When policymakers say they aim to eliminate the middlemen who drive up healthcare costs, they're not just talking about prescription drugs.
Pharmacy benefit managers took their turn in the spotlight last week, sending executives to Capitol Hill to testify that drugmakers are largely to blame for ever-rising drug prices.
The PBMs have been under increasing pressure since President Donald Trump spoke last May about how his administration plans to wrangle the ballooning cost of prescription medicines as part of a broader effort to curb U.S. healthcare spending overall.
"We're very much eliminating the middlemen," Trump said from the White House lawn nearly a year ago, with Health and Human Services Secretary Alex Azar by his side.
Trump's words portended trouble for PBMs, which make money off the rebates they negotiate with drug manufacturers. And the pressure on PBMs has been especially pronounced since January, when the administration unveiled a proposal that could effectively kill those rebates. Azar reiterated the administration's priorities in a speech Thursday, saying any approach that fails to tackle drug rebates "will not deliver the results we need."
But PBMs are not the only healthcare middlemen with possible targets on their backs.
A Killer Idea?
In addition to the drug rebates proposal—which the PBMs pushed back against during last week's hearing—there's a separate price-transparency policy idea currently under consideration on the payer-provider side. It could significantly rearrange the cogs that currently keep the healthcare industry churning.
"I don't know whose idea this was, but whoever thought this up, it literally is one of the more insightful things I've seen and meaningful attempts at reforming the benefits system in my entire career," says Charles E. Davidson, JD, a director and founder of BCE Technology Corp. and president of Managed Care of America Inc.
The idea that sparked Davidson's praise for the Trump administration was outlined in a request for information that Health and Human Services buried in a lengthy piece of draft regulation earlier this year. The request, which The Wall Street Journal highlighted in March, posed a provocative question: what if hospitals were required to disclose the prices they negotiate with payers?
Hospitals have been required since January to publish their raw list prices online in a machine-readable format. But hospitals and others have said the information isn't useful to patients and may confuse them because it bears little resemblance to final prices, once negotiated discounts and other factors are taken into account.
"For decades, insurance companies and powerful provider systems have succeeded in keeping their negotiated rates veiled from public view using non-disclosure agreements and restrictive contractual gag clauses."
For patients to make cost-informed decisions about certain healthcare services, thereby unleashing the cost-reducing effects of competition, they need more information up front. That's the idea behind the Trump administration's push for price transparency in corners of the healthcare industry that have been shrouded behind layers of negotiated contracts.
"Patients and plan sponsors have trouble anticipating or planning for costs, are not sure how they can lower their costs, are not able to compare costs, and have no practical way to measure the quality of the care or coverage they receive relative to the price they pay," the HHS draft regulation says, followed by a long list of questions about the idea and its technical implications.
Michael Maron, president and CEO of Holy Name Medical Center in Teaneck, New Jersey, is among those who have submitted comments in favor of the price-transparency idea.
"For decades, insurance companies and powerful provider systems have succeeded in keeping their negotiated rates veiled from public view using non-disclosure agreements and restrictive contractual gag clauses," Maron wrote.
"In a fee for service market, these unpublished rates contribute directly to sky-rocketing insurance premiums every year and have led to the proliferation of high deductible health plans in an effort to keep health care affordable," he added. "Ironically, the out of pocket outlay dictated by these plans is largely unaffordable for most consumers."
The public should have a right, therefore, to know which providers are driving costs higher, Maron wrote.
Death to PPO Networks?
If the administration were to finalize and implement a rule to require hospitals to disclose their negotiated rates, the change would ultimately pressure providers to charge everyone the same price, Davidson says.
"It would be as if the government suddenly started telling drug manufacturers, 'You're going to charge one price, and all the pharmacies, you're all going to charge one price.' That would eliminate pharmacy benefit managers overnight," Davidson tells HealthLeaders. "This is the same thing as that."
Davidson built preferred-provider organization (PPO) networks in the late 1980s and early 1990s. "That's how I got into healthcare," he says. The goal was to help negotiate provider discounts on behalf of more people. Even so, he sees PPOs as "unnecessary middlemen."
"When you look at the purpose of a PPO network, in essence, it was originally designed to allow entities that didn't otherwise have discounts with a provider to get those discounts," he says. "If you eliminate the need for that, you eliminate the need for PPOs."
Davidson says eliminating PPOs would reduce administrative costs.
"If you carve out the middlemen, like PBMs and PPOs, it will save enormous money in the healthcare system and, frankly speaking, will go a long way toward making our healthcare costs more and more competitive," he adds.
America's Health Insurance Plans (AHIP), the national trade association for health insurers, hasn't weighed in on the request for information regarding hospital price transparency. But AHIP has opposed the PBM rebates proposal.
