PBM executives to lawmakers: Ending rebates isn't the fix to push pharma to lower drug prices

As policymakers take a hard look at the impact of drug rebates in the pharmaceutical supply chain, pharmacy benefit managers warn that eliminating them puts little pressure on drug companies to drive down costs. 

Executives from five nationwide PBMs testified before the Senate Finance Committee on Tuesday morning and said the Department of Health and Human Services’ plan to eliminate legal protections for these rebates would force a significant change in their business model but would not effectively push pharmaceutical companies into lowering drug prices. 

“But if you lost the tool for some type of mechanism of controlling for rebates, that would actually take a lot of value out of the system and increase costs,” Optum CEO John Prince testified. 

Research backed by the Pharmaceutical Care Management Association and America’s Health Insurance Plans supports these claims. A study commissioned by PCMA projects that the rule would increase Medicare spending by $200 billion by 2029, while estimates from Avalere Health on behalf of AHIP project Medicare Part D premiums for seniors could rise by as much as 40%.

RELATED: PBM executives are heading to Capitol Hill this week. Here are 4 things to watch 

Prince was joined on the panel by executives from CVS Caremark, Express Scripts, Prime Therapeutics and Humana. The PBM leaders emphasized the need for policy that holds drug companies, and not just insurers and other middlemen, accountable for the rising cost of drugs. 

All five said the HHS proposal would lead to major changes in their business model if finalized but noted that relatively few drugs in Part D, one of the rule’s main targets, have rebates available—typically about 7% or 8%, they said. 

And addressing ballooning Part D costs requires looking at the whole program, which was launched before costly specialty drugs became ubiquitous. Other groups, such as the Medicare Payment Advisory Commission, are having a similar discussion about how to make Part D work better in the modern drug market. 

While the committee members agreed there’s blame to go around for rising drug costs, the PBMs did clash with senators on the topic of transparency. One of the central criticisms lobbed at PBMs by drug companies and others is that the deals they negotiate are made in the shadows, which allows them to line their own pockets. 

RELATED: Pharma CEOs go after a familiar target in drug hearings—insurers  

On transparency: 

Sen. Ron Wyden, D-Oregon, the committee’s top Democrat, said PBMs protect their practices “with greater secrecy than HBO is guarding the ending of Game of Thrones.” Because their work is often done behind closed doors, PBMs are raking in profits while leaving the actual deals they make a secret, he said. 

“This morning the committee is going to be looking at one of the most confounding gnarled riddles in American healthcare today,” Wyden. “Whether pharmacy benefit managers bring any value to the taxpayers is a mystery.” 

The PBMs said, however, that increased transparency would weaken their negotiating power. They report data on rebates to the Centers for Medicare & Medicaid Services and are upfront about those deals with insurer and employer clients during contract negotiations. 

“If you disclose that to external markets it would hurt our ability to get a good value for the people we negotiate for,” Prince said. 

On spread pricing:

Senators also took the executives to task over controversial spread pricing, a practice in which the PBM charges a higher rate to the insurer than to the pharmacy and pockets the difference. PBMs have been under fire of late for using this payment model in Medicaid in several states. 

RELATED: Kentucky officials—PBMs earned $123M last year though spread pricing in state’s Medicaid program 

The executives said spread pricing is not a default approach but one offered in a slate of options to clients in contract negotiations, and they choose the payment method that works best for their members. 

Some have taken steps to end the practice. Derica Rice, executive vice president of CVS Health and president of CVS Caremark, said it no longer uses spread pricing as of Jan. 1. 

Alternative payment structures like spread pricing make some experts skeptical that ending rebates will achieve the desired effect. Patrick Finnegan, senior director at Fitch Ratings, said in a statement to FierceHealthcare that “it’s clear the PBMs use other contracting provisions … to achieve their targeted returns.” 

“Without a comprehensive and transparent picture of all the building blocks in the prices charged by the payer and the amounts paid to the drug stores and hospitals, it will be difficult to estimate the actual spread earned by a PBM,” Finnegan said. 

On biosimilars:

In addition to backing policies to modernize Part D and that would get drug companies’ skin in the game, the executives said lawmakers need to support the biosimilar market to truly drive down costs. 

RELATED: MedPAC recommends Congress target rebate traps, biosimilars to bring down drug prices 

The key policy change is to shorten the length of exclusivity for brand or innovator products to encourage greater development and uptake of biosimilars, said Steve Miller, M.D., executive vice president and chief clinical officer for Cigna, the parent company of Express Scripts. 

Even though the Food and Drug Administration is approving greater numbers of biosimilars, they are delayed in coming to market by legal challenges from branded drugmakers, Miller said. There is also limited FDA guidance on the interchangeability of these products, the executives said. 

“One of the biggest problems facing the industry is the lack of biosimilars that have come to the marketplace,” Miller said.