Secretive pharmacy middlemen drive up Iowans’ drug costs

Iowa’s U.S. Sen. Chuck Grassley again is turning his attention to exorbitant pharmaceutical prices.

Grassley this year has filed a series of bipartisan bills meant to give Americans access to cheaper drugs. He’s calling special attention to an industry of secretive middlemen in the pharmacy business.

Grassley and his fellow Republicans are firmly opposed to price-setting regulations, but they see a role for the federal government to play in ensuring transparency in the industry. Market forces are conspicuously absent in the health care industry, which conservative reformers say leads to higher prices and worse outcomes.

“The pricing supply chain needs a big dose of transparency to rein in anti-competitive shenanigans that cause sticker shock at the pharmacy counter,” Grassley wrote in a recent statement.

Pharmacy benefit managers, or PBMs, work between insurance companies and pharmaceutical manufacturers to negotiate drug prices. In theory, they are intended to keep drug prices down but in practice they might be responsible for driving up drug costs.

The companies, Grassley says, operate under “a web of secrecy.” They often arrange discounts in the form of rebates, but due to a lack of transparency in the system, some unknown portion of those savings are withheld by PBMs instead of being passed along to consumers. That gives them an incentive to keep prices high so they can reap bigger rebates.

PBMs are big business, with three companies reportedly controlling as much as three-fourths of the market. Given their size, insurers and drugmakers have little choice but to do business with them. Small, independent pharmacies like those in Iowa’s rural communities face particular pressure under the prevailing scheme.

It’s an issue The Gazette has been tracking for a few years.

'We don't have a choice not to work with them,” Matt Osterhaus, owner of Osterhaus Pharmacy in Maquoketa, told The Gazette in 2019. 'It's not an even playing field. Being an independent pharmacy in that environment, that's a major challenge.”

At the Iowa Ideas conference last year, a panelist of experts discussed issues related to PBMs. Iowa Insurance Commissioner Doug Ommen said state regulators have no real way to mandate more transparency or lower prices. A representative for the Iowa Pharmacy Association lamented PBMs’ role in the health care system has gone largely unnoticed.

Grassley and a bipartisan group of colleagues last month introduced a bill that would direct consumer protection officials to conduct an investigation over PBMs’ business practices, which the senators argue could represent illegal anti-competitive behavior.

Under the legislation, the Federal Trade Commission would scrutinize mergers among PBMs that have consolidated the industry between a few players. Watchdogs would look into whether PBMs are suppressing access to lower-cost drugs and setting up special deals to enrich pharmacies in which they have an ownership stake.

Other bills on Grassley’s agenda this year would lift restrictions on generic and biosimilar drugs, which are cheaper than their name-brand alternatives. He’s also backing legislation to allow drug imports from Canada.

Pharmaceutical pricing is a complicated and wonky subject, but it affects millions of Americans each month when we go to the store to pay for our prescriptions. There is widespread bipartisan agreement in Washington, D.C. that something ought to be done, but Republicans and Democrats in recent years have not been able to strike a significant deal to reign in drug prices.

Cracking down on PBMs and injecting some transparency into the system is not a cure-all, but it would be a good step in the right direction. Reforms like the ones Grassley is pitching are popular among voters and have bipartisan support among lawmakers. Congress should act on it.

(319) 398-8262; editorial@thegazette.com