Pharmacy Benefit Managers Launch Counteroffensive Amid U.S. Drug Price Surge

The Issue of Rising Drug Prices Dominates Recent News HeadlinesHighly publicized, significant price hikes and instances of patients in high-deductible health plans finding themselves responsible for hundreds or even thousands of dollars out-of-pocket for medications have sparked growing discussion about exorbitant drug prices. In the United States, pharmaceutical manufacturers set drug prices and can raise or lower them at any time. What should consumers do to make medications affordable?

Prescription drugs follow a long and complex path from the laboratory to the patient’s medicine cabinet. This journey is further complicated by a critical yet poorly understood intermediary: the pharmacy benefit manager (PBM).

These companies negotiate with representatives of pharmaceutical manufacturers’ health plans, labor unions, and certain employers to secure the best possible prices—a critical endeavor given the rising cost of medications.However,PBMs（Pharmacy Benefit Management) has also sparked controversy. They negotiate on behalf of their clients using a method we refer to as “kickbacks,” while simultaneously diverting these funds to bolster their own bottom lines.。

Thus, some of America’s largest and most recognizable companies, including Macy’s, Coca-Cola, and American Express, have formed a coalition to identify ways to reduce healthcare costs.One of their ideas is to fundamentally overhaul PBMs (Pharmacy Benefit Management) payment methods, but it remains unclear whether this idea will have a successful impact., but Wall Street estimates that alliance members collectively spend $3 billion annually on pharmaceutical-related research.

The goal is to provide some transparency into a seemingly “dark” world.

“我们需要以某种特别的方式打开这个黑盒子。” John Marley, National Pharmacy Practice Leader at Aon Hewitt Benefits Consulting, said.

To maintain a straightforward and healthy transition, the entire pharmaceutical alliance is seeking a new strategy to rewrite their contracts, eliminating any undisclosed rebate records from pharmaceutical companies. Instead, companies will pay PBMs for the negotiated fees based on the actual cost of medications. This approach is expected to reduce corporate healthcare expenses, thereby further lowering employee costs.

For years, U.S. companies have sought to break away from the PBM model, but this approach would fundamentally reshape the landscape dominated by the largest PBMs—particularly Express Scripts, CVS Caremark, and UnitedHealthcare—which collectively manage approximately 70% of pharmacy benefit volumes in the United States.

For now, at least, these large PBMs have the upper hand.

For example,In contracts with pharmaceutical manufacturers, PBMs can define the rebates they negotiate as a fee, allowing them to retain it rather than pass it on to their clients., according to health care attorney Linda Cahn’s plan, this places clients at a significant disadvantage because the contracts are proprietary, making it difficult for clients to ascertain the true nature of the kickbacks.

Similarly, contracts may also allow PBMs to arbitrarily define which drugs are brand-name or generic. In this case, some drugs may be misclassified, further implying that customers may receive inappropriate price discounts, and these price differences can be significant. Cahn said that the average discount for brand-name drugs can range from 15% to 21%, while the average discount for generics can vary from 72% to 82%.

“PBMs like to play the labeling game,” she explained, “so customers don’t know how much of their money is truly on the table.”

To them, such concerns regarding these large PBMs are incomprehensible.

A recent report from the industry trade group Pharmaceutical Care Management Association predicts that PBMs will save consumers $654 million over the next decade. According to Adam Fein of Pembroke Consulting, which tracks the prescription drug supply chain, PBMs will pass through 90% or more of all rebates to employers. Of course, each company handles related discounts differently.

In a conference call with Wall Street analysts, Tim Wentworth, CEO of Fast Script, stated that the company has voluntarily structured contracts for many years to return 100% of collected discounts to customers, describing these arrangements as “fully transparent and audited.” Additionally, a company spokesperson added that their clients are “sophisticated buyers.”

Wall Street’s stance on this matter is largely unified.

Nevertheless, in a letter to investors, Citi analyst Garen Sarafian wrote, “We agree that PBMs need greater transparency.” He pointed out that Fast Script acquired a major competitor named Medco Health Solutions. Four years later, the PBM failed to disclose the same metrics that Medco had previously provided, with the first item on that list being the rebate retention rate.

“David Dross, Leader of Managed Pharmacy Practice at Mercer Benefits Consulting, said, ‘This will enable these companies to rapidly pivot away from their existing business models, and it could be a game-changing move.’”

First, their best chance of success lies in negotiating as a unified group rather than in a fragmented manner. Although the HTA formulary may spend billions of dollars annually on pharmaceuticals, Fein points out that this still represents a “very small” share of total expenditures.And Malley pointed out that some companies may actually end up paying higher bills, as it is extremely difficult to fully dissect the financial status of PBMs.。

However, unfortunately, PBMs are not willing to go all out to reduce drug costs.The alliance’s efforts may ultimately prove futile, but this path remains worth exploring. After all, the transactions facilitated by intermediaries are beneficial to customers.

