A new bill introduced Wednesday by Senator Ron Wyden wants to shed some light on the one of the drug industry’s biggest middlemen.
Pharmacy benefit managers are the companies responsible for negotiating rebates to the prices drugmakers set, and are meant to favour the most effective drug. This is meant to help keep prices low.
Many question how effective they are at doing that, however, and some have said they could be part of the reason why prices are skyrocketing.
That’s in large part because of the lack of transparency around what those rebates between PBMs and drugmakers are.
Through the bill, titled “Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act,” Wyden hopes to have PBMs share a lot more information about the rebates they receive and how much of that passes on to the consumer. These are pieces of the drug pricing system that tend to be under wraps.
“Today is the first step of an effort to lift the veil of secrecy about prescription drug prices,” Wyden said in a statement.
The transparency debate in drug pricing
Right now, there are three big PBMs that cover the majority of prescriptions filled: Express Scripts, CVS Caremark, and OptumRx. The companies’ lobbying group — the Pharmaceutical Care Management Association — has come out swinging against any criticism, pointing the finger elsewhere.
The debate breaks down like this: PBMs negotiate rebates with the different drugmakers. The terms of these rebate contracts are variable and secret. The more lives a PBM covers, the more leverage it tends to have in negotiating steeper rebates, which is why some PBMs may walk away with rebates twice as big as those of their competitors.
The lack of transparency has its pros and cons. On the one hand, having these contracts under wraps keeps a drug manufacturer from knowing what its competitor is getting as a rebate. If it knew, the company could argue it shouldn’t have to pay a bigger rebate than the other.
That’s the same argument the PCMA makes: that drug companies would take that rebate information and use it to collude with competitors.
But there are some cons to this lack of transparency, too. Without a clear picture of the rebates, the public’s understanding of why the prices of prescription drugs continue to climb is limited to just the price we see at the pharmacy counter, or data based on the list price.
Those numbers don’t tell the whole story, however, because they don’t account for rebates and other discounts that are factored in, and in the case of the price we see at the pharmacy counter, we don’t know how big a cut each part of the supply chain gets.
That’s what Wyden’s bill is trying to clear up, along with making sure those rebates get passed along to consumers.
Here’s how the PCMA responded to Wyden’s introduction of the bill:
“PBMs support the right kind of transparency that offers consumers and plan sponsors the information they need to make the choices that are right for them. However, this bill will increase premiums by undermining the tools employers, unions, and public programs, including Medicare, use to reduce prescription drug costs.
The C-THRU Act would grant the kind of transparency that the Federal Trade Commission and economists say will raise costs by giving drug companies and drugstores unprecedented pricing power that could help them tacitly collude with their competitors.”
Here’s the summary of the legislation, and link to the full bill:
“Pharmacy Benefit Managers (PBMs) play a crucial role in establishing the ultimate price of prescription drugs paid by consumers. Generally speaking, health plans contract with PBMs to negotiate rebates or discounts with pharmaceutical manufacturers on behalf of their insurer clients; however, the financial arrangement between the PBMs and the health plans are often unknown. The consumer has no way of knowing the extent to which PBMs or plans passed on the savings to the people who need this medicine.
This legislation would shine a light into this opaque world by requiring public disclosure of the total amount of rebates provided by manufactures to PBMs and the proportion of those rebates that are passed on to health plans.
Specifically, this legislation:
- Requires greater transparency of rebates and discounts negotiated by the PBM as well as the proportion of these rebates and discounts passed on to the health plan.
- Requires greater transparency of a common PBM practice known as “spread pricing” — which is the difference in payments made to pharmacies by PBMs compared to payments received by PBMs made by health plans.
- Requires this information (aggregated by PBM) to be posted on CMS’s website, allowing consumers and employers to decide whether PBMs’ are delivering on their promise of bringing down the cost of prescription drugs.
- Establishes, after two years of public reporting, a minimum percentage of rebates and discounts that must be passed on from a PBM to a health plan, which will lower premiums or other cost-sharing amounts paid by patients.
- Requires cost-sharing for Part D enrollees to be based off the negotiated price of the drug as agreed to by the drug manufacturer and PBM (or an approximate negotiated price if the actual negotiated price is unknown at the time the drug is dispensed) so that Part D enrollees to fully benefit from discounts and rebates provided by drug manufactures. Cost-sharing for prescription drugs in Part D is often based off a higher price than the price negotiated by the PBM and the drug manufacturer. Specifically, cost-sharing (e.g. 20% co-insurance) is based off the price the pharmacy acquires the drug, meaning Part D enrollees pay cost-sharing based off a higher price than the price the Part D plan pays to purchase the drug.
- Example: a drug maker sets a drugs price at $US100. Under current law, Part D beneficiaries pay co-insurance based on the $US100 price, not the lower price, say, $US80, that a PBM negotiates with a drug maker. Seniors in Medicare ought to benefit from these negotiations.”
NOW WATCH: Take a look inside the Laguna Beach vacation home Warren Buffett listed for $US11 million
Business Insider Emails & Alerts
Site highlights each day to your inbox.