The bureaucracy is the problem.
Today, nearly all Americans agree that drug prices are too high. The average annual per capita spending on medications is over $1,000 and climbing. These sky-high costs burden working-class families with yet another expense, reducing their ability to save, invest, or buy other needed items.
In response to this urgent matter, politicians are singling out pharmacy benefit managers (PBMs), the financial negotiators between pharmaceutical companies and pharmacies. The Federal Trade Commission (FTC) released a report in 2024 accusing PBMs of price-gouging and is currently suing one of these managers over insulin prices. The House Oversight Committee has made PBMs the primary target of its drug price-fighting efforts, rehashing the FTC’s accusations of profiteering.
But the real culprit of overpriced medicine isn’t PBMs—it’s the bureaucracy.
The FTC’s report relies on misleading claims and comes to fundamentally flawed conclusions on the drug pricing issue. It uses a small, unrepresentative sample of less than 2% of all drug expenditures—in particular, the specialty generic drugs that are the biggest outliers in price markups—to make sweeping claims about the industry writ large.
Furthermore, the paper ignores PBMs’s operating costs in order to claim they are substantially jacking up prices for Americans. In reality, the gross and operating margins of PBMs are under 10%, which is substantially lower than most industries. For example, the average markup price for coffee shops is 25-30%, for grocery stores is 30%, and for clothing stores is 120-160%.
Unfortunately, the actions being taken against PBMs are just a new form of government overreach. Rather than making things more affordable, it will only harm American jobs and bring about higher drug prices. The country clearly voted against the swamp last November. Why should we empower them now?
Since the real barriers to entrepreneurial competition are slow government agencies and a mountain of laws, the answer to lowering drug prices lies with deregulation and an expedited drug approval process.
Currently, pharmacies pay doctors an “advisory fee” to provide basic patient services such as prescribing over-the-counter drugs. This additional expense comes as a result of the overly restrictive scope-of-practice laws. Reforming these laws would lower prices, with the time and costs spent on such unnecessary regulatory hurdles gone. Without the forceful hand of government, scope-of-practice reform is an example of a deregulatory policy that could organically improve healthcare affordability.
Likewise, an accelerated timeline to approve new medications could shake up the industry. Faster clinical trials, less disclosure paperwork, and streamlined standards (among other things) would bring about the government efficiency that so many champion today. In turn, serious marketplace competition would drive prices down for the drugs everyone needs.
All Americans want healthcare to be accessible and affordable. The fight against PBMs comes from a well-intentioned place and should not be casually dismissed. But overregulation comes with unintended consequences. The attacks on PBMs stem from a misunderstanding of the basis of drug pricing and business expenses.
The efforts to make America healthier and prosperous hinge heavily on our finances. Messing with the pricing mechanisms of different industries may seem like a quick fix. But it’s not the solution that Americans who want to drain the swamp are looking for.
The American Mind presents a range of perspectives. Views are writers’ own and do not necessarily represent those of The Claremont Institute.
The American Mind is a publication of the Claremont Institute, a non-profit 501(c)(3) organization, dedicated to restoring the principles of the American Founding to their rightful, preeminent authority in our national life. Interested in supporting our work? Gifts to the Claremont Institute are tax-deductible.
