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Pharmacy Benefits and the Free Market

rx-01-01Who’s interested in the issues surrounding pharmacy reimbursements? I’m sure few of you raised your hands. You may not imagine it, but how pharmacy benefit managers reimburse pharmacies is a hot topic in the Arkansas legislature. However, the deeper debate is about regulation and the free market.
A pharmacy benefit manager (PBM) does just what its name says – it manages pharmacy benefits. Health plans or corporations that provide their own health insurance use PBMs to manage the prescription drug benefits they offer. It’s a market innovation that these plans use in an attempt to control cost. They can negotiate for better payment rates, push for the use of generic drugs, and do other things that bring the cost of prescription drug plans down.
Now, a lot of pharmacists don’t like them. That’s understandable. If you are the owner of an independent pharmacy, you probably have little leverage when it comes to dealing with a large PBM. A PBM’s push to control cost cuts into your bottom line.
Because pharmacists don’t like what PBMs are doing, they are pushing Arkansas legislators to approve SB 688. This would regulate the reimbursement system PBMs use with pharmacists. The details are complicated, but in essence they reduce the ability of PBMs to use cost control measures.
I’m not an expert in how drug payments and pharmacies and PBMs work. However, I doubt that there are many experts in the Arkansas legislature on this topic. That’s the problem with laws like SB 688. Their language means legislators are setting in place regulations that will have effects that are difficult or impossible for even an expert to predict.
For me, it this debate really comes down to a fight about free-market principles. From what I can tell, with SB 688 pharmacists are trying to use the power of the state to force PBMs to deal with them on more favorable terms.
I can certainly see the merit in the argument that insurance companies are too large, and that mom-and-pop pharmacists can’t deal with them on an equal basis. If the insurance companies are too large, this is not the type of legislation that should be used to deal with this problem. Let’s get to the real issue – federal laws that have enabled these insurance companies to grow so big.
Obamacare, for instance, strengthens the role of insurance companies in our health care system. It mandates that people buy their products while providing subsidies for many who do. The federal government also gives a tax preference to employer-sponsored health insurance plans. The only reason insurance companies have so much leverage in the market is because of federal (and, to a lesser extent, state) laws and regulations.
I feel for the pharmacists that are being squeezed by the cost-cutting measures of big insurance companies. But the answer to this issue is not another layer of government regulation in our health care system. It’s the embrace of free market health care principles in Little Rock and in Washington, D.C. Adding more bureaucracy to an already heavily-regulated system will only further distort the problems that government meddling has caused.

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One thought on “Pharmacy Benefits and the Free Market

  • Danny Smith

    All consumers need to support their local pharmacies in this fight against unfair trade practices by the giant PBM’s. This will help ensure a competitive market place now and in the future for prescription drugs. If the PBM’s were not so short sighted they would easily see this. Under the current system of allowing PBM’s to reimburse smaller drug stores at a rate below their actual acquisition price they will not survive. When the only Pharmacies left are Wal-Mart, Walgreens and CVS the PBM’s will see what a sucker punch they have fell for. The big 3 left standing will resort to what is called parallel pricing which is absolutely legal.
    Parallel pricing is what the major pharmaceutical manufacturers do everyday and it is legal. If I’m selling gasoline and I drive by one of my competitors and see that I am 10 cents cheaper per gallon of gas then there is nothing illegal about me going back to my business and raise my price say 9 to 11 cents a gallon. As long as I didn’t stop and talk to my competitor about it then it is perfectly legal. What then is there to stop me? Nothing but competition! When there are only the big 3 left in the marketplace then you have a marketplace where there is not enough competitive competition. They will have the upper hand over the PBM’s and the result will be that prices will sky rocket.
    This country needs a Justice Department with a spine. Over the past 30 years they have allowed big merger after big merger to take place and every time it results in less competition in the market place and higher prices. Take a few minutes and think about it. What were you paying per gallon of gas before Exxon-Mobil and Chevron-Texaco were allowed to merge. Roughly $1.30 to 1.50 per gallon. Compare this to the last 10 years gasoline prices.
    We desperately need a need round of competition and innovation in this country. Politician after Politician continues to tell us that Washington DC is broke. Why is it broke? Because it is consumed with serving the beast, i.e. BIG business interests and the beast is never completely full or satisfied. Break this beast up and all of the sudden all of the parts of the beast have to learn to survive on their own. The result is competition and innovation.


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