BioPharma, Policy, Payers

PBM rebates lower premiums for healthy people, but don’t bring down drug costs, BMS chief says

A panel discussion at the 2020 J.P. Morgan Healthcare Conference brought together industry executives to talk about the issue of high drug prices. The conference concluded Thursday.

By Alaric DeArment on January 17, 2020

Industry execs discuss drug pricing at the 2020 J.P. Morgan Healthcare Conference. L-R: PhRMA CEO Stephen Ubl, Bristol-Myers Squibb CEO Giovanni Caforio and Roche Pharmaceuticals CEO Bill Anderson

Although the 2020 J.P. Morgan Healthcare Conference lacked last year’s big, splashy news of large-scale mergers and acquisitions, it did come during an election year when drug pricing has become one of the most important issues for both major parties.

That was the topic of a Tuesday evening panel discussion of industry leaders at the conference, which wrapped up on Thursday in San Francisco. The panel included Pharmaceutical Research and Manufacturers of America CEO Stephen Ubl, Bristol-Myers Squibb CEO Giovanni Caforio and Roche Pharmaceuticals CEO Bill Anderson.

Drug prices have skyrocketed in recent years, and in particular out-of-pocket costs borne by patients themselves. A September 2019 analysis by AARP found that while retail prices for widely used generic drugs fell by 9.3%, those of branded drugs increased by 8.3%, and specialty drug prices increased by 7%. Overall, the prices of drugs increased by 4.2% – twice the rate of inflation in 2017, which marked the 12th year of drug price increases in a row.

While there are multiple factors that drive up out-of-pocket costs for patients, panelists highlighted the pharmacy benefit management system and its business model as helping to create the problem. The three largest pharmacy benefit managers are Express Scripts, Caremark and OptumRx, which are respectively owned by health insurer Cigna, CVS Health and UnitedHealth Group.

In theory, PBMs help to lower costs for patients by negotiating drug prices on behalf of insurers and obtaining rebates from manufacturers. But Caforio said this doesn’t happen the way it’s supposed to.

“The rebates are used to reduce the monthly premiums of healthy individuals,” he said. “I think incentives have turned 180 degrees from what they should and shouldn’t be.”

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Caforio is not the first person to point the finger at the PBM business. In 2018, the American Society of Clinical Oncology said in a statement that industry practices like confidential rebate agreements with drugmakers helped drive up out-of-pocket costs for consumers. In response, the Trump administration has sought to curb the practice by introducing transparency into negotiations, but experts have said there is little the administration can actually do.

“To me, the issue is, do you use that rebate to benefit patients with chronic diseases, or do we actually penalize patients with chronic diseases,” Caforio said.

Perhaps unsurprisingly, the panelists supported solutions to the issue of drug pricing that come from the private sector, and the drug industry has strongly resisted proposals like allowing Medicare to negotiate drug prices, as authorities in other industrialized countries do.

“We think there are market based approaches that can work,” Anderson said.

One such approach was one of the biggest news events to come out of JPM this year. On Sunday, a new company called EQRx launched with a $200 million Series A financing round and a bold idea: Streamline the drug discovery and development process to create drugs that go after the same targets as approved medicines, but with lower prices.

Panelists also discussed ideas like outcomes-based contracts and pricing drugs differently according to indication and when they are combined with other therapies.

Photo: Alaric DeArment, MedCity News