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April 12, 2019

How PBM executives want to transform the Rx pricing system

Daily Briefing

    Executives from five of the nation's largest pharmacy benefit managers (PBMs) during a Senate Finance Committee hearing on Tuesday said they would support legislation to reform PBMs' current drug pricing system by increasing transparency and prohibiting PBMs from charging Medicare and Medicaid higher rates for prescription drugs than pharmacies, STAT News reports.

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    Hearing details

    Tuesday's hearing was the third the Senate Finance Committee has held on rising prescription drug prices since launching an investigation into the matter in January. The committee called on PBM executives to testify at the hearing amid recent increased scrutiny of the companies.

    Under the current drug pricing system, drugmakers establish a price for their drugs and then negotiate with PBMs to reach an agreement on a discount for the products, which the drugmakers pay to PBMs on behalf of health insurers in the form of rebates. PBMs and insurers typically share the rebates, and have faced criticism for not consistently passing those savings along to consumers. Trump administration officials have been critical of the rebates, and the administration has proposed changing the rebate system as part of broader efforts to lower prescription drug prices.

    Executives from five of the largest PBMs in the United States testified before the committee at Tuesday's hearing. Those executives were:

    • Cigna EVP and Chief Clinical Officer Steve Miller;
    • CVS Health EVP and CVS Caremark President Derica Rice;
    • Humana President of Health Care Services William Fleming;
    • OptumRx CEO John Prince; and
    • Prime Therapeutics interim President and CEO Mike Kolar.

    The Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group.

    PBM execs open to reform

    The executives during the hearing defended PBMs, saying they help to negotiate lower prescription drug prices for patients as drug list prices rise. Prince said, "Manufacturers continue to increase their list and net prices at unsustainable rates because the lack of competition allows them to. We know consumers have felt the manufacturers' list price increases in the form of higher out of pocket costs."

    Prince noted that OptumRx directly passes on about 98% of the discounts it negotiates with drugmakers to patients.

    Still, the executives said they would support certain measures to reform PBMs' current drug pricing system. For example, the executives said they would support increasing transparency in the PBM market, but noted they would need to keep the rebate agreements they reach with drugmakers a secret to maintain leverage in their negotiations. As such, executives said they support a bill from Sen. Tom Carter (D-Del.) that would allow Medicare advisers to view the secret rebate agreements PBMs negotiate with drugmakers.

    All five of the executives said they would back legislation to ban the practice of spread pricing, which can involve PBMs charging Medicare and Medicaid plans higher rates for a drug and then reimbursing pharmacies at lower rates for the same drug—and keeping the difference, according to The Hill. PBMs have said spread pricing helps stabilize drug costs, and insurers often elect to participate in such arrangements. According to Bloomberg, Sen. Ron Wyden (D-Ore.), the ranking member on the committee, said he and Committee Chair Chuck Grassley (R-Iowa) have asked HHS' Office of Inspector General to examine spread pricing in government drug plans.

    However, the executives raised concerns over the administration's proposal to alter safe harbor protections under the federal Anti-Kickback Statute so that they no longer allow drugmakers to pay rebates tied to a percentage of a drug's list price to certain Medicare and Medicaid plans. The executives said it is unclear whether the proposal would result in drugmakers lowering their list prices for drugs. "We support the sentiment, but I am not convinced this mechanism will be very successful," Miller said, adding, "Restricting or eliminating rebates does not assure improved affordability for patients or taxpayers."

    Lawmakers to work on legislation

    Grassley said, "This system of private entities negotiating is what I envisioned as an author of the [Medicare] Part D program. I still believe that this is absolutely the right approach." However, Grassley said, "This hearing indicates it's our duty to understand how the system is working today and what we can do to improve it." He said, "The current system is so opaque that it's easy to see why there are many questions about PBMs' motives and practices."

    Grassley said his "next step is to work with committee members to develop policies to help Medicare and Medicaid patients and protect taxpayers" (Florko, STAT News, 4/9; Luthi, Modern Healthcare, 4/9; Weixel, The Hill, 4/9; Edney/Langreth, Bloomberg, 4/9; Morse, Healthcare Finance News, 4/9; Senate Finance Committee release, 4/9).

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