By Salvatore J. Giorgianni
Health Professional
President Trump’s recent executive order on drug pricing did something laudable in today’s healthcare debate. It focused attention where it belongs: on the prescription drug middlemen who have been quietly driving up out-of-pocket costs for decades.
These are the powerful for-profit companies most Americans have never heard of — pharmacy benefit managers, or PBMs. They sit between drugmakers, insurers, pharmacies, and you. They help decide what medicines you can have, how much your insurance covers versus how much you pay, and what medicines pharmacies can even afford to keep in stock. They deliberately operate behind the scenes. Their policies and profit models shape nearly every part of medication access.
The president’s executive order is a step in the right direction. It requires federal health agencies to reevaluate PBM practices, increase transparency, and make our prescription medication supply chain more competitive and accountable. That’s progress.
But in the real world, it’s how the Centers for Medicare & Medicaid Services (CMS) administers the order that will have the most profound impact on bringing down costs. And right now, there’s a real danger that CMS is about to repeat the same structural mistakes that helped create this crisis in the first place — by putting for-profit PBMs in the driver’s seat.
PBMs were created with a clear and admirable mission: negotiate bulk discounts, streamline billing, and pass savings on to patients and payers, minus a modest processing fee.
But over time, PBMs — many of which are now owned by or merged with the same insurance companies they work alongside — flipped that original mission on its head. Instead of saving patients money, they’ve built a business model that thrives on high prices and hidden deals.
Here’s a snapshot of how it works. Every drug has a “list price” — kind of like the sticker price on a car. It’s not what anyone actually pays, but it still matters for one big reason: PBMs get paid based on it. The higher the list price, the more they can collect.
So, they strike deals with drugmakers: give us a big discount off that list price, and we’ll make sure your drug gets preferred placement on insurance plans. But those discounts don’t go to patients. Most people still pay copays or coinsurance, but that out-of-pocket cost will almost always be based on that higher list price. It is a backwards incentive that channels money to these middlemen and not to patients.
Now, CMS is looking to lower patient costs by implementing new pricing rules and reforms included in the Inflation Reduction Act of 2022. It’s an important effort. But if the agency relies on PBMs and insurers to execute these reforms, it will be placing vulnerable seniors’ care in the hands of the same scoundrels who have inordinately profited from the system’s dysfunction for decades.
The result will be the same as it’s always been: more access barriers, more paperwork, and more games with pricing structures all designed to benefit everyone but the patient.
President Trump’s executive order gives CMS and other federal agencies an opportunity to act decisively. But if CMS wants its efforts to bring down out-of-pocket costs to succeed, it can’t rely on the same bad actors to lead the charge. That approach just didn’t work.
And unless we change the current course, we’ll be back here again in a few years, wondering why nothing ever changed and why medication costs remain out of control.
Salvatore J. Giorgianni, PharmD, CMHE is the Vice-President and Cofounder of Healthy Men Inc. and Chairman-Emeritus and Cofounder of the American Public Health Association Men’s Health Caucus. This piece originally appeared in Issues & Insights.