Hi all, Dan Savickas – TPA’s Director of Policy – here, filling in for David and Patrick while they’re away in Panama. TPA’s “Good COP” conference is in full swing, presenting a clear, free market alternative to the WHO’s Conference of Parties (Bad COP) on tobacco control. Experts from across the world joined TPA to have an open discussion of ideas on tobacco harm reduction. Things are only marginally less exciting back in the States. TPA was instrumental in leading a group of over 50 activists to Richmond, to protest the proposed use of taxpayer money to build a new arena for the Capitals and the Wizards. Our activists had seven meetings with legislators – including two members of House of Delegates leadership. We’re also shining a light on pharmacy benefit managers, as federal lawmakers seem determined to let their role in alleviating prescription drug pricing burdens be relegated to holding an occasional show trial for pharmaceutical executives, rather than getting to the heart of the issue.

If Congress Is To Take Drug-Pricing Seriously, It Should Focus On PBMs

Prescription drug pricing has a very odd and confusing structure.  Market-based pricing isn’t a feature of the current system. And, what people may not understand is that pharmacy benefit managers (PBMs) are also re-imbursed in a very strange manner. PBMs are currently paid based on the size of the discount they achieve for insurance companies – and, therefore, the employers who offer these insurance plans to their employees. While this seems straightforward, it actually creates upward pressure on prices for patients and families.

Because PBMs are paid based on the size of the discount, they are more attracted to pharmaceuticals with a higher list price. That is because the drugmaker can then afford to offer a bigger markdown, which is ultimately more profitable for the PBM. The incentive is not to get the most effective and/or affordable drug for the plan. It is to get the one with the most artificially inflated price that can afford the biggest discount – also known as a “rebate.”

For example, Drug A might have a list price of $20 per bottle while Drug B has a list price of $10. However, the manufacturer of Drug A is able to give a five-dollar rebate while the manufacturer of Drug B can only knock two dollars off of their list price. The current incentive structure makes it more than twice as lucrative for PBMs to go with Drug A, even though it is twice as expensive.

In this way, PBMs incentivize more expensive list prices for prescription drugs, hurting patients and families. Despite rebates and negotiations behind the scenes, patients often end up paying the artificially inflated list price for a prescription drug. Manufacturers who mark up the prices of their drugs are rewarded while those who offer the lower prices are punished because it is not as financially lucrative for PBMs. This system illustrates why it is time to de-couple PBM fees from “discounts” and shift to a more market-based incentive structure that actually prioritizes outcomes for patients.

While employers and insurance plans think they received a good deal, they could have gotten an even better deal for patients and families. Further complicating things is the fact that PBMs are not legally required to disclose the size of the rebate they get. For example, a PBM may have gotten a five-dollar rebate on a particular drug. However, they could claim they only got a two-dollar rebate and simply pocket the extra three dollars entirely for themselves. Because of the law, they are not required to be transparent about the actual rebate.

Every time a drug is prescribed, PBMs get another rebate. So, PBMs not only want list prices for pharmaceuticals to be higher, but they also want those drugs to be the ones prescribed to patients most often. At this point, one might ask why drug manufacturers even play this game. If they marketed their drugs at competitive prices, patients would be drawn to them anyway and PBMs are not a part of the equation. Similarly, it is reasonable to ask why doctors would not prescribe the most cost-effective drug for their patients.

Unfortunately, PBMs are also in charge of determining which drugs are covered on insurance formularies and which drugs get preferential placement. Given this position over formularies, they make sure lower cost drugs (such as generics and biosimilars) are intentionally given worse placement in formularies – or even excluded altogether. This is despite the fact that generics only cost a fraction of their brand-name competitors.

Under this system, drug manufacturers must raise the list prices of their products or face irrelevance at the hands of these glorified middlemen, PBMs. One clear solution is to de-link this incentive structure – especially for Medicare plans. This will save patients money at the pharmacy counter and will save taxpayers money in the end as well. Another would be to require that PBMs disclose the size of the rebates they get, adding transparency and accountability to the process. Currently, this is neither required nor allowed.

With Americans spending more on prescription drugs than ever before, this is a commonsense place to begin looking at reform. There is quite literally an incentive structure in place that keeps upward pressure on prices. If Congress is to take drug pricing issues seriously, they need to focus attention on PBMs.

Shedding Light on the Abuses of CFPB

The United States government is built upon the separation of powers between its three branches. Congress, the policymaking leader, passes law; the president, via the executive branch, enforces law; and the courts resolve disputes.

In the last century or more, this structure has become badly confused as Congress has unconstitutionally vested legislative and judicial powers in the administrative state, best exemplified in the numerous, so-called independent regulatory agencies that oversee virtually every facet of American life. Particularly during the Biden administration, federal agencies have become increasingly unaccountable, overreaching, and lawless, and their actions waste taxpayer money and hurt consumers.

To combat such arbitrary rule and agency mission creep, the Taxpayers Protection Alliance Foundation (TPAF) has documented and publicized extensively the abuses committed by such agencies as the Federal Trade Commission and the Securities and Exchange Commission.

But no entity typifies America’s transition from constitutional governance to rule-by-bureaucrat more than the Consumer Financial Protection Bureau. That’s why TPAF has launched CFPB Mission Creep — to shine a light on the financial watchdog’s abuses.

Authorized in 2010 by the Dodd-Frank Act, the CFPB possesses vast and vague powers over financial institutions. These are powers insulated from democratic accountability that the agency interprets liberally to the detriment of consumers. Dodd-Frank even forbade the president from firing the CFPB director without cause and empowered the agency to fund itself. The Supreme Court excised the first layer of insulation in 2020, ruling that the president must retain authority over agency hiring and firing. The Supreme Court is now reviewing whether the CFPB’s funding mechanism, which the U.S. Court of Appeals for the 5th Circuit held to be unconstitutional, accords with the Appropriations Clause.

