There’s been a lot of talk in Washington about what to do about drug prices.
But that’s about it.
The bipartisan desire to keep Americans alive and healthy at a cost we can afford always seems to get bogged down in the Washington sludge fest.
So states such as California, Nevada, Texas, and North Dakota have taken it upon themselves. They’re crafting legislation to shine a light on the complicated system we use to price drugs.
Naturally, the companies that have acted as gatekeepers and middlemen are fuming.
“It’s almost comical how hard they’re pushing back,” California Assemblyman James Wood, a Democrat and the sponsor of one of these transparency bills, told Business Insider. “Pharma and some of these other groups out there — they’re the new Big Tobacco.”
The companies that Wood’s legislation is focusing on fall into the “other groups” category. They are not drug manufacturers; they are list keepers called pharmacy-benefit managers, or PBMs.
The three largest of them — CVS Caremark, Optum, Express Scripts — control about 80% of the US market. Initially, PBMs existed merely to manage the lists of drugs that patients can take on a given insurance plan and were meant to control costs. But their businesses have become more convoluted and vertically integrated over time.
Express Scripts, for example, has its own in-house specialty pharmacy that distributes drugs. CVS Caremark is, of course, part of a company that runs a massive retail pharmacy chain.
That growth has raised eyebrows in Washington, drawing accusations of monopolization.
The lawmakers targeting them fear that the opacity of the drug-pricing system allows PBMs to pull all kinds of tricks to line their pockets. Because they often take a cut of the drugs they sell, and they profit from higher drug prices.
For example, the lawmakers are focused on whether PBMs take advantage of the spread between how much a drug costs wholesale and how much an insurer pays for it when all is said and done. The PBMs negotiate rebates that will lower the ultimate cost of the drug, but they keep part (or occasionally all) of this themselves.
PBMs say they need to keep this pricing structure in the dark to foster competition.
“When you look at their business you realise, ‘Wow, the top three [PBMs] are making $US280 billion and no one knows what they’re doing,'” Wood told Business Insider. “Here’s an entity that is a major player in how drugs are priced and formularies, but no one knows about them.”
State of play
Wood is the sponsor of AB 315, which passed the California Assembly earlier this month and is on its way to the Senate floor. The bill requires PBMs to be licensed and registered with the state and do business with any pharmacy licensed by the state. It also requires PBMs to be transparent about pricing and to reveal any relationships it may have with mail-order or specialty pharmacies and/or drugmakers that could serve as a conflict of interest.
Wood said that the PBM lobby pushed back on his bill “harder than any other adversary I’ve ever worked with,” even going as far as putting out a floor report that mischaracterized the bill. Lobbyists pushed back especially hard against having to disclose drug prices to their clients.
Since California is a huge state, Wood believes that PBMs are worried that where it goes, others will follow. He’s confident AB 315 will pass.
It’s not hard to see where legislation like Wood’s would have made a difference. In April, the biggest PBM in the country, Express Scripts, lost its biggest client, Anthem Insurance.
This was after about a year’s worth of legal battling. Anthem sued Express Scripts in April 2016, alleging that Express Scripts had been overcharging it by $US3 billion a year.
Meanwhile, in Texas
In Texas, legislation to register PBMs and require them to provide clients with sample contracts is gaining traction. In October 2016, the Texas state auditor’s office put out a report saying that a lack of oversight of PBM administration of Medicaid prescription drug benefits could cost the state $US8.6 billion in the next biennium.
“Immediate action is required to address the noted concerns and reduce risks,” said the report.
When Business Insider asked The Pharmaceutical Care Management Association, the PBM lobby group, about these legislative efforts, it said it doesn’t think this is the “right kind of transparency.”
“We oppose legislative mandates that the Federal Trade Commission and economists say will raise costs by giving drug companies and drugstores pricing powers that could help them tacitly collude with their competitors,” a representative said.
Texas is also looking at legislation that would put a cap on copays and force PBMs to create a step therapy protocol. Step therapy is when a patient is treated with cheaper medication before they try something more expensive. The idea behind these measures is to ensure that less-cost-efficient drugs are not favoured by PBMs for any reason (like because the PBM gets a big rebate from the drugmaker).
A lot of this legislation is getting at a really thorny question. To whom do PBMs have a duty, to their clients who pay them or the other companies that pay them, like drug companies? More succinctly, who’s really the customer here?
Legislation working its way through Nevada seeks to settle that question.
“This bill provides that a pharmacy-benefit manager has a fiduciary duty to an insurer with which the pharmacy benefit manager has entered into a contract to manage prescription drug coverage,” it says.
Meanwhile, legislation working its way through North Dakota would make it illegal for PBMs to own the pharmacies they use to distribute drugs — in effort to stop them from putting drugs they distribute on formularies.
As lawmakers are finding out in states all over the country, there are a lot of holes to plug here.
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