Washington, D.C. — On the heels of Secretary of Health and Human Services Xavier Becerra’s refusal to commit to ending kickbacks in the pharmaceutical industry yesterday in Ohio, the American Economic Liberties Project today released a new policy brief, “Why We Should Ban PBM Rebates,” explaining how pharmacy benefit managers weaponize the rebate system to seek excess profits through kickbacks from the pharmaceutical industry, and how eliminating rebates would lower drug prices for patients.

“Xavier Becerra has failed to deliver on the Biden Administration’s agenda when it comes to pharmaceuticals, whether it’s egregiously high prices or shortages,” said Matt Stoller, Research Director for the American Economic Liberties Project. “The root cause of high prices are the kickbacks that are pervasive in the industry, and it is time for Becerra to stop futzing around the edges and use his authority to end them.”

“Rebates are a tool for pharmacy benefit managers to hike prices under the guise of savings. They should be banned, not reformed.” said Erik Peinert, Research Manager and Editor at the American Economic Liberties Project. “Byeliminating rebates, the government can pave the way for genuine competition and unite payers, PBMs, and patients in an honest and transparent pursuit of truly affordable medications. The Biden administration has a golden opportunity here to dismantle this rigged system by eliminating PBMs’ safe harbor from federal anti-kickback laws and enforcing the Robinson-Patman Act.”

PBMs, initially established to process drug claims, are now sprawling intermediaries between drug manufacturers, insurers, and pharmacies—controlling access to pharmaceuticals through formularies. They prioritize drugs that offer the highest rebates, often sidelining more affordable options like generics. PBMs take a cut of this rebate before passing the remainder on to the insurer. Despite PBMs’ claims that rebates make medications more affordable, they actually incentivize the selection of higher-priced drugs, pushing the cost burden onto patients who pay based on inflated list prices.

To lower drug prices, Economic Liberties’ brief argues that the government must eliminate rebates outright and allow a healthy market to emerge in which drug manufacturers seek formulary placement by competing on list prices. In addition to applying the anti-kickback statute to pharmaceutical rebates, which HHS has clear authority to do, the brief also lays out how enforcing the Robinson-Patman Act could eliminate rebates, and urges changes to flawed HHS Actuary/CBO assumptions that falsely assume that rebates represent savings for the federal budget.

Read “Why We Should Ban PBM Rebates,” here.

Learn more about Economic Liberties here.

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The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.