arkansas Gov. Sarah Huckabee Sanders outlawed anti-competitive practices in the pharmacy industry, and lobbyists are hopping mad about it. There are many reasons drug prices are inflated, but she realized some of the biggest retailers have figured out how to game the system.
“These massive corporations are attacking our state because we will be the first in the country to hold them accountable for their anticompetitive actions, but Arkansas has never been afraid to be a conservative leader for America,” Mrs. Sanders said in a statement after she signed a bill in April prohibiting pharmacy benefit managers (PBMs) from owning pharmacies.
Pharmacy benefit managers are the middlemen who negotiate rates between pharmaceutical manufacturers, insurance companies and pharmacies. These organizations were supposed to keep costs low for customers through volume discounts, rebates and generic substitution. It hasn’t worked out that way.
In Arkansas, the three largest middlemen are CVS Caremark, Cigna and Optum (an offshoot of UnitedHealthcare). The latter two are giant insurance companies that run HMOs. Combining insurance, doctors writing prescriptions and pharmacies fulfilling those prescriptions in a single package raises a potential conflict of interest.
An insurance company might have an incentive to deny coverage or reduce benefits for patients trying to buy cheaper drugs at an independent pharmacy, which might otherwise be able to offer better service for less money. That was the thinking behind the new law in Arkansas.
CVS sued Mrs. Sanders, claiming her policy is a simply a protectionist ruse designed to hurt out-of-state pharmacies for the benefit of the in-state pharmacies — like Bentonville-based retailer Walmart. “Walmart has announced plans to expand its pharmacy offerings in Arkansas, and has seen a huge uptick in prescription orders since HB 1150 was enacted,” the lawsuit states.
That would be persuasive if attorneys general in 38 other states didn’t also recognize the anticompetitive behavior. “Over the past few decades, horizontal consolidation and vertical integration have transformed PBMs from useful administrative service providers into market-dominating behemoths that control the industry,” the officials wrote in a letter to the congressional leadership.
Signatories include right-of-center stalwarts like Missouri’s Andrew Bailey and Virginia’s Jason Miyares, each asking Speaker Mike Johnson and Senate Majority Leader John Thune to impose nationwide regulations that mirror what Mrs. Sanders has done.
Some Republican senators are already on board. During a Judiciary Committee hearing in May, Missouri Sen. Josh Hawley slammed integrated PBMs. “You’re like one big, huge pharma industry… This looks like classic monopolist behavior. The patients are getting screwed, Missourians are getting screwed, and you’re getting rich.”
A study conducted by the University of Southern California’s Neeraj Sood found 40% of total spending on drugs goes into the pockets of insurers, PBMs and pharmacies. “This finding was striking, because it challenged the conventional narrative that manufacturers were solely responsible for high prescription drug costs,” Mr. Sood testified. Those supply chain firms — often one and the same company — enjoyed profit margins out of step with the rest of the S&P 500.
The Federal Trade Commission confirmed the findings with a report in January showing PBMs marked up specialty drugs by up to $1,000 per prescription compared to costs at a pharmacy not affiliated with a PBM.
It’s easy to lose sight of what’s happening because of how complicated healthcare has become, mostly because of government meddling. While intervention tends to worsen outcomes, Congress ought to consider what might be done to address problems that existing regulations have introduced.
Please read our comment policy before commenting.