Senate Scrutinizes Pharmacy Benefit Managers' Practices

Maryland Senator Ben Cardin appeared to take pharmacy benefit manager (PBM) executives by surprise when he asked why they don’t pressure pharmaceutical companies to eliminate drug product shortages.

Cardin, during an April 9 hearing of the Senate Committee on Finance, said PBMs routinely tout their use of market forces and bargaining power to force price concessions from drug makers.

He said PBMs, when contracting with manufacturers, could prevent them from halting the production of critical but unprofitable medications that are part of the companies’ product portfolios.

“You could make a difference today on this issue,” Cardin said. “You have leverage over pharmaceutical manufacturers. You can affect whether they’ll be on the formulary or not. You really determine their financial success.”

Derica Rice, Executive Vice President and President of CVS Health and CVS Caremark, and Steve Miller, Executive Vice President and Chief Clinical Officer of Cigna Corp., both said that increased competition in the generic marketplace, with an assist from FDA, is the answer to the problem of drug shortages.

“I can’t accept that,” Cardin responded. “You don’t want government to set price, but you want government to deal with shortages when you could deal with shortages.”

The exchange was a digression from the official topic of the committee’s hearing, titled “Drug Pricing in America: A Prescription for Change, Part III.”

The first hearing in the series was held January 29 and included testimony from policy experts. The second hearing, held February 26, featured testimony on medication prices from drug company chiefs.

Committee members questioned the five PBM executives about their handling of rebates from drug manufacturers. The witnesses were also asked about a recently proposed rule from the Department of Health and Human Services (HHS) that would eliminate rebates from Medicare Part D and Medicaid managed care plans.

Rebates are typically available for some brand-name drugs but are less common for generic medications. HHS estimates that the average difference between a drug’s list price and the net price after a rebate is about 26–30 percent.

According to an HHS fact sheet, PBMs collect rebates from manufacturers but don’t pass the discounts to patients at the pharmacy counter. The proposed rule presumes that eliminating rebates will lead to lower list prices, which would reduce out-of-pocket drug costs for patients whose cost-sharing is based on the list price of their medications.

The proposed rule doesn’t require drug manufacturers to reduce their drugs’ list prices. But drug company executives who testified at the February hearing indicated that the elimination of rebates could be part of a larger strategy to reduce list prices.

Committee Chairman Chuck Grassley of Iowa, in his opening remarks, said one reason PBMs are blamed for high drug prices is because of secrecy surrounding their business practices.

“More transparency is needed. The current system is so opaque that it’s easy to see why there are many questions about PBMs motives and practices,” Grassley said.

ASHP, in an official statement to the committee, also highlighted the need for disclosure about rebate arrangements between PBMs and drug manufacturers.

William Fleming, Segment President of Healthcare Services for Humana Inc., said PBMs typically use rebates to decrease drug plan premium costs. If the proposed rule is implemented as written, he said, fewer than 10 percent of Medicare Part D drug plan enrollees will pay less for their medications, but all enrollees will pay higher premiums.

PBM representatives were also asked about whether their companies pay pharmacies one price for a medication and then charge healthcare payers a much higher price for the medication, a practice known as spread pricing.

Ranking Member Ron Wyden of Oregon derided spread pricing as a “rip-off” that results in higher costs for Medicaid and, ultimately, for taxpayers.

Four of the PBM executives said they offer spread pricing as an option to at least some of their clients.

The exception was Mike Kolar, Interim President and Chief Executive Officer for Prime Therapeutics LLC.

“We do not engage in spread pricing as part of our business model,” Kolar said.

At least four states are considering legislation that would prohibit or restrict spread pricing, according to the National Academy for State Health Policy.