In its current form, the drug rebates proposal would exacerbate the problem of high drug costs by weakening the negotiation position of health plans and PBMs relative to drug manufacturers, AHIP President and CEO Matt Eyles wrote in a letter to HHS last week.
"We want to be perfectly clear: Health insurance providers are not committed to rebates in any way, shape or form. We are committed to getting the lowest drug prices and costs for patients and consumers," Eyles wrote. "This includes what they pay out-of-pocket at the pharmacy counter, in premiums, and in taxes. Any proposal that raises costs in any of these areas would simply force consumers to pay higher prices for prescription drugs out of a different pocket."
In an email to HealthLeaders, an AHIP spokesperson said insurers and PBMs offer a counterweight to the price-hiking power of drug makers and providers alike.
"We are not middlemen—we are industry bargaining power," the spokesperson said, echoing a line Eyles has delivered in the past. "We negotiate lower prices with doctors, hospitals and drug companies and then lower premiums for consumers as a result. Eliminating negotiating tools would hurt the very people it's intended to help: patients."
The Blue Cross Blue Shield Association (BCBSA) similarly expressed concerns about the PBM rebates proposal, saying something should be done to address the pricing power drug manufacturers wield as well.
"The drug pricing negotiation system in this Proposed Rule may stifle a powerful tool that payers use today to help lower drug prices and premiums," Kris Haltmeyer, BCBSA's vice president of legislative and regulatory policy, wrote in a comment.
Asked about the prospect of hospitals being required to disclose their negotiated rates, Justine Handelman, senior vice president of BCBSA's Office of Policy and Representation, said policymakers and the public should not focus all of their attention on price alone.
"There are many factors that go into negotiations to establish high-quality, cost-effective networks for consumers. Price is not the only consideration—for example, there is a need to consider the quality of care and the community's need to have a sufficient number of doctors and hospitals that they can access," Handelman said in a statement released to HealthLeaders by a BCBSA spokesperson. "Focusing solely on cost looks at only one piece of the picture and we should be taking a holistic look at what will best bring down costs while serving patient needs."
Will It Survive?
Niall Brennan, president and CEO of the nonprofit Health Care Cost Institute, said the idea of requiring hospitals to disclose their negotiated prices is "audacious." But he's skeptical the idea will make it through the rulemaking process and into implementation.
"Maybe I'm overly cynical," Brennan said last week during a webinar hosted by the nonprofit Catalyst for Payment Reform. "I think the chances of it actually happening without being tied up in court for time in memorial are pretty slim because I think certainly the hospital industry will fight this very vigorously and, frankly, it wouldn't surprise me if payers do as well."
Brennan told the Journal last month that such a policy would "put a lot of hospital CEOs and CFOs in the hot seat" if it were to move forward. Sure enough, hospitals have signaled they're prepared for a fight.
"Disclosing negotiated rates between insurers and hospitals could undermine the choices available in the private market," said American Hospital Association Executive Vice President Tom Nickels in a statement. "While we support transparency, this approach misses the mark."
"Price is not the only factor that patients weigh when deciding where to receive care," Nickels added. "Physician recommendation, quality and location play a significant role."
Nickels said the AHA's goal is to make sure consumers have the information they need to make informed decisions about their own healthcare. Generally speaking, that means telling patients what their out-of-pocket costs will be, he said.
"Insurers are the only ones that have this information. Insurers need to make this information available to hospitals so they can share it with their patients," Nickels said.
Brennan said it might make more sense to impose price transparency requirements on the dozens of health plan companies that dominate U.S. healthcare than to squeeze that information from thousands of hospitals nationwide.
Whatever route policymakers choose, if any, there will be pushback, said David Muhlestein, chief research officer at Leavitt Partners, during last week's webinar.
"When you look at government policy solutions, there are those stakeholders that are going to be reluctant to any change," Muhlestein said. "You have to have the political will to make the change, and you're not going to have the political will unless you are reasonably confident that it's actually going to achieve the ultimate objective."
Muhlestein, like Brennan, remains skeptical that this policy idea has the traction it would need to achieve what Davidson thinks it can.
"It's not going to happen under the current political environment," Muhlestein said. "But even if it did, I don't think that by itself solves our price issues in America."
“If you carve out the middlemen, like PBMs and PPOs, it will save enormous money in the healthcare system and, frankly speaking, will go a long way toward making our healthcare costs more and more competitive.”
Charles E. Davidson
Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.
The White House has had some strong words for PBMs in the past year, backed by consequential policy proposals.
There's also talk of policy action that could undercut middlemen in the relationship between payers and providers.
Skeptics say there's likely not enough political consensus to take the most drastic steps under consideration. But what if they're wrong?