“The increasing cost of prescription drugs has a devastating effect on the pocketbooks of American consumers,” Sen. Maria Cantwell, D-Wash., said in a recent press release. She and Sen. Chuck Grassley, R-Iowa, have a promising prescription for one of the reasons behind those high costs. 

They’ve introduced a bill that would empower the Federal Trade Commission (FTC) to increase drug price transparency and hold pharmacy benefit managers (PBMs) accountable for unfair and deceptive practices that can drive up costs.

Some ​​PBMs, which are used by most insurers to negotiate drug prices with manufacturers, engage in what’s called “spread pricing.” A PBM will charge a health insurer more money to process a prescription than it reimburses the pharmacy, keeping the difference or "the spread." This can needlessly inflate the price of drugs and adversely impact health insurance premiums. The Cantwell-Grassley bill would prohibit spread pricing, and other unfair and deceptive practices, while increasing transparency for consumers.

“PBMs are the middlemen in the prescription drug supply chain and it’s time for Congress to give the FTC the ability to shine a brighter light on any deceptive and abusive practices,” Cantwell continued.

Game on. Bright light is always a good thing and something our state and federal lawmakers should be after. Too often, instead, they go after drug costs with price controls on drug prices or penalties for drug manufacturers. Washington state legislators continued down this misguided road with a new governor-appointed drug board it created this past legislative session. Read more about that unfortunately successful effort in my legislative memo.

Price controls are a short-sighted approach. Setting price limits on goods and services always results in scarcity, with fewer of the price-controlled products being produced and made available to consumers. Government boards with penalty power and price controls don’t take into account the reality that most drug research doesn’t pay off. The final pricing of drugs that do make it to market must compensate for all the money spent on the research and development of previous failures. (Read more here in a policy note from Washington Policy Center.)

Pharmaceutical benefit managers might have a role in the drug market, but only if they are helping, rather than hurting, patients. Higher-than-necessary costs hurt. More transparency and accountability in the Cantwell-Grassley legislation is welcome.