The Constitution’s exclusive grant to Congress of the “power of the purse” ensures democratically elected legislators can rein in rogue bureaucrats. However, the CFPB is immune from this check, as its self-set budget is drawn directly from the Federal Reserve — another unaccountable agency. In 2022, the Fed couldn’t cover the nearly $700 million in checks the CFPB cuts every year, so it “printed” more money and gave it to the CFPB without any congressional involvement. This is unacceptable.

This lack of accountability has facilitated a series of statutorily dubious regulatory actions through which CFPB technocrats seek to micromanage businesses unilaterally. The New York Times aptly summed up this dynamic, writing that CFPB Director Rohit Chopra “insists that he always follows the rules,” but “his view is that he’s simply more expansive than others in determining what those rules are.”

To the CFPB’s supporters, legislation-by-administrative-fiat is a feature, not a bug, of the agency’s structure. Its aim is to circumvent the standard processes of democratic lawmaking and infuse “enlightened” bureaucrats with maximal latitude to regulate businesses and the economy. Defenders of the CFPB’s expansive power believe that should the agency sometimes color outside the lines of its statutory authorities, all the better — it will nonetheless enact progressive financial regulation, including many policies that Congress likely would never approve.

The CFPB has exploited its position energetically to impose anti-business and anti-consumer regulations. For example, it has worked to compel people needlessly to disclose sensitive financial and personal information and to limit financial institutions’ discretion to issue mortgages to borrowers with subpar credit scores. The CFPB has even cracked down on benign practices such as online pop-up windows and drop-down menus.

A 2023 agency policy statement ruled that regulators may establish “abusive conduct” by a company without a “showing of substantial injury.” Essentially, this language frees the CFPB to pursue cases arbitrarily, untethering enforcement actions from provable consumer harm. According to the agency, “abusive” business practices that could draw regulatory scrutiny include incredibly broad and typically standard practices such as multi-step online click-throughs, delayed customer support, fine print and complex language, and form contracts.

The agency is, as columnist George Will writes, “what progressives since Professor Woodrow Wilson …have desired: Congress, and politics, marginalized by administrative state ‘experts’ insulated from political accountability.” As a former CFPB deputy director recently noted, the agency lacks the consent of those it governs.

Lawmakers have begun to understand the harms that a structurally unaccountable bureaucracy brings to the American constitutional system and to average Americans, particularly when that bureaucracy assumes legislative powers for itself. As the Supreme Court deliberates, politicians, the media, and advocacy and civil society groups must continue to scrutinize the agency’s lawlessness.

In the end, however, pushback to the CFPB and similarly unaccountable agencies must flow from the public and elected officials. CFPB Mission Creep will help educate the public and policymakers and act as a watchdog on the funding and abuses of the agency, ultimately prescribing remedies to the overreach of the CFPB.
 

BLOGS:
  

Monday: Opening Day of Good COP Live in Panama
 
Tuesday:  TPA Testifies Against New Hampshire’s HB 1267 Banning ESG Considerations
 
Wednesday:  TPA Submits Comments on NIST’s Draft March-In Guidance
 
Thursday: TPA Submits Testimony Against SB 718 Monumental Sports Arena

Friday:  Shedding Light on the Abuses and Overreach of the Consumer Financial Protection Bureau

 
Media:  
 

February 2, 2024: The Baltimore Sun ran TPA’s op-ed, “Higher tolls and taxes would send Maryland in the wrong direction.”

February 5, 2024: WBFF Fox45 (Baltimore, Md.) interviewed TPA President David Williams about TPA’s Good COP conference.

February 5, 2024: NH Journal quoted TPA President David Williams in their article, “NH Delegation Goes Postal Over Possible Closure of Manchester Facility.”

February 7, 2024: RealClearMarkets ran TPA’s op-ed, “If Congress Is To Take Drug-Pricing Seriously, It Should Focus On PBMs.”

February 7, 2024: The Washington Examiner ran TPA’s op-ed, “Shedding light on the abuses and overreach of the Consumer Financial Protection Bureau.”

February 7, 2024: AllAfrica.Com mentioned TPA in their article, “COP 10 - Health And Politics: Is There A Lack Of Transparency?”

February 7, 2024: Tobacco Reporter mentioned TPA in their article, “Taxpayers Group Holds ‘Counter COP’ in Panama.”

February 7, 2024:  TPA President David Williams appeared on 55KRC Radio (Cincinnati, Ohio) to talk about tobacco harm reduction and transportation spending.

February 8, 2024  TPA President David Williams appeared on WBOB 600 AM (Jacksonville, Fla.) to talk about deficits and the economy.

February 8, 2024: WBFF Fox45 (Baltimore, Md.) interviewed TPA President David Williams about legislation authorizing the increase in county income taxes.

February 8, 2024: WUSA mentioned TPA in their article, “Opponents lobby against proposed Monumental Sports site in Alexandria.”

February 8, 2024: Tobacco Reporter mentioned TPA in their article, “Counter-COP Delegates Lament Bloomberg’s Influence.”

February 8, 2024: Metro News Central mentioned TPA in their article, “Bloomberg-funded groups accused of intervening in LMICs’ smoking-cessation strategies.”

February 8, 2024: Manila Standard mentioned TPA in their article, “Bloomberg’s groups blamed for blocking harm reduction efforts in LMICs.”

Have a great weekend!



Best,
Dan Savickas
Director of Policy
Taxpayers Protection Alliance
1101 14th Street, NW
Suite 1120
Washington, D.C. xxxxxx
www.protectingtaxpayers.org