At his State of the Union Address on Tuesday night, President Biden reiterated his plan to lower prescription drug prices. He called on Congress to pass legislation to reduce medication costs in hopes the policy can jumpstart his broader Build Back Better agenda that’s stalled in the Senate.
Reducing pharmaceutical costs is a popular and bipartisan issue. However, Biden’s proposed solution to put the government in charge of setting drug prices would do more harm than good. A better approach to lowering medication bills is streamlining the convoluted drug supply chain characterized by kickbacks that drive up costs for patients.
According to a Senate Finance Committee report, pharmacy benefit managers (PBMs), which are affiliated with health insurers and control the drug supply chain, are a primary reason for the rising list prices of medications. PBMs demand drug makers pay enormous rebates — nearly 50 percent of a drug’s cost — to secure a spot on insurers’ formularies (the lists of drugs they cover). These rebates get added to the overall cost of a drug, dramatically raising the price tag for patients.
This pay-to-play prescription drug market is entirely responsible for cost increases experienced by Americans. In fact, according to data from the independent organization SSR Health, the net price of prescription drugs, not including rebates, has actually fallen during the past few years. Yet due to skyrocketing rebate demands, list prices have increased and patients have suffered.
PBMs have long been exempt from anti-kickback consumer protections, allowing them to cartelize and profiteer off the drug supply chain. The HHS rule, which was delayed until 2026 after fierce PBM lobbying, would eliminate the kickback carve out for middlemen. Absent rebates, medication prices can fall by nearly 50 percent.
Rebate reform can achieve the drug price savings that patients demand while protecting the innovation pipeline they depend on. Biden should back this cost-free effort to lower drug prices.
Read the full op-ed in Townhall by Dr. Tom Price, former secretary of Health and Human Services, former member of Congress, and the senior health care policy fellow at the Job Creators Network.