Retailers and Drug Pricing: A Closer Look

How do major retailers like Amazon and Walmart manage to keep prices low for their customers? Well, it’s largely because they purchase significant quantities from suppliers, allowing them to negotiate discounts. This same principle is seen in the healthcare realm, particularly with pharmacy benefit managers (PBMs), who negotiate prices with drug companies. Ultimately, the responsibility to maintain this system lies with the Trump administration.

On September 29, the Federal Trade Commission took a step closer to addressing a case related to PBMs, initially filed by the Biden FTC. A successful settlement would directly benefit consumers while affirming the essential role that PBMs play in discussions with pharmaceutical companies to reduce drug costs.

PBMs represent the interests of employers, insurers, and patients, managing over 90% of U.S. prescriptions. This gives them considerable power to demand discounts and rebates from the pharmaceutical industry.

The context of the FTC’s case is quite striking—there was a staggering 1,200% increase in insulin prices from 1999 to 2017. The Biden FTC argued that when cheaper insulin options became available, PBMs frequently excluded them, favoring higher-priced products because they generated larger rebates for themselves.

When I assumed leadership of the House Energy & Commerce Committee’s Health Subcommittee, I had reservations about PBMs, influenced by negative advertisements I later learned were funded by pharmaceutical companies. However, upon reviewing the evidence, I found a different story than what some major players in the industry would have you believe.

Employers that hire PBMs generally appreciate their services. They operate somewhat like bulk buyers at a market, utilizing their scale to secure better deals. If they weren’t purchasing in bulk, they would lack the necessary leverage to negotiate effectively, which could lead to increased prices.

Sure, like any sector, there may be a few bad actors or questionable practices. Those should certainly face consequences. Yet, the overall benefits of PBMs are evident.

The FTC itself acknowledges that PBMs pass on a significant portion of rebate dollars—between 90% to 98%—directly to their clients. This begs the question: does the Biden FTC genuinely believe its own claims?

After all, Lina Khan, the chair of the Biden FTC, has indicated a willingness to pursue cases that might not stand legal scrutiny, believing that doing so could push for legal reforms in line with progressive ideals.

Instead of pursuing the PBM case in federal court, the FTC opted to handle it within its administrative court system, effectively serving as both prosecutor and judge. If there’s doubt about a fair trial from an outside judiciary, that’s not a reassuring sign.

All of this highlights the need to settle the PBM case, especially now that Trump appointees are in key positions at the FTC.

Resolving this issue would safeguard consumers while enabling employers to hold pharmaceutical companies accountable.

In other words, the FTC could address actual misconduct while maintaining the buyer coalition that keeps pressure on Big Pharma.

Just like Amazon or Walmart would leap at a chance to secure lower prices for millions, the same approach should be adopted in Washington.