Ending Pay for PBM Performance: Consequences for Prescription Drug Prices, Utilization, and Government Spending | September 2023

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Proposed “delinking” legislation would prohibit Pharmacy Benefit Managers (PBMs) from being
remunerated based on the rebates and discounts they negotiate for drug insurance plans serving
Medicare beneficiaries. This policy would significantly change drug pricing and utilization and
shift billions of dollars annually from patients and taxpayers to drug manufacturers and retail
pharmacy companies. Annual federal spending on Medicare Part D premiums would increase $3
billion to $10 billion plus any concomitant increase in Medicare subsidies for out-of-pocket
expenses. All of these consequences stem from the fact that PBMs are hired to obtain rebates and
discounts but would no longer be compensated based on their results. The quantitative estimates
utilize a large body of economic research showing how much “pay for performance” matters for
economic outcomes. The price-theoretic models also account for various market frictions and
imperfections including market power, coordination costs, tax distortions, and incomplete
innovation incentives.

To read the full paper, click here.


Posted on

September 1, 2023

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