The White House’s about-face on drug rebates is a loss for public health

Even in the complicated ecosystem of drug pricing, one fact stands out: $166 billion in discounts from pharmaceutical companies go directly into the coffers of pharmacy benefit managers. That’s 37% of our nation’s entire expense on drugs.

Not a single dollar of that largesse is used to reduce patients’ out-of-pocket costs when they need medicines. So when the White House boldly developed a rule to change the dynamic by banning many rebates drug companies pay to pharmacy benefit managers under Medicare, policy experts applauded. That proposed rule died last night, the victim of intense lobbying and general ignorance. Who loses? Patients. Who wins? The status quo.

When a group of pharmaceutical CEOs testified before the Senate Finance Committee in February, Pfizer CEO Albert Bourla said he supported “reforms that would create a system in which transparent, upfront discounts benefit patients at the pharmacy counter, rather than a system driven by rebates that are swallowed up by companies in the supply chain.” When asked if they would lower prices if the pharmacy benefit managers played fair, every hand on the panel went up.

Now the pharmaceutical industry is off the hook. So are the big payers. And important systemic change is off the table and the status quo rules. What happens to health care reform when all we’re left with are silly soundbite solutions like “drugs from Canada” or “price controls from Slovakia”? That’s no win for patients.

For shame, Mr. President. Was all of that really just political theater?

Pharmaceutical company rebates to pharmacy benefit managers that are tied to formulary restrictions create an incentive for entrenched market leaders to “bid” incremental rebates to prevent or limit access to competitive medicines. This model, coupled with escalating cost-sharing requirements, harms patients by driving up prices, which results in reducing access to innovative drugs.

Allowing pharmacy benefit managers to continue with business as usual means a continued disincentive to promote a more aggressive uptake of both biosimilars and less-expensive generic drugs. Worse, reinforcing the status quo moves us even further away from a health care ecosystem based on competitive, predictable, free-market principles and not outrageous solutions like “Medicare for All.” Zany ideas don’t solve complicated public health problems. There are no simple solutions to complex obstacles — and politicians hate that.

Not following through on the proposed rule to ban rebates is harmful to patient health and the public purse. One of the biggest threats to the body politic is nonadherence to the medicines physicians have prescribed: It causes 125,000 deaths each year and is responsible for 10% of hospitalizations. Why don’t people take their medicines? Often because their copays and co-insurance rates are too high.

Those rates aren’t set by pharmaceutical companies. They’re the domain of the pharmacy benefit managers and insurance companies. During the last five years, pharmaceutical spending has increased by 38% while the average individual health insurance premium has increased by 107%. During the same period, rebates, discounts and fees paid by the biopharmaceutical industry to insurers and pharmacy benefit managers have risen from $74 billion to the aforementioned $166 billion. Facts, as John Adams said, “are pesky things.”

Government policies should encourage rebate dollars to flow back to patients who need to take prescription drugs. Will greater transparency of contracting practices on the state level drive better pharmacy benefit manager behavior? That’s one theory. Such transparency efforts in New York and Connecticut, for example, will be the bellwether. But greed often trumps shame and, without penalties, will the C-suite at Big Payer choose to do the right thing by patients and reduce their hefty profits?

At the heart of the debate is whether we are going to improve our health care system through the use of smart and evolving free-market principles, such as more focused regulation that addresses the exclusionary contracting that locks out savings from biosimilars, or go down the sound-bite-laden path of “free health care.”

Can facts win out over fiction?

All of this is contingent on the executive branch and Congress being honest brokers and not hucksters. As the great health care philosopher Frank Douglas once said to me, “It’s not what you control, it’s what you contribute.”

Taking the heat off of pharmacy benefit managers does nothing to enhance access to essential medicines. The White House’s decision may be a win for the status quo, but it is a lost opportunity for real systemic change.

Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.