Washington once again targets prescription drug middlemen
Pharmacy benefit managers are back in the hot seat, facing pressure from both Congress and the Federal Trade Commission — as well as the now customary wrath of drugmakers, pharmacies, hospitals and patient groups.
Why it matters: The finger-pointing up and down the drug supply chain is inevitably an attempt to pass off blame for rising drug costs, but it also highlights complex policy tradeoffs that ultimately determine who pays for drugs, and how.
Driving the news: The FTC recently deadlocked on a motion to study how PBMs influence drug prices and the pharmacy business, but the confirmation of a fifth commissioner since then has created a Democratic majority and increases the chances of a PBM investigation.
- In the meantime, today's the deadline for public responses to an agency request for information on PBM practices, and many health industry and advocacy groups have seized the opportunity to air their grievances.
- One example: PBM's business practices "directly cause patient harm, increase patient costs for older, low-cost generics, delay patient access to new generics and biosimilars, imperil billions in annual savings for taxpayers and the U.S. health care system, and undermine the long-term viability of generic drug competition," wrote the Association for Accessible Medicines, which represents generic drug manufacturers.
- Sens. Maria Cantwell and Chuck Grassley introduced legislation yesterday that would prohibit certain PBM practices, like "spread pricing," and require PBMs to report certain financial information to the FTC every year. The Senate held a hearing on PBMs earlier this month.
How it works: PBMs work as middlemen between drug manufacturers and insurers, negotiating rebates with drugmakers and securing the details of their plan coverage.
- Drugmakers often blame list price increases on PBMs, saying they must continue raising prices in order to keep pace with growing rebates. Pharma critics say the drug industry uses PBMs to deflect attention away from its own pricing practices.
- "PBMs have been the bogeyman for awhile. Some of it's deserved, some of it's not," said Craig Garthwaite, a professor at Northwestern's Kellogg School of Management.
Reality check: Rebates have been getting bigger each year in the Medicare Part D program, according to a recent MedPAC analysis.
- But that doesn't necessarily mean PBMs are keeping the money they extract from manufacturers. A recent federal watchdog report found that PBMs kept less than 1% of rebates in 2016, passing along the rest to health plan sponsors. A Pew Charitable Trusts report found that within the commercial insurance market, PBMs passed nearly 91% of manufacturer rebates to plans in 2016.
- Nor does it mean that net prices are holding steady. The same MedPAC analysis found that even when taking rebates into account, the price of brand-name Part D drugs more than doubled between 2010 and 2020.
The big picture: Larger rebates ultimately allow insurers to reduce or control premiums, despite rising list prices. But patients often pay their shares based on list prices, meaning that as those rise, so do out-of-pocket expenses.
- That creates a dilemma for health plans and, more broadly, for policymakers: Should healthy people pay higher premiums, or should sick people pay higher out-of-pocket costs?
What they're saying: PBMs say that they're just doing what plans want.
- "Our companies consistently provide options to plan sponsors to use the savings they negotiate to apply at the point of sale to defray out-of-pocket costs," said J.C. Scott, CEO of the Pharmaceutical Care Management Association, which represents PBMs. "Time and again, what is preferred is to apply those savings to premiums."
The bottom line: If the FTC investigates, it could add what many experts say is much-needed transparency into the industry.
- But some — including Scott — say that an FTC investigation should focus on the entire drug supply chain and not just on the middlemen.
- "If we're going to get at the root cause of addressing those drugs that are high cost and creating affordability challenges to individuals, we can't just look at one sliver of the supply and payment chain," Scott said.
- “There's a little bit of a fiction as the money sloshes around, so you want to figure out where the profit pools appear," Garthwaite said.