April 26, 2017
By Karl Thiel for BioSpace.com
With health care reform exploding on the launch pad, and explosions of a more literal nature dominating the current news cycle, it might seem that drug companies can finally breathe a small sigh of relief. The Trump Administration, it would seem, has more serious things to worry about than another legislative misadventure aimed at lowering prices of prescription medicines. That seems doubly true when you consider that most of the ideas floated so far have involved Democrat-leaning changes to Medicare. If the Republican Freedom Caucus didn’t like Ryancare, they’re certainly unlikely to get behind anything that smacks of government price-fixing.
Yet few people are acting like it’s back to business as usual. Hedge funds continue to shift their focus away from healthcare and toward financials. There’s been talk--albeit vague and sometimes contradictory--from people in the Administration (including President Trump himself) that a second attempt at healthcare reform will happen in the near future. And then there’s the fact that Trump, before and after taking office, made it very clear and very public that drug pricing is something he intends to address. It seems unlikely that he’ll just drop the subject entirely.
So if some price reform package is inevitable, and the status quo proposal is potentially dead in the water, what tactic might the Administration try? Nobody knows for sure, but one group that may be in the crosshairs is taking the threat very seriously: Pharmacy benefit managers.
A Winning Issue?
The idea that PBMs play a role in boosting the price of drugs is nothing new. Mylan CEO Heather Bresch fumblingly suggested as much last summer when she infamously said that “no one is more frustrated than me” over the high prices of drugs. She attempted to explain how a significant portion of drug company price hikes are discounted or taken by middlemen. Legit message, unbelievably hamfisted execution.
Since then, however, the idea that we should be blaming PBMs for pricing woes has gained steam. The drug industry’s main lobbying arm, PhRMA, just this month launched its “Share The Savings” campaign. The message: Rebates may lower the list price of drugs, but the savings accrue to insurers and PBMs themselves, not patients. Co-pays and deductibles are based on list prices, so patients are dinged--especially the increasing number of us with high-deductible plans. Moreover, the “black box” model of most PBMs makes it almost impossible to truly follow the money flow, and particularly disadvantages smaller employers and individuals.
PBMs have prepared for this assault with their own campaign. In February, The Pharmaceutical Care Management Association, which represents PBMs, released a video arguing that some kinds of transparency “can backfire.” (The gist: If you let drug companies see detailed discount and rebate information from PBMs, they’ll collude with their competitors).
Yet targeting legislative reform at PBMs may find some traction with GOP members of Congress. Rep. Doug Collins (R-Ga.), for one, has gone on record saying “I truly believe the PBM industry is one of the most detrimental pieces of health care.” Morgan Griffith (R-Va.) has introduced reform legislation aimed at PBMs. Sen. Chuck Grassley (R-Iowa) has said he is examining the role of PBMs in rising drug prices.
And then there’s Tom Marino (R-Penn.). Marino, currently chairman of the House Judiciary Committee’s antitrust subcommittee, is widely rumored to be first in line to head the Office of National Drug Control Policy--the so-called “drug czar"—where he could have a significant voice in shaping policy. He has in the past been a foe of the PBM industry, having stood against the merger of Express Scripts and Medco in 2011 and sponsored legislation to boost the negotiating power of small pharmacies versus PBMs. Add in a broad swath of Democrats who are also open to the anti-PBM message, and this potentially becomes a bipartisan path to a legislative victory for the Trump Administration.
“Rattled” Industry
Of course, whether the Administration will actually embrace this message is unknown--but that’s part of what is scaring the industry. An internal memo from Pharmaceutical Care Management Association CEO Mark Merritt, obtained by Buzzfeed, summed up the angst:
“The sense that this President could make any decision, at any time, for any reason, on any issue is rattling industries in the health care sector and beyond.”
Ultimately, in a public battle over culpability for rising prices, no one is going to come out looking good. Drug companies can talk about middlemen all they want; it’s even true that they sometimes raise prices and get no additional revenue as a result. But they’re still the ones hiking prices.
For their part, PBMs have, up until now, gotten a pretty easy ride. When drug companies raise prices, they negotiate higher rebates, take a 10%-15% cut of them, and shoulder little or none of the blame for patients’ sticker shock.That easy ride may be ending.
Read the BioPharm Executive online newsletter April 26, 2017.
Sign-up for the free monthly subscription to the BioPharm Executive
