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Analysis

Blame Game, Again: PBM Execs Jockey With Senators Over Price Transparency

By Jack O'Brien  
   April 09, 2019

During the hearing, PBMs committed to help lower prescription drug costs but wavered on total rebate transparency.

Five major pharmacy benefit managers (PBMs) affirmed their commitment to lowering prescription drug prices but pushed back on a proposed rule to eliminate drug rebates as well as calls to be fully transparent during a Senate Finance Committee hearing Tuesday.

Executives for the PBMs said they would be willing to play a role in addressing continual prescription drug price hikes, but they also chided drugmakers for their role in creating the problem at hand. The hearing came a mere six weeks after pharmaceutical executives testified before the committee regarding the same issue, placing some of the blame on PBMs.

The PBM executives argued Tuesday that point-of-sale rebates would cause premiums to rise, adding that the rule proposed by Health and Human Services (HHS) would force them to change their business practices without requiring similar changes from pharmaceutical companies.

The hearing was the latest example of Congress seeking to address high prescription drug prices while industry players attempt to shift blame for the issue.

Related: PBM Lobby Raps 'Poorly Conceived' HHS Drug Rebate Proposal

Before the hearing even began, Committee Chairman Sen. Chuck Grassley, R-Iowa, pressed PBMs for increased price transparency. Grassley penned a Fox News op-ed encouraging PBMs to be helpful partners on price transparency efforts for prescription drugs, adding that "if they’re not, we need to fix that."

Grassley echoed his message during an appearance on CNBC's "Squawk Box" Tuesday morning, saying that "the goal is to end this secrecy, get to transparency. With transparency comes accountability."

Who testified
 

  • Steve Miller, MD, executive vice president and CCO of Cigna Corp.
     
  • Derica Rice, executive vice president of CVS Health and president of CVS Caremark
     
  • William Fleming, PharmD, segment president of healthcare services at Humana Inc.
     
  • John Prince, CEO of OptumRx
     
  • Mike Kolar, JD, interim president & CEO of Prime Therapeutics LLC

For his part, Ranking Member Sen. Ron Wyden, D-Ore. called PBMs one of the most most "confounding, gnarled" entities in healthcare, citing their consistent profitability and lack of transparency. 

Wyden also made a point to criticize PBMs for engaging in spread pricing, a form of offering two different purchase prices for prescription drugs to pharmacies and insurers. When asked about the practice, every executive except Kolar said his PBM had engaged in spread pricing to some degree.

The blame game, again
 

As was the case when pharmaceutical executives testified in February, the PBM executives testifying Tuesday sought to shift responsibility for high prescription drug prices. They argued that drugmakers are ultimately responsible for controlling list prices and that PBMs have done their part to secure discounted prices for patients

Prince, the CEO of OptumRx, said 100% of discounts were passed along through Medicaid and Medicare to consumers, as well as 98% of discounts that went to consumers under commercial plans, saving on average $130 per eligible prescription.

Prince conceded, however, that OptumRx included contractual language requiring drugmakers to provide advance notice before lowering a list price, confirming information from a letter leaked in December.

Executives also said drugmakers engage in anti-competitive behavior regarding patents, simply extending rights to existing drugs rather than on newly created ones.

They recommended more competition in the biosimilars market, saying it would lead to lower prices for consumers, an approach heralded by drugmakers as well. 

The PBM executives continued to express support for increased price transparency, but they stopped short of embracing senators' calls for total transparency, indicating that such a move could inhibit their ability to negotiate with drugmakers or expose trade secrets to competitors.

Insurer-backed study highlights rebate rule risks
 

On Monday, Avalere Health released a report commissioned by America's Health Insurance Plans (AHIP) that found premiums could rise $85.7 billion under the proposed HHS rebate rule, leading to an increasing premiums 40% for seniors.

The study indicated also that government spending could rise by more than $400 billion as a result of the proposed rule.

