The Drug Pricing Debate Is Finally Shining a Light on Pharmacy Benefit Managers

Earlier this year US Senator Claire McCaskill (D-MO) released a report that examined the price increases among the top 20 most prescribed brand name drugs for seniors, which showed that “the prices of many of the most popular brand name drugs increased at nearly 10 times the cost of inflation from 2012 to 2017.”¹ Although we have witnessed contentious debates between Congress, state officials, and the Pharmaceutical Research and Manufacturers of America on drug pricing, a new spotlight has been placed on another responsible actor: pharmacy benefit managers (PBMs).

PBMs are third-party health care plan administrators that manage benefits on behalf of payers. They have the ability to negotiate prescription drug pricing with manufacturers and pharmacies, establish a network of pharmacies to fill prescriptions, and process and pay insurance claims.

PBMs are industry middlemen. However, over a relatively short time-frame, these middle men have morphed from claims processors into a few large corporations that “control the pharmacy benefits of more than 253 million Americans,” in which “just 3 PBMs now control 78% of prescription drug benefit transactions in the US.”²

In theory, these entities are supposed to lower drug costs and increase generic utilization via their formulary controls and negotiated price concessions in which realized savings are passed on to the consumer. However, the PBM revenue model of manufacturer rebates, supply chain administrative fees, and pharmacy spread pricing— this is the difference between what they pay for drugs from a pharmacy and what they get paid by the insurer—have placed an unavoidable conflict upon PBM duties to consumers. The current dearth of transparency, as well as a lack of consistent regulatory state and federal oversight, has greatly contributed to the increase in prescription drug costs that we are witnessing.

There have been several recent federal efforts aimed at bringing more balance into the market by increasing PBM oversight. Congress currently has a few bills pending around the issue of creating more transparent PBM practices:

• HR 1316 seeks to provide PBM standards under the Medicare prescription drug program and Medicare Advantage program to further transparency of payment methodologies to pharmacies and for other purposes.
• S413/HR 1038 seeks to prohibit prescription drug plan sponsors and Medicare Advantage prescription drug plan organizations under the Medicare program from retroactively reducing payments on clean claims submitted by pharmacies.
• S1044/HR 1939 seeks to ensure all Medicare beneficiaries have equal access to community pharmacies in underserved areas and network pharmacies under Medicare prescription drug coverage and for other purposes.

The Trump administration has been vocal about PBMs, too. For example, when discussing the FDA’s concern about biosimilar utilization, FDA Commissioner Scott Gottlieb, MD, stated, “Manufacturers are using several schemes to hamstring biosimilar competition, and I worry that some PBMs have been complacent participants in such schemes.”³

When it comes to pharmacy gag clauses, contractual requirements that prevent pharmacists from sharing information with patients related to a patient’s out-of-pocket cost or the clinical efficacy of a prescription drug, Department of Health and Human Services Secretary Alex M. Azar has taken the position that gag clauses should end: “If pharmacy benefit managers really believe in doing right by the patients they work for, there’s no reason they can’t end this practice and release pharmacists from these gag clauses, right now.”⁴

These statements, along with the May 2018 release of the Trump administration’s blueprint to lower drug prices, “American Patients First,” show that PBM transparency is not likely to be separated from the drug cost debate.

Along with federal initiatives aimed at understanding the role of PBMs, recent policy suggestions by interested stakeholders seek to provide clarity around proper PBM oversight. For instance, the National Academy for State Health Policy (NASHP), a nonprofit, nonpartisan forum of state health policy leaders, has been actively engaged with states in an effort to lower the trajectory of prescription drug spending. NASHP develops model legislation and provides technical support to states through grant funding from the Laura and John Arnold Foundation.

Last year, more than 170 bills were introduced in state legislatures; the predominant bills were directed at PBM practices. Those bills sought to eliminate gag clauses and provide more disclosure and transparency about the business relationships between PBMs and health plans. Last year, 89 bills were introduced related to PBMs and 29 were enacted. NASHP has drafted a model PBM law built on the laws already enacted, in anticipation of more action on this front as legislatures reconvene in 2019. That model law includes outlawing gag clauses and providing transparency about conflicts of interest and information about rebates, and it holds PBMs more accountable. NASHP’s models are just that, a compilation of strategies state leaders identified as having the potential to address the cost challenge. Interested states are able to use or adapt the model in any way that meets their own priorities and needs. Specifically the model includes:

• State licensure: States have a long history of licensing other parts of the drug supply chain, such as pharmacies, wholesalers, and similar entities, but only recently have they begun to license and regulate PBMs. This section of the act requires a PBM operating in a state to become licensed.

