A Free Market Solution for Drug Distribution

 Executive summary

This paper describes and explains the function of Pharmacy Benefit Managers (PBMs) in the American health care economy. PBMs are private businesses that developed in the free market to manage prescription drug benefits for health insurance plan sponsors.

Nearly all Americans have private or government prescription drug insurance coverage that is managed by PBMs. PBMs enhance competition through group purchasing and negotiated discounts that provide substantial economic and health benefits for consumers and taxpayers.

Multiple legislative proposals are pending that would restrict PBM functioning by limiting or eliminating rebates and discounts that pass through PBMs and by requiring PBMs to disclose pricing and other confidential terms of their contracting. But the legislation is likely to be counterproductive, resulting in reduced competition, higher costs, and an end to the natural evolution in the market of terms and arrangements which benefit the actors in the drug distribution system.

Contents
1 Executive summary
1 Introduction
2 PBMs in the prescription drugs market
5 How PBMs create value
7 Counterproductive proposals to restrict PBMs
8 Targeting rebates and discounts
10 Transparency and reporting requirements
11 Conclusion

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Conclusion

PBMs are a pro-competitive creation of the market for prescription drugs that improve consumer welfare. They lower costs for drug insurance plan sponsors and their patient-customers through group purchasing and negotiations on a variety of contract terms leading to lower drug prices, better drug utilization, and improved health. The fact that PBMs have flourished in a free market confirms that they add value for participants in the prescription drug distribution system.

The prescription drug distribution market is not perfect. But the various legislative proposals to restrict PBMs are more likely to make it worse than better. Congress should not enact them. There are signs that new entrants could disrupt the current market, further improving consumer welfare. The market for prescription drugs should be allowed to continue to evolve and become more efficient through negotiations among the market actors.

Joel M. Zinberg, M.D., J.D. is a senior fellow with the Competitive Enterprise Institute, and the Director of the Public Health and American Well-Being Initiative at Paragon Health Institute. He is a native New Yorker who recently completed two years as General Counsel and Senior Economist at the Council of Economic Advisers in the Executive Office of the President. He practiced general and oncologic surgery in New York for nearly 30 years at the Mount Sinai Hospital and Icahn School of Medicine where he is an Associate Clinical Professor of Surgery. He has been involved with health policy issues and the interaction between law and medicine for his entire career. Dr. Zinberg taught for 10 years at the Columbia University Law School as a Lecturer in Law where he created a course on the legal, policy and ethical issues surrounding organ transplantation. He served for many years on the New York State Board of Professional Medical Conduct and on Mount Sinai’s Ethics Committee and Institutional Review Board. He is past President and Trustee of the New York County Medical Society. Between 2015 and 2017 he was a Visiting Scholar at the American Enterprise Institute.

https://cei.org/studies/a-free-market-solution-for-drug-distribution/