By February 2017, the situation had taken a new turn. Recently, inFive months after drug manufacturers publicly accused pharmacy benefit managers (PBMs) of manipulating drug prices to drive them up, these key players—long shrouded in mystery and occupying the role of intermediaries within the relatively complex healthcare system—have launched their own counteroffensive.。

On February 7, a trade group representing pharmacy benefit managers (PBMs), engaged in price negotiations with health plans, created a list of drugs covered under preferred insurance tiers and distributed a memorandum to its members outlining a “six-point” plan aimed at curbing criticism of their business model.

According to a memo first reported by BuzzFeed, the Pharmaceutical Care Management Association plans to target key leaders of the Trump administration, aiming to “build a political firewall” around Capitol Hill to prevent legislation unfavorable to its interests.

Since taking office, President Trump has twice complained about drug pricing, most recently at a meeting last week, where he argued that pharmaceutical executives were charging “exorbitant” prices for medications. However, thus far, he has not taken any concrete steps to address this issue. Nevertheless, his seemingly indiscriminate approach to tackling various issues appears to have heightened anxiety among trade groups.

“If Trump were a traditional president, we would wait for him to propose a strategic update. Once key health officials are in place, the new policy requirements will become clearer,” said Mark Merritt, head of the trade group, in his February 6 memo.

He continued, “Given the risks associated with media headlines and other unique challenges, we hope President Trump can accelerate the review process. We favor rapid, instinctive action over the traditionally overly cautious decision-making process. Meanwhile, it appears that the President can make any decision, at any time and for any reason, on issues pertaining to the healthcare sector and industries beyond.”

Of course, lobbying is the standard entry ticket in Washington, so from this perspective, the efforts planned by trade groups are to be expected. Furthermore, as the American public grows increasingly angry about the cost of their medications and the uncertain stance potentially adopted by the Trump administration, Merritt will be more motivated to formulate relevant plans, as he has no other choice.

However, PBMs are now clearly on the defensive—but they have good reason to do so.In recent years, there has been a growing call for a Byzantine drug pricing system with greater transparency to dominate the market, in which drug manufacturers provide rebates to PBMs on PBOs to secure favorable placement on formularies of insured prescription drugs.。

PBMs help consumers save costs by passing rebates on to health plans. On Monday, Express Scripts, the largest PBM company in China, pointed out in a new report thatLast year, the average list price of brand-name drugs increased by 10.7%, while the net unit price paid by customers rose by 2.5%, a figure that includes rebates negotiated with pharmaceutical manufacturers.. PBMs insist that these cost-saving initiatives be sustained.

“Any suggestion that PBMs are driving up drug prices is plainly wrong,” Larry Merlo, CEO of CVS Health, a major PBM, told analysts on Thursday’s conference call. “We are solving the problem, not creating it.”

“But critics see it differently,” said Robert Goldberg, a member of the Center for Medicine in the Public Interest, a think tank partially funded by pharmaceutical manufacturers. “At the end of the day, this is about profit preservation.”

The pharmaceutical industry believes that PBMs are seeking increasingly higher rebates, which forces them to raise prices.This is the point that Heather Bresch, CEO of Mylan Pharmaceuticals, sought to explain to the public during last fall’s congressional hearing.She argued that although the price of EpiPen had surged by 500% over the past decade to $608, Mylan had still managed to maintain a net price of $274 despite continuously rising rebate rates.。

Critics also argue that because contracts are proprietary, PBMs make it difficult for the public to track their financial flows. For example, one pharmacist stated that PBMs could encourage physicians to prescribe high-cost drugs to increase discounts or directly allocate rebates as fees, allowing them to retain these rebates rather than passing the excess profits back to their clients. Critics say the bottom line is that health plans cannot easily reduce premiums and copayment shares for customers.

Lindsay Bealor Greenleaf, a director at ADVI Health (a consulting firm) representing pharmaceutical manufacturers and providers, stated, “We have reached a crossroads as patients are shouldering an increasing share of cost-sharing responsibilities. Yet patients are not reaping the benefits from negotiations. If these so-called costs were truly decreasing, we would not be continuously discussing this issue, nor would it dominate news headlines every day.”

Nevertheless, earlier this week, Express Scripts CEO Tim Wentworth played his part in the new campaign by blaming pharmaceutical manufacturers.

“If you examine the PBM model, in fact, we derive the greatest benefit when we actively drive client engagement and market penetration while ensuring no kickbacks are involved. On the other hand, when we receive kickbacks, our clients decide to retain the business lines through which they can provide benefits, as these kickbacks flow through us, and subsequently, our clients determine where the funds are directed.”

“Pharmaceutical companies determine their pricing and decide whether to offer rebates, thereby adjusting their prices to cost or reducing them to discounted levels below cost.,” he continued. “The good news is that, for our customers, the unit price of pharmaceuticals has increased by 2.5%. However, I cannot explain the underlying mechanism behind this phenomenon. You would need a CEO of a pharmaceutical company to explain why they keep raising drug prices.”

Source: STAT

Author: ED SILVERMAN

Compiled by: Zhou Qianyun

Translated by VCBeat; this does not represent the views of VCBeat.