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The real Roots of High Drug Prices: It’s Not Just Pharma
The Illusion of Greedy Pharma
For decades, the narrative surrounding high drug prices has centered on the perceived greed of pharmaceutical companies. While profit motives undoubtedly play a role, focusing solely on this aspect obscures a far more complex web of factors driving up costs for patients. A deeper examination reveals a system riddled with perverse incentives, regulatory hurdles, and a lack of transparency that benefits multiple players – not just drug manufacturers.
The Role of Pharmacy Benefit Managers (PBMs)
Pharmacy Benefit Managers (PBMs) act as intermediaries between drug manufacturers and health insurers, negotiating rebates and discounts. Though, the opacity of these negotiations and the lack of pass-through requirements mean that these savings frequently enough don’t reach patients. In fact, PBMs have been accused of prioritizing their own profits over patient affordability, incentivized by maximizing rebates rather than securing the lowest net drug costs. The three largest PBMs - CVS Caremark, Express Scripts, and OptumRx - control roughly 80% of the market, creating significant leverage.
This system creates a conflict of interest. PBMs are paid to lower costs,but they also benefit from higher list prices because larger rebates are generated from them. A 2021 report in Health Affairs found that PBMs often exclude drugs from formularies based on rebate agreements, even if those drugs are clinically appropriate for patients.
Patent Thickets and Evergreening
While legitimate patents are crucial for incentivizing pharmaceutical innovation, the practise of evergreening
– extending patent protection through minor modifications to existing drugs – significantly delays the entry of generic competition. This allows manufacturers to maintain monopoly pricing for longer periods. A recent Federal Trade Commission (FTC) report detailed how pharmaceutical companies actively exploit patent laws to stifle competition, costing Americans billions of dollars annually.
The US Regulatory Landscape & Lack of Negotiation
Unlike most other developed nations, the United States government does not directly negotiate drug prices with manufacturers for Medicare, the largest purchaser of prescription drugs. This lack of bargaining power leaves Medicare vulnerable to inflated prices. The Inflation Reduction Act of 2022 represents a significant
