The Health 202: Pharmacy middlemen are under scrutiny for pushing up drug

The Health 202: Pharmacy middlemen are under scrutiny for pushing up drug

Drug executives prepare to testify before the Senate Finance Committee hearing on drug prices in February. Pablo Martinez MonsivaisAP

Welcome to “PBM Week” in Washington.

The middlemen who negotiate the prices paid by consumers at the pharmacy counter — known as pharmacy benefit managers — face their own Senate grilling tomorrow over the role they play in making drugs more expensive in the United States than anywhere else.

And comments are due today on draft rules announced in February by Department of Health and Human Services head Alex Azar, taking sharp aim at the discounts obtained by PBMs. The rules, which HHS aims to finalize in June, would ban the rebates PBMs are paid by drug manufacturers in Medicare plans and Medicaid managed-care plans — savings that aren’t always passed along to consumers. The rules are among a bucket of changes proposed by the Trump administration as part of its promise to lower drug prices.

The story of U.S. drug costs is a hugely complicated one and its villain shifts depending on which part of the drug supply chain is telling the tale. When pharmaceutical executives had their turn at the Senate Finance Committee in February, they characterized the PBMs as the bad guys, complaining that these third-party negotiators don’t pass drug discounts along to consumers but pocket them instead.

Expect an opposite narrative tomorrow, when executives for the country’s top three PBMs — CVS Health, UnitedHealth’s OptumRx and Cigna’s Express Scripts — will sit before the Finance Committee for its latest hearing on the high cost of prescription drugs. Senate Finance Committee Chairman Chuck Grassley R-Iowa and ranking Democrat Ron Wyden Ore. have made drug costs a top priority this year, stirring widespread hope Congress will find a bipartisan way to get at the problem.

These three companies play an outsize role in the country’s drug prices, as they negotiate payments between insurers and pharmaceutical companies for medications used by about 180 million Americans. They’ll undoubtedly characterize the drugmakers as the villains who push list prices ever higher, while arguing their own role is crucial for obtaining rebates and other savings that ultimately result in consumer savings.

“This is the opportunity for PBMs to explain how they bring value and savings to the system,” said Jon Conradi, spokesman for the Campaign for Sustainable Rx Pricing, an advocacy group whose members include pharmacy benefit managers. “Big Pharma has done a fairly good job, because of the clout they bring, in trying to define PBMs as unnecessary middlemen.”

Executives for Humana’s in-house PBM and Prime Therapeutics, which is owned by several Blue Cross plans, will also be present at the Tuesday hearing.

Senate Finance Chairman Chuck Grassley. Pablo Martinez MonsivaisAP

There’s plenty to criticize about PBMs, to be sure. While they obtain rebates from drugmakers to ultimately lower drug spending – a worthy goal – there’s incentive for them to favor the most expensive drugs when creating the list of drugs covered by an insurance plan. That’s because they’re allowed to keep a share of the rebate, which is based on a drug’s list price.

Several PBMs have also been purchased in recent years by health insurers, raising questions about whether they can play an independent role in negotiating between the two parties. And, their negotiations are secretive and opaque, making it nearly impossible for consumers to find out whether they’re sharing in the rebate savings.

“We know they don’t pass those rebates on — or at least fully — to the consumers for whom they’re intended,” Jack Mozloom, vice president of advocacy communications at the National Community Pharmacists Association, told me. “They’re basically scooping the savings off the top and keeping it for themselves, and that’s keeping the drug prices high.”

Yet here’s an important piece of context to keep in mind, one that PBMs are likely to share with senators tomorrow: It’s the pharmaceutical makers who pocket by far the largest share of gross revenue from drug sales. Two-thirds of U.S. spending on pharmaceutical drugs in 2016 were captured by drug companies, while just 4 percent were captured by PBMs.

So while many drug policy experts have praised the administration’s proposed rebate ban as a strong first step, it wouldn’t by itself solve the problem of drug prices in the United States.

Some PBMs have been taking steps lately to remake their public image, which has taken a beating in the past year as they’ve been blasted by Azar and President Trump. OptumRx announced it will pass along rebate savings to all new employer-sponsored plans, starting in January. Express Scripts, recently acquired by Cigna, announced last week it will ensure that patients in commercial plans will pay no more than $25 for a 30-day supply of insulin.

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