Time for some truth-telling: The White House “healthcare blueprint” has made it clear to industry the status quo is untenable. 

The system has created perverse incentives for payers to favor medicines that carry higher rebates than lower list-priced drugs. This has created an environment where list prices are rising rapidly even as net prices have held steady. 

Why? Because pharmacy benefit managers retain a portion of negotiated rebates and other price concessions as compensation for their services. 

Tactics including restrictive formularies, co-pay accumulators, and prior authorization to pad their own pockets must end. Per the blueprint, if PBMs aren’t willing to accept fiduciary responsibility for their actions, they should be ready for the federal government to step in and take away their anti-kickback exemption.

Zeroing out rebates isn’t a panacea for high costs, but it sends a powerful message: It’s time to pass savings along to patients. The safe harbor concept must evolve to create and support models to improve health outcomes, promote competition, and manage overall healthcare spending. 

As policymakers attempt to inject value into our healthcare system, all participants in the supply chain can and should be paid based on the value they provide.

Rebates are tactics for negotiation and have a place in formulary management.

The problem is list price-based rebates and administrative fees elicit percentage-based payments to middlemen, resulting in a preference for higher-priced products, and can be used to promote anti-competitive behavior.

The bad news for PBMs is the days of hiding behind the “beast of big pharma” are over. The good news for consumers is savvy health policy experts are at the wheel and focusing on free-market solutions. 

Peter Pitts, former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.