Economics of “Delinking” Are Still Not Good
Alex Brill | Commentary
As the 118th Congress wraps up and sends the remaining “must pass” bills to the President’s desk, the fate of multiple “may pass” health policy matters remains unknown. Republican leaders in both chambers are contemplating which issues to address before President-elect Trump takes office and which issues to defer until a future date. One obvious political strategy for Republicans is to enact proposals that are both necessary and ordinary and defer those that may run counter to Trump’s expected deregulatory agenda and those that the Congressional Budget Office deems to save money. From this perspective, extending flexibilities for tele-health in Medicare and other expiring health policies are reasonable. One policy not to pursue is regulating the business activities of pharmacy benefit managers (PBMs).
More than a year ago, I wrote about the negative impact of a policy proposal known as “delinking.” This policy would prohibit PBM compensation from being tied to a drug’s list price, which would effectively remove an incentive for PBMs to negotiate with drug manufacturers for the lowest net price. Analyses of delinking, including my own, have shown that it would lead to higher costs for patients and taxpayers and put more money in the pockets of brand drug manufacturers. Little wonder then that delinking is still a favorite of the brand drug industry.
In a working paper published last year by the National Bureau of Economic Research, University of Chicago Professor Casey Mulligan estimated that a delinking proposal applied to Medicare Part D would result in premium costs rising by $4 billion–$13 billion and drug manufacturer profits increasing by $3.1 billion–$10.6 billion.
In my own analysis, I extrapolated Mulligan’s model to the commercial market to examine the impact of delinking if it were imposed outside of Part D. This analysis showed that the effect of delinking in the commercial market would be a $5 billion–$16 billion increase in premium costs. In total, drug manufacturer profits would increase by more than $32 billion.
As the Biden administration winds down and the transition to the Trump administration gets underway, Republican lawmakers would be wise to refrain from cramming new government mandates into our healthcare system in an end-of-year spending package.
