Trump promised to lower drug prices. Here’s how Congress practically ensures the opposite

How does a Congress that promises to lower prices end up weakening the bargaining tools that constrain those prices? The answer lies not so much in ideology as in political incentives. Pharmacy benefit managers (PBMs) are shadowy brokers, unpopular with figures like Mark Cuban, Who said luck The way they bargain drug prices is ridiculous, something that would never happen in the same pharmacies that buy a bunch of Pringles potato chips. (Cuban has been directly disrupting the PBM space through his company Cost Plus Drugs.)

If passed, this law would transform PBMs from tough negotiators into micromanaged managers and weaken the tools they use to control drug prices. It is easier to target sales management companies than to confront the suppliers who ultimately set the prices. But in markets where prices are negotiated, weakening the middleman often strengthens the companies on the other side of the table. Here’s how we got here.

Decades of growing influence

For decades, pharmaceutical drug administration has relied on two main mechanisms to reduce drug costs. It’s no coincidence that drug manufacturers — and independent pharmacies — have spent years trying to shift political attention toward PBMs. Hard bargaining works.

The first mechanism used by PBMs is meta leverage. Drug manufacturers that want to establish a preferred formulary—or to avoid exclusion from coverage—must offer better prices. This leverage of PMCs depends on a real threat: lowering the price or losing access to patients.

The law under consideration “decouples” PBM reimbursements from Medicare manufacturer rebates and requires a flat administrative fee, certified at fair market value. It also provides for rebates to be passed on to health plan sponsors in the employer-sponsored marketplace. This may sound attractive, but incentives are important. When compensation is not based on securing better terms, bargaining efforts become a cost center rather than a profit center. Drug administration companies will still compete for contracts, but competition for administrative fees is not the same as competition for aggressive price concessions and will not drive down drug prices.

The second tool for PBMs works downstream. By encouraging patients to use more efficient and less expensive pharmacies, pharmacy management has succeeded in reducing dispensing costs, enhancing patient quality, and enhancing its negotiating leverage in the initial stages. The ability to direct volume toward low-cost, high-value providers creates bargaining power.

The law would expand the “any willing pharmacy” requirement, limiting that ability. In almost every sector, buyers obtain lower prices by shifting volume toward lower-cost providers. When each service provider must be listed on uniform terms, bargaining power is diminished and costs tend to be higher. Greater inclusion may seem consumer-friendly, but in negotiated markets it often shifts costs rather than lowers them.

Of course, none of these tools are cost-free. Formulary exclusions may inconvenience some patients, and encouraging patients to use low-cost pharmacies may mean changing where they fill their prescriptions. But every health care system faces a choice: either tolerate some restrictions or accept higher prices across the board. Negotiating requires leverage, and leverage requires the ability to say no – and reward low-cost drugs and providers with more business.

The irony here is that Congress is weakening cost controls in the name of fighting high drug costs.

Seniors receiving Medicare will pay the price

For decades, reformers have tried to move American health care away from surcharges and open-fee-for-service drugs toward competition, where private plans negotiate hard and shift business to those that offer better value. The new public performance management system will move in the opposite direction: toward regulatory oversight, consolidated participation, and reduced discretion.

All participants in the prescription drug supply chain deserve scrutiny, but weakening the mechanisms that lead to price concessions will not reduce drug spending. The most likely outcomes are gains for pharmaceutical companies, less efficient pharmacies, and higher drug costs. The effects will be particularly felt by seniors in Medicare and smaller employers who lack the leverage needed to offset the new restrictions imposed by the law.

If lawmakers want to lower drug prices, they should enhance competitive pressures, not regulate them and turn them negative. The policy is easy to understand. Brokers attack polls well. It allows lawmakers to appear tough on prices without directly confronting manufacturers. But the economy is less forgiving. Low drug prices require negotiating power. Congress just reduced it. Patients and taxpayers will bear the cost.

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