"The question isn't whether costs will go up, but by how much," Keith Fontenot, AHIP's executive vice president of policy and strategy, said in a statement. "The numbers are eye-popping, and the administration should hit the brakes on this proposal. We should not force taxpayers to pay tens of billions more to fund a giveaway to Big Pharma."

All five of the PBMs that testified Tuesday are owned, at least in part, by an insurance company.

Despite the release of Avalere's findings, SmithRx, a San Francisco–based PBM, announced its support for the rebate rule Monday afternoon, saying the "only way to generate true price competition is to make it clear to all parties how much drugs really cost."

SmithRx CEO Jake Frenz explained his stance further in a statement to HealthLeaders Tuesday afternoon, arguing that a fully transparent business model is both workable and profitable.

"The Senate is right to question the fundamental flaws in pharmaceutical supply chain pricing," Frenz said. "The large PBMs we heard from today have the market share to change the system but lack the incentive. While the lawmakers and administration debate regulation, new disruptive models are proving full-transparency and innovation work in the PBM space and provide answers to some of the questions employers and patients are asking about the rising cost of prescriptions."

Outside voices react to hearing
 

Tuesday's hearing registered commentary also from those outside the PBM and pharmaceutical sector.

Howard Deutsch, principal at ZS, a professional services firm, told HealthLeaders in a statement most patients don't incur significant out-of-pocket costs on rebated drugs, undermining the claim by PBMs that few patients would benefit from point-of-sale rebates and most would end up paying more.

Responding to a claim by Cigna's Miller that rebates purportedly bring down costs for PBM customers, he counters that PBMs are actually considered plan sponsors. Because of this arrangement, along with PBMs marketing "copay accumulators," Deutsch stated that the entities are well aware of who their customers are and who benefits from rebates.

“I'm particularly interested in CVS Health's statements about how the company is more thoughtful in providing coverage for their own employees by carving out preventive and chronic care drugs like insulin on a special list so patients using those drugs can get coverage even when they have a deductible," Deutsch said. "This is a structure we're seeing adopted by some progressive employers and which could make a difference for patients with chronic illness who struggle to afford medicines to manage their conditions. However, the devil is in the details, as it's also important to look at which drugs are counted on that list."

Patrick Finnegan, senior director at Fitch Ratings, also opined on Tuesday's hearing said in a statement that PBMs clearly laid out the use of spread pricing and administrative fees to "achieve their targeted returns." 

"As a result, Fitch is skeptical about whether any limitation on rebates or spread pricing will achieve the objective of reining in prescription drug costs especially considering vertical integration trends which increase negotiating power," Finnegan said. "Without a comprehensive and transparent picture of all the building blocks in the prices charged by the payer and the amounts paid to the drug stores and hospitals, it will be difficult to estimate the actual spread earned by a PBM."

Additional hearing takeaways:
 

  • The PBM executives embraced the idea of introducing targeted out-of-pocket copay caps for high-priced prescription drugs, in light of Cigna's Express Scripts decision to cap the out-of-pocket price of insulin at $25.
     
  • Sen. Sheldon Whitehouse, D-R.I., referred to PBMs as a "$23 billion part of a $400 billion problem," urging the Senate to take action to increase accountability for both PBMs and drugmakers.
     
  • Sen. Debbie Stabenow, D-Mich., said PBMs were "pretty bad negotiators" for securing less savings compared to the Veterans Administration's PBM, which accounts for 9 million members, significantly fewer than any of the five major PBMs that testified Tuesday.

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Similar to the hearing with pharmaceutical executives, PBM leaders committed to lowering prescription drug prices but shifted responsibility for the high prices.

Chairman Sen. Chuck Grassley, R-Iowa, called for increased transparency while Ranking Member Sen. Ron Wyden, D-Ore., described PBMs as "confounding, gnarled" entities.

PBM executives said that competition would lead to lower prices but warned that total public transparency could adversely impact their business models.


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