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Congress, President Ban Drug Price ‘Gag Clauses’

November 20, 2018

President Donald Trump signed into law two bills banning “gag clauses,” which prevent pharmacies from informing consumers they can save money by purchasing prescriptions out of pocket instead of through their health insurance provider.

Traditionally, these clauses have been included in contracts between pharmacies and insurance companies via pharmacy benefit managers (PBMs), which are firms that negotiate prices with pharmacies and drug manufacturers on behalf of employers and insurance companies.

‘Citizens Deserve to Know’

The new laws, signed by Trump in October, are the Patient Right to Know Drug Prices Act (PRKDPA), which applies to private health insurance plans, and the Know the Lowest Price Act (KLPA). Trump says they will bring much-needed transparency to prescription drug prices.

“Our great citizens deserve to know the lowest prices available at our pharmacies, and now that is what they are getting,” Trump said upon signing the bills.

Consumers “will be able to see pricing, and they’ll be able to see where they should go, and as they start leaving certain pharmacies, those pharmacies will be dropping their prices,” Trump said.

Some states have already passed legislation banning deals that prevent pharmacists from disclosing this information to patients. The new laws ban the practice nationally.

In a press release issued before Trump signed the PRKDPA, Sen. Susan Collins (R-ME) said, “Multiple reports have exposed how this egregious practice has harmed consumers, such as one customer who used his insurance to pay $129 for a drug when he could have paid $18 out of pocket. Americans have the right to know which payment method—insurance or cash—would provide the most savings when purchasing prescription drugs.”

KLPA affects Americans enrolled in Medicare and will go into effect in 2020. The bill’s sponsor, Sen. Debbie Stabenow (D-MI), said, “Customers have the right to know the lowest price available to them at the pharmacy. There is still a lot of work to be done to lower the cost of prescription drugs, but our legislation is an important step forward.”

‘Skimming a Lot of Profits’

William Smith, a visiting fellow at the Pioneer Institute, says although PBMs are supposed to negotiate drug prices between manufacturers, pharmacists, and health insurance companies to get the lowest prices for consumers, they have come under increasing criticism for manipulating the system in search of higher profits.

“PBMs are consultants to help insurance plans negotiate the most cost-effective prices for consumers,” Smith said. “But some are arguing they have become a business in and of them- selves, ... skimming a lot of profits for themselves and not necessarily serving consumers or their clients.”

Smith says generic prescription drugs, which are off-patent and more affordable because of greater competition, can be sold directly to consumers for cash at a lower price than the branded versions the PBMs have the insurance companies pay for.

“Drug costs drop dramatically for generics,” Smith said. “There is very little manufacturing cost. Some drugs can be sold for very small money. But the PBMs come in, see they can pay, say, $5 for a drug, and they decide they can make a huge profit because the patient is completely unaware. Consumers think they must pay $15 for the drug, but the PBM only charged $5, and the pharmacist is under contract with the PBM not to tell patients they can pay less in cash.”

Pharmacists Blew Whistle

Smith says consumers have their local pharmacists to thank for the banning of gag clauses.

“PBMs were making an enormous profit off a consumer completely unaware that if they pay cash they can pay much less,” Smith said. “To their credit, pharmacists raised this issue. They really wanted to be transparent.”

‘Should Help Lower Costs’

Matthew Glans, a senior policy analyst at The Heartland Institute, which publishes Health Care News, says transparency increases pressure in the market to lower costs and improve performance.

“Price transparency promotes competition and helps to enhance product quality,” Glans said. “When consumers are able to actively shop and compare prices, market pressures encourage providers to produce a more affordable, high-quality product. If they don’t, they risk losing out to their competitors. Ending gag clauses will empower consumers to shop more efficiently and should help lower costs across the board.”

Jake Grant (jakeg42294@gmail.com) writes from Alexandria, Virginia.

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