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Political and legal troubles are piling up around the companies that act as influential middlemen in the U.S. prescription-drug system.
Pharmacy benefit managers, which manage prescription-drug benefits on behalf of insurers, large employers and other payers, were the focus of a Senate Finance Committee hearing Thursday scrutinizing their impact on the prices patients pay at the pharmacy counter and the costs to government programs such as Medicare. The hearing comes just days after the Ohio attorney general filed an antitrust lawsuit alleging that some PBMs illegally drove up drug prices.
And in a Congress that has few points of bipartisan agreement, lawmakers on both sides of the aisle have shown interest in investigating or restricting some PBM practices. The Senate Commerce Committee last week approved a bill that would prohibit certain PBM pricing practices and require the companies to disclose more information on how they’re paying pharmacies for drugs, among other details.
Amid the scrutiny, some state Medicaid programs are looking to cut out the middlemen. On April 1, New York’s Medicaid program plans to shift to a new model of paying pharmacy costs directly, steering clear of PBMs. The change will lower drug prices and improve transparency in the Medicaid program, state Medicaid director Amir Bassiri wrote in a Buffalo News column this week.
“It’s a heat wave” for PBMs, said Antonio Ciaccia, CEO of drug-pricing research nonprofit 46brooklyn Research, with recent days’ developments amounting to “some largely unprecedented pressure” on the industry. “People are figuring out that drug pricing is a lot more complicated than drugmakers setting prices,” he said.
Central players who influence drug cost and access
As central players negotiating with drugmakers and pharmacies, PBMs can influence which drugs are prescribed to patients, patient access to medications, payment terms for pharmacies, total drug costs for insurers and how much patients ultimately pay for their drugs, researchers and regulators say. But their complex contractual relationships with insurers and other stakeholders often make it difficult for the public to understand and assess that influence, critics say, leading to calls for more transparency and regulation.
In recent years it has become apparent that “PBMs are using their data, their market power, and their know-how to keep prices high and pad their profits instead of sharing the benefits of prices they negotiate” with consumers, Senate Finance Committee chair Ron Wyden, an Oregon Democrat, said at the hearing Thursday. The industry’s practices, he said, are “having a big impact on the prices that Americans pay at pharmacy counters” nationwide.
The recent weeks’ developments come on top of longer-standing scrutiny of PBMs. The Federal Trade Commission last year launched an inquiry into PBMs, saying it wanted to shed light on tactics used by the industry to steer patients toward PBM-owned pharmacies, what the agency described as the sector’s opaque methods for determining pharmacy reimbursement, and other issues. And House Committee on Oversight and Accountability chair James Comer, a Kentucky Republican, early this month launched an investigation of PBMs, saying their “anticompetitive tactics” are driving up healthcare costs.
PBMs say they play a critical role in securing drug savings, supporting patients’ access to prescriptions and promoting better health outcomes. The Pharmaceutical Care Management Association, a PBM trade group, said in February that it was launching a seven-figure advertising campaign to highlight “the irreplaceable value of America’s pharmacy benefit companies” and promote ideas to increase competition as the best way to address high drug prices.
Some researchers say that PBMs’ interests are not aligned with lower drug prices. As PBMs negotiate prices between drug companies and the entities paying for the drugs, like insurers or employers, they often arrange for discounts from the drugmakers. Those deals could come in the form of rebates which the PBMs may share with their customers, researchers say. But the rebates PBMs negotiate with drugmakers don’t necessarily translate into lower costs for consumers. And they may actually push up the sticker price of the drug, researchers say.
“Higher prices put more dollars into a PBM’s pockets,” Robin Feldman, professor at University of California College of the Law, San Francisco, told the Senate Finance Committee on Thursday. “When the sticker price goes up for a drug, and the PBM negotiates a rebate, the PBM appears successful. It’s a little like a department store that raises the price of a coat before putting it on sale. The markdown looks great when you walk in, but it’s not.”
The high sticker price matters, Feldman said in her testimony, in part because in many insurance plans the patient’s out-of-pocket cost is calculated as a percentage of that sticker price. It also matters to the many Americans who don’t have prescription-drug coverage, she said.
Lawmakers, Ohio AG target PBM practices
The bill approved by the Senate Commerce Committee last week would prohibit PBMs from engaging in a “spread pricing” practice of charging health plans more for a drug than they reimburse to the pharmacy, pocketing the difference as profit. The bill would also require PBMs to disclose the aggregate amount of the difference between how much each health plan paid the PBM for prescription drugs and how much the PBM paid each pharmacy.
The bill would “set a precedent for allowing the FTC to regulate prices and dictate the terms of common business practices in any industry,” the Pharmaceutical Care Management Association, the PBM trade group, said in a statement. “In addition, the legislation risks increasing prescription drug costs and would take away employers’ choice and flexibility in designing pharmacy benefits that best fit the needs of their enrollees.”
The lawsuit filed earlier this week by Ohio attorney general Dave Yost, meanwhile, alleges that Express Scripts, a major PBM owned by health insurer Cigna
CI,
threatened to deny favorable formulary placement–which can influence how often a drug is prescribed–to any drugs on which the drugmaker wouldn’t pay the demanded level of fees and rebates. The “pay-to-play scheme” forces drugmakers to raise list prices, the lawsuit alleges.
The “collusive conduct” of Express Scripts and other industry players, including Humana Inc.
HUM,
Humana Pharmacy Solutions, also had the effect of fixing and increasing prices paid by some individuals and health plan sponsors, the suit alleged. Humana and Express Scripts did not respond to requests for comment.
