Cutting Competition Won’t Solve the Problem of Rising Drug Prices: New NCPA Report

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Overregulating drug plans would raise - not lower - the cost consumers pay for medications.

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Drugs are affordable for most consumers because of competition among Pharmacy Benefit Managers (PBMs). Taking away PBMs’ ability to compete by regulating price transparency would harm consumers in the long run.

Would requiring disclosure of wholesale prices lower prescription drug costs? Experts say no, according to a new report by National Center for Policy Analysis Senior Fellow Devon Herrick.

In a misguided attempt to combat the high prices of some new and specialty drugs, a few politicians and trade lobbyists for pharmacies and drug makers have begun to blame high drug prices on the administrators of employee drug plans – suggesting drug plans are not passing on their discounts to consumers and employers.

This “bogus argument” posits that drug prices would be lower if drug plans were required to disclose the wholesale prices – a requirement that would be detrimental to any wholesale industry. Regardless of the industry, wholesale prices are often negotiated among private parties and are generally considered proprietary.

“If competing hardware stores knew the exact wholesale prices Home Depot negotiated with suppliers, all competing stores would bargain aggressively for the same price. Over time, the likely result is that manufacturers would ultimately set one uniform wholesale price higher than the price volume purchasers would otherwise obtain,” says Herrick.

The end result? Highly competitive firms would no longer be able to leverage buying power and pass on discounted prices to consumers.

“Drugs are affordable for most consumers because of competition among Pharmacy Benefit Managers (PBMs),” adds Herrick. “Taking away PBMs’ ability to compete by regulating price transparency would harm consumers in the long run."

A Bogus Solution for High Drug Costs: http://www.ncpa.org/pub/a-bogus-solution-for-high-drug-costs

The National Center for Policy Analysis (NCPA) is a nonprofit, nonpartisan public policy research organization, established in 1983. We bring together the best and brightest minds to tackle the country's most difficult public policy problems — in health care, taxes, retirement, education, energy and the environment. Visit our website today for more information.

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Catherine Daniell
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