Is Government Intervention in Health Care a Trend?

Pharmacy TimesOctober 2020
Volume 88
Issue 10

Americans are frustrated by high drug prices, even though 80% of the money spent on prescription drugs goes toward just 10% of prescription fills.

Americans are frustrated by high drug prices, even though 80% of the money spent on prescription drugs goes toward just 10% of prescription fills.

Increasingly, lifesaving drugs that come to the market with eye-popping price tags are fodder for advocates claiming that health care costs out of control. Americans rate high drug prices as their No. 1 health care issue in surveys, with increasing support for direct government negotiations for the Medicare program.1 (Note that money spent on prescription drugs is still less than 10% of our national health care spend after rebate).

PBMs Frustrate Purchasers

Pharmacy benefit managers (PBMs) are having a hard time staying out of the news. Much of the public awareness of PBMs started with a May 2018 CBS “60 Minutes” investigation into Rockford, Illinois, municipal employees overusing 6-figure medications, highlighting how everyone in the supply chain makes more money, the more money that spent.2 Chief among the criticism was a lack of fiduciary duty on the part of the PBMs for not putting the clients’ best interests first. Arkansas, Ohio, and many other states since have had high-profile, publicly released findings of hundreds of millions of payments to PBMs in question, through journalistic as well as government auditors. The New York State Comptroller found in September 2020 that more than $700 million in questionable payments for pharmaceuticals had been made by the Medicaid program, affirming support for the state’s plans to move back to a transparent fee-for-service reimbursement model.3

From California To Louisiana

Not long ago, California became so frustrated with the lack of supply chain transparency, the state proposed group purchasing for its drug supply and then took the extraordinary step in 2020 of proposing to manufacture its own brand of generic drugs.4 When next-generation hepatitis C medications came to the market, Louisiana proposed purchasing an unlimited supply of medications for a fixed price for all the state’s Medicaid enrollees rather than use the traditional system, which would deny patients who had not progressed as far with the disease.5 It seems to make sense to pay a fixed amount and attempt to cure everyone with hepatitis C, rather than pay a little less and treat a much smaller number of enrollees, leaving the asymptomatic or latent stage patients to progress toward morbidity and mortality.

Pandemic Unearths Nearly Forgotten Law

More recently, the Defense Production Act (DPA) has been dusted off and used or proposed for procuring personal protective equipment, point-of-care testing analyzers, test kits for COVID-19, and ventilators. Passed originally in 1950 in response to the start of the Korean War, the DPA authorizes the US government to compel the private sector to prioritize government purchase of products and services necessary for national defense. This year, the DPA was used to take at least 15,000 point-of-care testing analyzers off the market and to be given to skilled nursing facilities. In late August 2020, Abbott was awarded a deal for $760 million to deliver 150 million rapid result tests, which could be potentially deployed to schools and used to serve other special needs populations.

A Workaround That Has Been Around But Not Used Prior At Scale

Oh, Canada! Your drugs are cheap and safe. Americans can still choose to travel to Canada to purchase their medications (assuming that the border is open), but reimportation is not part of the commercial supply chain. Recently, the Trump administration announced its intention to allow states to import drugs from Canada. Long discussed but heavily lobbied against, reimportation has been an active policy discussion for more than 2 decades and was arguably the final impetus to pass Part D provisions in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 as reliable elderly voters increased the pressure for affordable medications. The announcement was short on details but precedent-setting, nonetheless.

Direct Government Subsidization of Patient Consumer Purchases

Also in September 2020, the Trump administration announced a plan to send $200 discount cards to Medicare enrollees, ostensibly for offsetting enrollee cost sharing. Much like with reimportation, drug discounts and subsidies direct from the federal government are directives without details. Although some may dismiss the effort as simply an election-year overture, the idea of going around the traditional third-party system of health care financing and administration (PBMs and insurance plans) could gain traction. Future politicians may see this government-administered direct subsidy option as an “easy button” way to impose policy into the private marketplace.

Where Do We Go From Here?

Direct negotiation of drug prices and a national formulary seem to be on the table. Government ownership of parts and pieces of the supply chain are under way. Direct contracting for services with pharmacies has already happened through COVID-19 collection site contracts and potentially will happen in 2021 with COVID-19 vaccination. Pharmacy reimbursement could come into play. Basing reimbursement of pharmacy acquisition cost through surveys is already popular among Medicaid programs through National Average Drug Acquisition Cost pricing. Could we move in the direction of other countries, where pharmacy reimbursement is set by the government through negotiation with the private sector rather than letting the private sector determine such reimbursement? Leaving the merits aside, it is not farfetched to make the argument that community pharmacies are an essential workforce for chronic disease, national defense, and pandemics, and thus ought to have a national reimbursement floor for each prescription dispensed.


  • Levy NM. High drug costs outweigh ‘Medicare for all’ as top healthcare issue for voters. Los Angeles Times. January 21, 2020. Accessed October 4, 2020.
  • Stahl L. The problem with prescription drug prices. 60 Minutes. May 6, 2018. Accessed October 4, 2020. https://www.cbsnews. com/news/the-problem-with-prescription-drug-prices/
  • Fries A. DiNapoli: New York paid over $700M in improper Medicaid benefits. The Times Union. September 22, 2020. Accessed October 4, 2020.
  • Lin J, Aguilera E. Gov. Gavin Newsom to proposed that California manufacture its own generic drugs. CalMatters. July 8, 2020. Accessed October 4, 2020.
  • Deslatte M. Louisiana reaches ‘Netflix-model’ deal to tackle hepatitis C. Associated Press. June 26, 2019. Accessed October 4, 2020.

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