• Fiduciary responsibility: The model act requires PBMs to have a fiduciary duty to their health plan clients. This means PBMs have a legal responsibility to protect the financial interests of their health plan clients.

• Gag clause ban: This bans PBM contract provisions that limit a pharmacist’s ability to inform customers about the least expensive way for them to pay for a prescription. Some current PBM bans prevent a pharmacist from telling consumers when they will spend less if they pay in cash rather than use insurance or select a less costly generic drug or a therapeutic alternative.

• Patient out-of-pocket costs: This section prevents a health plan or its PBM from setting patient copays or coinsurance at a higher level than the actual cost of the drug to the health plan or its PBM.

• Conflict of interest: The model act requires a PBM to notify health plan clients if the PBM has a conflict of interest. For example, when a PBM owns its own pharmacy operations, it may want to drive business there instead of focusing on the most cost-effective drug distribution for its health plan client.

• Protecting consumers from conflicts of interest: Patients who do not use pharmacy services in which the PBM has an ownership stake or other financial interest cannot be penalized.

• Rebate transparency: PBMs must report rebates and fees in a variety of ways. The state would make public the reported information that is not a trade secret.

• Limiting PBM requirements on pharmacies: Some PBM contracts limit which drug wholesaler or distributor a pharmacy can buy from. Those PBM-specified distributors may serve the PBM’s financial interests more than a pharmacy’s interests. The model act prohibits a PBM from establishing pharmacy network requirements that exceed what are defined by state law.

NASHP anticipates more action across states to address concerns with PBMs when legislatures reconvene in 2019 and will continue to track and report on those initiatives.

Additionally, we are watching the PBM policy debate originating from the National Council of Insurance Legislators (NCOIL) 2018 Spring Meeting. Here, the NCOIL Health, Long Term Care and Health Retirement Issues Committee met and heard from several stakeholders regarding “the potential need for a model law that would give authority for regulation to state insurance commissioners.”⁵

This issue has been spearheaded by State Sen. Jason Rapert (R), as Arkansas’ legislative efforts on PBMs have caused other states to examine its attempts at curtailing PBM influence. Rapert said, “Insurance companies are overseen by insurance departments, pharmacists are overseen by pharmacy boards, and doctors are overseen by medical boards. This is to ensure consumers and patients are protected and companies are sound and solvent. I believe PBMs need to be regulated to ensure customers are protected and costs are contained.”⁵

In conclusion, manufacturers have historically been the sole culprit behind rising drug prices. However, as more questions are asked, more testimony is given, and more groups come forward, it seems that PBMs also have played some role in cost growth, either through formulary management, tighter provider access for patients, or supply chain administrative fees.

As the PBM industry continues to shrink with the merger approvals of CVS- Aetna and Cigna-Express Scripts, there is no doubt that there will be a continued push for greater PBM transparency. Policy discussions will continue throughout the fall.

References

• Brand-Name Drugs Increasing at 10X Cost of Inflation, McCaskill Report Finds. Minority Media for U.S. Senate Committee on Homeland Security and Governmental Affairs. March 26, 2018. https://www.hsgac.senate.gov/media/minority-media/breaking-brand-name-drugs-increasing-at-10x-cost-of-inflation-mccaskill-report-finds
• National Community Pharmacists Association (NCPA). The PBM Story, What they say, what they do, and what can be done about it. http://www.ncpa.co/pdf/PBM-Storybook-6pg.pdf
• Advancing Patient Care Through Competition Remarks by Scott Gottlieb, M.D. Commissioner of Food and Drugs. Pharmaceutical Care Management Association. Washington, DC. April 19, 2018 https://www.fda.gov/NewsEvents/Speeches/ucm605143.htm
• Remarks on Drug Pricing Blueprint, Alex M. Azar II. Stakeholders, news media and others. May 14, 2018, Washington, D.C. https://www.hhs.gov/about/leadership/secretary/speeches/2018-speeches/remarks-on-drug-pricing-blueprint.html
• NCOIL Committee Discusses Likely Regulation of Pharmacy Benefit Managers (PBMs) [news release]. NCOIL. March 12, 2018. http://ncoil.org/2018/03/13/ncoil-committee-discusses-likely-regulation-of-pharmacy-benefit-managers-pbms/.