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May 22, 2017

Publication Examines Health Care 'Price Transparency' Efforts: Widespread Challenges, Selective Solutions

  Institute for Policy Innovation

DALLAS—Lawmakers pushing for transparency in drug pricing should look beyond asserting more government control over the easy target of pharmaceutical manufacturers, and instead consider the challenge price transparency poses for all sectors of the U.S. health care system.
In a new publication, “Selective Transparency: Transparency Efforts Obscure Real Health Care Pricing Issues,” Institute for Policy Innovation (IPI) Resident Scholar Merrill Matthews, Ph.D., and Center for Medicine in the Public Interest President Peter Pitts examine the challenge consumers face in discovering prices in every sector of the health care system—not just prescription drugs.
“Consumers are understandably angry about rising health care costs, and especially pharmaceuticals.  But high health care costs are the result of a number of factors, including the role of health insurance and the explosive growth of middlemen, especially pharmacy benefit managers,” says Matthews.
Prescription drugs only account for about 10 percent of all health care spending, whereas hospitals account for 32 percent, and physicians’ services comprise about 20 percent. "The fact is that drug manufacturers don’t set the prices patients actually pay—pharmacy benefit managers, insurers, hospitals and pharmacies determine them," said Pitts, a former FDA Associate Commissioner.
Hospitals fabricate prices intended to play the reimbursement game with the government and insurers, says Matthews. And while insurers and pharmacy benefit managers (PBMs) negotiate lower prices from health care providers and drug companies, they keep those agreements proprietary, leaving patients unaware about how much their care actually costs, he says.
“PBMs make a lot of money acting as middlemen, but they don’t actually treat patients,” said Matthews.
While many states lawmakers are considering or have passed legislation they hope will increase prescription drug “price transparency,” they mostly impose more paperwork or price controls, which reduce access to medicines. “Very few of the state bills would actually solve any problems or provide consumers with useful information,” said Matthews.  
Ultimately, Matthews suggests four main ways to reduce prices and increase transparency for pharmaceuticals:

  • Fire the middlemen, as in the case of Caterpillar, which fired its PBM and began negotiating its own discounts;
  • Promote transparent PBMs, which charge flat fees for negotiating discounts;
  • Reduce regulatory burdens, starting with the FDA’s onerous regulatory roadblocks; and
  • Allow new payment models, in which manufacturers can explore innovative approaches for expensive therapies, (e.g. the price of the drug depends on how successful it is).

The Institute for Policy Innovation (IPI) is an independent, nonprofit public policy organization based in Dallas. Copies of  “Selective Transparency: Transparency Efforts Obscure Real Health Care Pricing Issues," are available at IPI resident scholar Dr. Merrill Matthews is available for interview by contacting Erin Humiston at (972) 874-5139, or 


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