Last week, it was reported that Department of Health and Human Services Secretary Alex Azar said the Trump administration had the power to crack down on the secretive rebates that pharmacy benefit managers extract from drug manufacturers. However, while emphasizing that the rebates are problematic, experts said there is little the administration can do on its own.
Targeting those rebates is part of the Trump administration’s “Putting American Patients First” initiative for reducing drug prices and out-of-pocket costs, released in May. Azar’s comments came amid growing consolidation between payers and PBMs, like the $54 billion deal for Cigna to buy Express Scripts, which both companies’ shareholders approved Friday.
The Funding Model for Cancer Innovation is Broken — We Can Fix It
Closing cancer health equity gaps require medical breakthroughs made possible by new funding approaches.
An important factor in how PBM-manufacturer rebates allegedly drive drug prices is the secrecy in which the deals take place. “Everybody may be pointing fingers, but it’s tough to get a handle on the details because the information is so deeply hidden,” said University of California Hastings professor of law Robin Feldman in a phone interview. “All the parties can get away with bad behavior because no one – not even the health insurance plans – can view the contracts between drug companies and PBMs.”
But the rebates are still attractive for payers because they get paid. “From plan sponsors’ standpoint, it becomes a little bit of a shiny object because you’re receiving a check on a quarterly basis with ‘rebate money,’” said David Henka, CEO of ActiveRADAR, a Sacramento, California, firm that runs pharmacy cost reduction programs for employers.
PBMs are paid based on the spread between the list prices and the prices they negotiate with manufacturers, but nobody knows how much the rebates are or how much the plan sponsors get back. All of that secrecy, Feldman and Henka said, encourages drugs’ list prices to keep going up. Both said that increasing transparency is crucial to ensuring drug costs are actually being brought down.
Some of the secrecy has been lifted in recent years. For example, in a class-action suit involving a deal between Eli Lilly & Co. and PBM CVS Caremark for the antipsychotic drug Zyprexa that was settled in 2009, it was shown that CVS Caremark agreed to promote the drug in a letter to 120,000 doctors, for which Lilly would pay $5 per letter. Feldman also pointed to state-level legislation designed to make PBM-manufacturer negotiations more transparent.
Transforming Patient Care: The Role of AI-Powered Assistants
The progress in artificial intelligence (AI) is reshaping patient care, across various dimensions, from facilitating faster discharge to curating treatment plans and suggesting lifestyle changes.
On June 1, Connecticut Gov. Dannel Malloy signed into law a bill – passed unanimously in both houses of the state legislature – that would, among other things, require PBMs to disclose rebates they receive from drug companies, including how much they passed along to consumers versus the amount they retained.
Still, Henka raised doubts about how much power HHS really has, and it does not look likely the administration can regulate drug prices without an act of Congress. “I think they have all the power in the world to spin a story,” Henka said. “At the end of the day, the pragmatic aspect of saying they can control drug prices is nothing more than a nice story.”
Feldman agreed. A lot of Centers for Medicare and Medicaid Services regulations don’t go through Congress, and there may be some improvement, but the system’s overall structure remains in place, and the effect of the policy change would be limited, at best, she said. Even if CMS demands that half the savings benefits from negotiations go to patients, that still leaves the other half in the pockets of the PBMs while also creating a lot of complexity, which she said PBMs are “brilliant” at manipulating. “So the plan doesn’t break through the basic problems,” she said.
An HHS spokesperson said, “While we cannot comment on pending regulations, the president’s ‘American Patients First’ blueprint to lower drug prices and reduce out-of-pocket costs clearly states that we are looking at removing safe-harbor protections for drug company rebates. It should not come as a surprise that this would require rulemaking.”
Photo: gerenme, Getty Images