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Pharmacy Benefits and the Free Market

Updated: Apr 13

Who’s interested in the issues surrounding pharmacy reimbursements? I’m sure few of you raised your hands. You may not imagine it, but how pharmacy benefit managers reimburse pharmacies is a hot topic in the Arkansas legislature. However, the deeper debate is about regulation and the free market. A pharmacy benefit manager (PBM) does just what its name says – it manages pharmacy benefits. Health plans or corporations that provide their own health insurance use PBMs to manage the prescription drug benefits they offer. It’s a market innovation that these plans use in an attempt to control cost. They can negotiate for better payment rates, push for the use of generic drugs, and do other things that bring the cost of prescription drug plans down. Now, a lot of pharmacists don’t like them. That’s understandable. If you are the owner of an independent pharmacy, you probably have little leverage when it comes to dealing with a large PBM. A PBM’s push to control cost cuts into your bottom line. Because pharmacists don’t like what PBMs are doing, they are pushing Arkansas legislators to approve SB 688. This would regulate the reimbursement system PBMs use with pharmacists. The details are complicated, but in essence they reduce the ability of PBMs to use cost control measures. I’m not an expert in how drug payments and pharmacies and PBMs work. However, I doubt that there are many experts in the Arkansas legislature on this topic. That’s the problem with laws like SB 688. Their language means legislators are setting in place regulations that will have effects that are difficult or impossible for even an expert to predict. For me, it this debate really comes down to a fight about free-market principles. From what I can tell, with SB 688 pharmacists are trying to use the power of the state to force PBMs to deal with them on more favorable terms. I can certainly see the merit in the argument that insurance companies are too large, and that mom-and-pop pharmacists can’t deal with them on an equal basis. If the insurance companies are too large, this is not the type of legislation that should be used to deal with this problem. Let’s get to the real issue – federal laws that have enabled these insurance companies to grow so big. Obamacare, for instance, strengthens the role of insurance companies in our health care system. It mandates that people buy their products while providing subsidies for many who do. The federal government also gives a tax preference to employer-sponsored health insurance plans. The only reason insurance companies have so much leverage in the market is because of federal (and, to a lesser extent, state) laws and regulations. I feel for the pharmacists that are being squeezed by the cost-cutting measures of big insurance companies. But the answer to this issue is not another layer of government regulation in our health care system. It’s the embrace of free market health care principles in Little Rock and in Washington, D.C. Adding more bureaucracy to an already heavily-regulated system will only further distort the problems that government meddling has caused.

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