One of the largest middlemen in the drug industry just released a video showing why it should be able to remain secretive

  • Pharmacy benefit managers play a critical role in //WHAT?//
  • They have been attracting scrutiny, with some suggesting they’re partly to blame for increasing drug prices.//RIGHT?//
  • The PBMs have come out swinging, making a case for why they are the solution, not the problem.

The drug industry’s largest middlemen are starting to attract scrutiny for their role in drug pricing. Their response: to come out swinging, and point the finger elsewhere.//FAIR?//

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. //RIGHT? HYPERLINK?//


Right now, there are three big PBMs that cover most of the roughly 4 billion retail prescriptions that were filled in the US in 2015: Express Scripts, CVS Caremark, and OptumRx. On Wednesday February 8, the companies’ lobbying group — the Pharmaceutical Care Management Association — released a video explaining why it thinks certain kinds of pricing transparency is good, while other types are bad. 

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 video makes: that drug companies would take that rebate information and use it to collude with competitors.  

Watch the video

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 //WHY?//

Still, with little or no transparency on the rebates //FAIR?//, we don’t know how big a cut each part of the supply chain gets.

It’s something drug companies are starting to tackle, by revealing their net prices after rebates and discounts, which often paint a much different picture than routinely increasing list prices. For example, Lilly, which has routinely taken list price increases to its insulins,//TAKEN INCREASES? DO YOU PASSIVELY INCREASE?// told Business Insider that the net price for its insulin Humalog was down 24% in the third-quarter of 2016, from the third-quarter of 2015. The numbers coming out, however, tend to be on average, so the exact rebate different PBMs are getting is still under wraps.

Mounting political pressure

Drug companies are still facing the brunt of the criticism for drug prices from President Donald Trump, who has called the prices”astronomical,” and supports having Medicare negotiate drug prices.

But PBMs are in focus too. Republican Rep. Doug Collins is one critic, telling Axios “I truly believe the PBM industry is one of the most detrimental pieces of health care.” The PBM lobby is preparing to aggressively argue its point, even in the absence of a concrete policy agenda from the president.

PCMA CEO Mark Merritt said in a memo obtained by Buzzfeed News that the group made that decision “given the political uncertainty, headline risk, and other unique challenges that come with a President more inclined toward quick, instinctive action than the traditional, deliberative decision-making process.”

And the companies the lobby represents are speaking up as well. 

  • Express Scripts, one of the three major pharmacy benefits managers in the US, said in a report Monday that for its clients, spending on prescription drugs was up 3.8% in 2016, far lower than growth in average list prices, which were up about 11%.
  • “Any suggestion that PBMs are causing drug prices to rise is erroneous,” CVS CEO Larry Merlo said in a call Thursday. “We are the solution, not the problem.” 

It remains to be seen where the conversation will go from here, but as the number of people on high deductible plans facing near-list prices for drugs continues to rise, there will likely be more finger-pointing to come for the pharmaceutical supply chain and its many players

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