Report: Drug plan regulations hurt consumers

Negotiating drug plans, benefits and costs is a competitive process. Large national pharmacy benefit managers (PBMs) compete for the rights to manage health plan members' drug benefits, while pharmacies compete to attract members who need to fill their prescription.

While negotiating is meant to control costs, it ends up hurting consumers, according to a report from the National Center for Policy Analysis. Lawmakers have established regulatory initiatives intended to protect consumers but, in fact, they actually are designed to protect local pharmacies from competition. In turn, regulations reducing competition often boost the profits of local stakeholders--usually at the expense of both consumers and insurers.

The report pointed to harmful regulations that both discourage free market competition and impact consumers. Here are two examples:

  • Limiting mail-order pharmacies. This regulation is meant to protect local pharmacies from having to compete with efficient mail-order pharmacies. The restrictions discourage drug plans from offering members a discount for using a health plan's preferred pharmacy or its mail-order option. In turn, the regulation harms consumers.
  • Obstructing competitive bidding. As of late, insurers have been eager to strike a deal with pharmaceutical companies to keep drug costs low for their members. The outcome of competitive bidding often translates to the lowest bidder winning the near-exclusive rights to dispense a particular medication. However, as the report pointed out, "blatant protectionism through restrictive drug plan regulations may be touted as consumer protections, but more often than not they benefit local pharmacy service providers at the expense of consumers."

Despite regulations to keep drug prices in check, pharmacy cost increases before plan design changes for active employees are projected to be 9.5 percent in 2015 and will continue to rise to 10 percent in 2016, according to an analysis from Aon Hewitt.

For employers looking to keep costs in check for their employees, Aon Hewitt recommended adjusting pharmacy design components to encourage the use of generic drugs. PBMs should programs in place to manage costs as well, the report said.

For more:
- here's the National Center for Policy Analysis report (.pdf)
- here's the Aon Hewitt report