Friedberg: Two Reasons Why Drug Prices are So Expensive in America 📈 🫰

As is the case with the cost of education and the cost of housing, the cost of drugs is largely inflated because of the federal government's role in being the primary buyer or capital provider to that market. Through our purchases of prescription drugs, the federal government as a buyer doesn't have any incentive to keep prices low. If every individual had to pay for their drugs or private insurance was the only way to get your drugs, we would have a much more dynamic marketplace. So, the way that we negotiate drug prices is pretty messed up. There's also this construct in the market. These PBMs are pharmacy benefit managers. If they got

cut out of the market, it would save a lot. There's three major PBM, CVS, Caremark, Expresscripts, and Optum RX. They make money in markups. The FTC has been investigating them and have several open cases between 2017 and 2022. The estimate that these companies generated $7.3 billion in excess profit by marking up prices on specialty generic drugs. So as an intermediary, they provide this role where they can coordinate between the health insurer, the pharmacy, which dispenses the drugs, and the drug manufacturer, but they're allowed to be owned by the payer, which is crazy. And now they're allowed to be owned by the payer. And there's a lot of obfuscation

of the true cost of the drugs. There's a lot of markups, a lot of spread. And so if you took the PBM out of the market, that would solve one of the problems. But at the end of the day, anytime the federal government is involved as a payer in any market-based system, it creates a distortion and the market is no longer free or efficient.