Council of Economic Advisers February 2018 Economic Report:
"Reforming Biopharmaceutical Pricing at Home and Abroad"
In February 2018 the President's Council of Economic Advisers released a report on reducing health care and biopharmaceutical drug costs for all Americans. The Council stated that innovation and affordability were not conflicting, that domestic drug prices paid by Americans should be reduced, and the price of better health in the future should be reduced by promoting medical innovation.
The report also criticized PBMs and noted that the PBM market suffers from high concentration and a lack of accountability. Below are their main conclusions:
"Pricing in the pharmaceutical drug market suffers from high market concentration in the pharmaceutical distribution system and a lack of transparency. Pharmacy benefit managers (PBMs) act as buying intermediaries between drug manufacturers and health insurance plans and their beneficiaries. They negotiate rebates off manufacturers’ list prices and then pass on some of the benefit to health insurance plans and beneficiaries. However, the PBM market is highly concentrated. Three PBMs account for 85 percent of the market, which allows them to exercise undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing, thus generating outsized profits for themselves (Sood et al. 2017). Over 20 percent of spending on prescription drugs was taken in as profit by the pharmaceutical distribution system (Sood et al. 2017). The size of manufacturer rebates and the percentage of the rebate passed on to health plans and patients are secret. The system encourages manufacturers to set artificially high list prices, which are reduced via manufacturers’ rebates but leave uninsured individuals facing high drug prices (Sood et al. 2017). Policies to decrease concentration in the PBM market and other segments of the supply chain (i.e., wholesalers and pharmacies) can increase competition and further reduce the price of drugs paid by consumers (Sood et al. 2017)."