Bill would split PBM pay from drug prices in Medicare Part D

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Pharmacy benefit managers (PBMs) again are a target in federal legislation that lawmakers said would benefit patients who get prescription drugs through Medicare Part D.

Meanwhile, one lawmaker has called for breaking up PBMs, the companies that negotiate drug prices for prescription medicine plans. Two other analysts agreed on the need for negotiators to haggle with drug companies over prices, but they should pass value along to consumers, pharmacies, and prescription drug benefit plans.

In the Senate

On June 14, a bipartisan group of six senators introduced the Patients Before Middlemen Act that would separate PBM compensation from drug prices and utilization in Medicare Part D.

The current drug price negotiation system “incentivizes PBMs to steer health plans and seniors towards more expensive prescription drugs,” while pocketing administrative fees and other payments that push up prices for patients, according to the official announcement.

"This legislation will put a stop to one of the most egregious practices driving up the price of prescription drugs in Medicare: pharmacy benefit managers getting paid based on the price of a drug," Sen. Ron Wyden, D-Oregon, said in the news release.

"Instead of fighting for lower prices, this practice has encouraged drug middlemen to favor higher-priced drugs in their negotiations, which means seniors are forced to pay more for their prescriptions,” said Wyden, who is chairman of the Senate Finance Committee. The bill is one among several introduced at the national level in recent weeks to rein in PBMs.

Policies for PBMs

On June 14, KFF devoted its Health Policy Wonkshop to PBMs. The monthly online forums explore various issues in U.S. health care.

PBMs and the pharmaceutical industry are in a lobbying war with each side blaming the other for high drug prices, said Larry Levitt, KFF executive vice president for health policy. He predicted national regulation of PBMs could have the best chance for bipartisan action on health care this year.

PBMs operate as “this incredibly opaque part of our health care system,” Levitt said.

They started in the late 1960s and early 1970s as claims processors and adjudicators to handle back-office functions for health plans, said Karen Van Nuys, executive director of the Value of Life Sciences Innovation Program and senior fellow at the University of Southern California Schaeffer Center for Health Policy and Economics. Over time they have grown and added duties such as managing pharmacies and negotiating drug prices with manufacturers primarily for branded drugs, she said.

Van Nuys described co-pay clawbacks, when PBMs keep the difference between a co-pay and the prescription price when the co-pay is greater than the total cost of the prescription. Spread pricing happens when PBMs pay pharmacies one amount, then gets a higher amount from a benefit plan, and keeps the difference.

PBMs can put drugs on preferred tiers, which is good for manufacturers because the drugs gain access to patients, creating greater demand, and PBMs collect rebates from drug makers that have to increase list prices to cover the rebates and maintain their net take, Van Nuys said.

All 50 states have passed some form of PBM legislation; there are 136 pending bills in 43 states and a dozen new bills enacted in the current legislative session, said Jennifer Reck, director of the Center on Drug Pricing in the National Academy for State Health Policy.

Much of the regulation aims to protect consumers and pharmacies, and some of the most common laws are bans on gag orders that prohibit pharmacists from sharing with consumers if there are lower cost ways to access medications, Reck said. There is a push for more transparency in pricing, she said, and they noted billionaire entrepreneur Mark Cuban’s prescription drug company has gotten attention because people can see what some drugs would cost them.

“By posting these prices and making them public, I think it is kind of dialing up the heat on many of these practices,” although largely limited to generic drugs, Van Nuys said.

PBMs have an important role negotiating drug prices in branded spaces where manufacturers have strong positions, Van Nuys said. That activity generates value, but the issue is “whether they’re sharing it,” she said.

“What we'd really like is somebody to be negotiating those prices and passing that value through,” Van Nuys said.

Transparency in pricing would help, along with slowing vertical integration that allows some PBMs to have market advantages over those that are not vertically integrated, Van Nuys said.

Break up PBMs?

On June 13, Rep. James Comer, R-Kentucky, suggested Congress could take bipartisan action to break up PBMs.

That day, the U.S. House of Representatives’ Committee on Education & the Workforce held the hearing, “Examining the Policies and Priorities of the Department of Health and Human Services,” (HHS), with Secretary Xavier Becerra as the witness. Comer questioned Becerra about PBMs and they agreed it’s past time for Congress to act.

“Transparency – as they say, sunshine is the best disinfectant,” Becerra said.

Requiring transparency is a political talking point, said Comer, current chairman of the House Committee on Oversight and Accountability. Now there is bipartisan support for breaking up PBMs, he said.

By all accounts, there needs to be someone negotiating drug prices, but PBMs “have gone so far off the reservation” beyond what they were created to do in a way that is “ridiculous,” Comer said.

Comer asked if Becerra would support measures up to barring PBMs from owning pharmacies, insurers, and clinics they negotiate for. Becerra said he would be “very interested” in exploring all those ideas and HHS needs Congress to act.

PBMs fire back

This week’s developments did not include responses from the Pharmaceutical Care Management Association (PCMA), the trade group representing PBMs. At the end of May, PCMA announced the launch of a new television advertising campaign to “remind policymakers and the public that Big Pharma’s egregious pricing and anti-competitive practices are the root cause of high prescription drug prices and encourage lawmakers to reject Big Pharma’s blame game designed to keep drug prices high by targeting cost-saving pharmacy benefits.”

“Lobbying groups for the pharmaceutical industry have spent tens of millions of dollars of paid advertising aimed at putting a target on the one check-and-balance on their pricing power – pharmacy benefit companies, who provide savings for patients, employers and plan sponsors – in order to keep prescription drug prices high,” PCMA President and CEO JC Scott said in a news release. “Misguided proposals targeting pharmacy benefits come straight from their playbook and are designed to undermine the one check-and-balance on drug companies’ pricing power.”