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Pharmacy benefit managers — the middlemen in drug price negotiations — have been under siege since Donald Trump was elected last fall and vowed to go after rising drug costs. We reported on this in January, but the swell of criticism has accelerated further. One prominent financial analyst compared one of the largest such companies, Express Scripts, to gangster John Gotti — a comparison a top company official calls "crazy."

The pharmacy benefit management industry is prepared to fight back against the criticism and any possible regulations. But here's the political challenge: It's going to have a tough time explaining the value of its companies to the public, especially since their business model relies on secrecy and that consumers have little knowledge of what pharmacy benefit managers are.

What has happened: Most of the furor over drug prices has focused on the manufacturers that create the prices. But the increased scrutiny of the byzantine drug supply chain has landed heavily on pharmacy benefit managers that serve as intermediaries between drug makers and health insurers and employers.

  • Two new reports have looked at the murky nature of how fees and other revenue are collected from pharmacy benefit managers. One from the Centers for Medicare and Medicaid Services showed that a type of payment called "direct and indirect remuneration" — which consists heavily of rebates they earn from negotiating lower drug prices — has grown even faster than drug costs under Medicare Part D.
  • The other report, funded by the Community Oncology Alliance, said benefit managers are clawing back additional fees from pharmacies with no legal basis. "It's become a real Rube Goldberg payment system," said Ted Okon, executive director of the Community Oncology Alliance. The pharmacy benefit manager industry contended the report was the result of a "splinter group" that is trying to protect the profits of oncologists.
  • A class-action lawsuit accused three large drug companies of colluding to raise the prices of their insulin medications. But the lawsuit also highlighted pharmacy benefit managers, saying they are profiting from the "nefarious" business model that keeps the real prices of drugs hidden from public.
  • Short seller Andrew Left of Citron Research compared Express Scripts to John Gotti, calling the industry's reliance on rebates and preferred drug lists a "financial engineering kickback scheme." Dr. Glen Stettin, chief innovation officer at Express Scripts, told me that comparison was "crazy."
  • Financial analysts at Robert W. Baird & Co. downgraded the stock of CVS Health this month because they believe more Americans will be affected if regulators don't attack direct and indirect remuneration fees. "This isn't going to end well for some (companies)," they wrote. "Those who are creating and enforcing these fees might be in for some rocky times."
  • Republican Rep. Doug Collins made it clear that many in Congress, both Democrats and Republicans, are ready and willing to act, telling me that "the PBM industry is one of the most detrimental pieces of health care."

The industry isn't sitting still: The Pharmaceutical Care Management Association, the lobbying group for pharmacy benefit managers, is clearly concerned about what Congress and the Trump administration will do to temper drug prices and its industry.

A Feb. 6 memo from CEO Mark Merritt, obtained by Axios, Buzzfeed and other media, said the group was ready to aggressively defend its practices because the Trump administration has shown to be "more inclined toward quick, instinctive action than the traditional, deliberative decision-making process." The group is working to schedule meetings with White House staff and members of Congress who sit on health care committees.

Merritt said the memo relayed ideas that "every industry in America" is contemplating — how to best make their case in front of a new president. For his group, which also is pushing a website that gives its take on how pharmacy benefit managers reduce drug costs, the defense will involve keeping drug manufacturers as a bigger target.

"Everybody knows why drug prices are high. It's because drug companies set high prices," Merritt said.

Everything comes back to prices and rebates — and their effects on consumers: Evidence shows that the benefit managers have encouraged the use of cheaper generics and kept health insurance premiums somewhat in check despite the explosion of prescription drug spending. But that still doesn't address the sticker shock people face today when they pick up their medicines, which partially stem from the financial incentives of pharmacy benefit managers.

"They have created a gravy train in rebates and owning specialty pharmacies that makes lowering prices not necessarily in their interest," said Dr. Walid Gellad, an associate professor of medicine and health policy at the University of Pittsburgh. Pharmacy benefit managers now have to prove their value is "more than just the difference between list price and actual price," Gellad said.

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Tong Ying-kit, the first person to be charged and tried under Hong Kong's national security law was found guilty of terrorism and inciting secession by three judges Tuesday, per Bloomberg. The 24-year-old had pleaded not guilty to the charges.

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Naomi Osaka was eliminated from the Olympics after losing her Tokyo tennis tournament match 6-1, 6-4 in the third round to Czech Marketa Vondrousova on Tuesday.

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