Senators press drug industry ‘middlemen’ over high prices

The pricing practices of pharmacy benefit managers (PBMs) faced scrutiny on Tuesday as senators from both parties grilled company executives over their role in rising drug prices.

During a hearing Tuesday, members of the Senate Finance Committee sought to shine a light on the work of PBMs, the drug middlemen, who handle claims for big insurers and help negotiate drug prices with manufacturers.

Drug companies have long painted PBMs and insurers as the villains in the pricing debate, and the industry has few backers.

{mosads}“More transparency is needed,” said committee Chairman Chuck Grassley (R-Iowa), who has long criticized PBMs for what what he says are secretive industry pricing practices. “The current system is so opaque that it’s easy to see why there are many questions about PBMs’ motives and practices.”

Sen. Ron Wyden (D-Ore.), the committee’s ranking member, also called out the industry’s perceived lack of transparency.

“Bottom line, PBMs are middlemen who strike deals with drug makers in secret. In my experience, that kind of negotiation rarely results in an act of charity for consumers,” Wyden said.

The battle over how to lower drug prices has been marked by finger pointing among all sides. Drugmakers blame PBMs and insurers, while those groups say pharmaceutical companies are responsible for high prices.

The hearing also comes at a particularly difficult time for PBMs, who are bracing for a Trump administration rule that could upend their business model. But it also afforded PBM executives an opportunity to publicly defend their industry — and hit back at drugmakers.

Executives from Cigna, CVS, Humana, OptumRx and Prime Therapeutics testified.

“Manufacturers continue to increase their list and net prices at unsustainable rates because the lack of competition allows them to,” said John Prince, CEO of OptumRx. “We know consumers have felt the manufacturers’ list price increases in the form of higher out of pocket costs.”

Prince said his PBM passes on about 98 percent of the discounts negotiated with drug companies directly to patients

Some committee Democrats joined the executives in also criticizing drugmakers, highlighting the complexity of the pricing debate.

“I stand in awe of the pharmaceutical industry’s jujitsu magic to have gotten their prime antagonists to become the focus of the problem,” said Sen. Sheldon Whitehouse (D-R.I.).

Still, the committee’s top lawmakers indicated they are working toward legislation that could limit how PBMs make money and bring transparency to the system.

Wyden said that he and Grassley have asked the Department of Health and Human Services inspector general to probe the issue of “spread pricing.”

Under spread pricing, PBMs charge Medicare and Medicaid plans a certain amount for a drug, and then reimburse pharmacies at another, usually lower rate, for the same prescription and keep the difference.

“If there are changes that can be made to clamp down on this exploitation of Medicaid I hope the committee will consider it. In my view, it’s as clear a middleman rip-off as you’re going to find,” Wyden said during the hearing.

Wyden pressed the executives on whether they would oppose efforts to ban spread pricing in Medicare and Medicaid, and said he was encouraged that most said they would not.

PBMs argue that spread pricing helps stabilize drug costs, and that their clients are often the ones who choose to participate in such arrangements.

PBMs administer prescription drug plans for large employers and are tasked with negotiating discounts on drugs with pharmaceutical firms and insurers. They also determine what drugs are covered and what patients pay out-of-pocket.

Essentially, pharmaceutical companies pay the PBMs to include their drugs in an insurance benefit in order to make a profit. The PBMs negotiate a discount for those drugs, usually in the form of lower co-pays, and they make a profit by keeping a portion of that rebate for themselves.

As the middlemen, PBMs are demonized by both the drug industry and President Trump.

Grassley and Wyden have long been critics of how PBMs operate, but Grassley indicated he wasn’t interested in putting PBMs out of business.

“This system of private entities negotiating is what I envisioned as an author of the [Medicare] Part D program,” Grassley said. “I still believe this is absolutely the right approach.”

At the hearing, the PBM executives said their companies add value to the health care system and save patients money. 

The executives argued that they are not against transparency but insisted keeping rebates secret is crucial to maintaining their negotiating leverage with drug companies.

The Trump administration, though, is taking steps to try to end the system of secretive rebates in Medicare, a move that’s backed by the pharmaceutical industry.

The proposal would scale back the legal protections on Medicare rebates, essentially eliminating them. Instead, the savings would go directly to patients at the pharmacy counter.

Health and Human Services Secretary Alex Azar has said the proposed rule “has the potential to be the most sweeping change to how Americans’ drugs are priced at the pharmacy counter, ever.” Comments on the draft rules were due on Monday.

In response to questioning from committee Democrats, the PBM executives said the proposed rule won’t solve the pricing problem and warned it would end up making drugs even more expensive.

Further, the executives said, there’s no indication pharmaceutical companies would actually lower their list prices.

“We support the sentiment, but I am not convinced this mechanism will be very successful,” said Steve Miller, executive vice president and chief clinical officer of Cigna.

“Restricting or eliminating rebates does not assure improved affordability for patients or taxpayers.”