Since the Supreme Court confirmed the regulatory autonomy of states in late 2020, state houses across the country have taken a closer look at the “middlemen” of the drug supply chain. These “middlemen,” known as Pharmacy Benefit Managers (PBMs), are largely responsible for the higher prescription drug costs that are plaguing the Centennial State. In 2018, residents dished out $4 billion for prescriptions – an increase of more than $300 million compared to just two years prior.

Colorado is among the group of states targeting PBMs as a strategy to tame out-of-control drug costs. In September, Gov. Jared Polis signed HB 1297 into law, which imposes new regulations on the middlemen. Among the provisions, the legislation begins to illuminate clandestine PBM activities and limits their ability to restrict access to medications for patients, as well as their ability to levy unreasonable fees on independent pharmacies.

The action is clearly a move in the right direction, but much work remains.

As the middlemen in the drug supply chain, PBMs act as gatekeepers between drug manufacturers and patients. Historically, PBMs were established to navigate drugs through the complex web of health insurers and hospital systems, and were intended to get medications to patients for a reasonable fee. But over time, the middlemen have learned how to game the system. Now, a lot of unethical funny business takes place, including what constitutes government-sanctioned kickbacks and “back-alley deals.”

For example, drug manufacturers often offer discounts and rebates alongside their products – in theory, making them cheaper for patients. There’s only one problem: Those financial savings never make it to patients at the point of sale. The middlemen have been pocketing the money. In 2020, PBMs realized nearly $450 billion in revenue. Collecting honest compensation for services rendered is welcome, but siphoning off savings intended for patients and their families is not.

Colorado has already begun to chip away at this practice. Earlier in the year, lawmakers passed HB 1237, which incentivizes PBMs to bid against one another to secure contracts with state-funded health plans. The competition encourages PBMs to offer pharmaceuticals at more affordable prices while saving government taxpayer dollars. After implementing a similar policy, New Jersey is lowering its spending on prescription drugs by an estimated $2.5 billion over five years. Fingers crossed that Colorado experiences comparable benefits.

To build off the regulatory momentum created in 2021, policymakers should apply a similar concept to PBM activities statewide, regardless of how residents access health insurance. PBMs should be required to pass on the discounts and rebates from drug manufacturers to patients at the pharmacy counter.

A proposed federal rule provides a solid blueprint from which Colorado can work. The proposal, known as “the rebate rule,” would push drug discounts downhill to consumers at the point of sale. Although this specific rule only applies to medication accessed through Medicare Part D, it’s a good starting point. Given the proposal is currently in limbo as part of Washington’s ongoing political stalemate, Colorado should act where the feds won’t.

Rising prescription drug prices is a major problem afflicting the U.S. healthcare system, saddling patients and families with unreasonable costs. Fortunately, Colorado has already taken steps to partially relieve the cost pressure. State lawmakers should use the momentum to fuel additional actions that specifically address the unethical middlemen schemes that are unfairly and artificially jacking up drug prices.

Kelly Victory, M.D., of Steamboat Springs, is the president of Victory Health and a member of the Job Creators Network