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As pharmaceutical companies have faced more heat for their pricing practices, they’ve found someone else to blame: “middlemen” who extract discounts from drugmakers. But in fact, if it weren’t for middlemen like wholesalers and pharmacy benefit managers, drug prices would be even higher.
When Donald Trump was running for President in 2016, he promised to rein in the high price of prescription drugs. “I’m going to bring down drug prices,” he told Time after he’d won the election. “I don’t like what has happened with drug prices.”
The pharmaceutical lobby developed a PR strategy in response to Trump’s promise: blame the middlemen. Pharmaceutical companies, they came to argue, were being forced to charge high prices for their medicines. This was because nefarious middlemen, like pharmacy benefit managers (PBMs), were demanding discounts and rebates from drugmakers. In turn, the drugmakers were “forced” to charge higher prices to maintain their profit margins.
To use a technical term, that’s balderdash. Nobody forces drug companies to charge high prices. Patients and consumers and taxpayers are removed from the price of the drugs they consume, and therefore don’t always understand how their insurance premiums and Medicare costs keep rising on account of rising drug prices. As a result, in the absence of competition, manufacturers frequently charge the highest prices they believe they can justify in the court of public opinion.
That’s not to say there aren’t ways to reform the way middlemen work when it comes to prescription drugs. Let me explain.
How the drug supply chain works
The price of a medication that you usually see in the newspaper is what’s called the list price, which is essentially the sticker price for a drug. Almost nobody pays the list price; the list price is kind of like when Delta says the price of a full-fare coach ticket from Atlanta to LaGuardia is $1,000. Nobody cares about that price, because the actual price for a non-refundable economy ticket is more like $250.
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