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Drugs & Medical Devices

Drug Middlemen are Responsible for Expensive Out-of-pocket Pricing

— April 24, 2019

Pharmacy benefit managers (PBMs) are being held accountable to skyrocketing drug prices.

Large drug manufacturers are the primary target in litigation related to the opioid epidemic.  They are the most obvious target to put in the hot seat, of course, since the companies are deemed responsible for creating the addictive drugs and marketing them to the public in the first place.  The Centers for Disease Control and Prevention (CDC) reports there were 70,237 drug overdose deaths in the United States in 2017 with opioids, mainly synthetic opioids (other than methadone), the main driver of such deaths at 67.8% of these fatalities.  Manufacturers are also being held responsible for the expensive pricing structure of many prescription drugs, most of which are deemed medically necessary for a patient’s survival.  Again, the drug makers are the ones driving the industry, and thus, are the most obvious party to fault.  Increasingly, however, the focus is shifting to the middlemen who many believe also need to be held accountable – mostly pharmacy benefit managers (PBMs) at companies such as CVS Caremark and OptumRx that are responsible for negotiating drug prices for health plans.

Drug Middlemen are Responsible for Expensive Out-of-pocket Pricing
Photo by Katie Harp – Pinterest Marketing on Unsplash

These companies are supposed to keep costs down, but many believe they are actually doing opposite – inflating prices in pursuit of profit.  They’re a focus of the Trump administration’s drug-price reform efforts as well as state probes, and their leading executives were recently called in front of the Senate Finance Committee to answer some difficult questions.

“We’re going to hear a thousand different versions of the same talking point: ‘We’re all about the best price for patients,’” Ron Wyden, a Democrat from Oregon, said in his opening statement at the gathering. “But based on what I’m seeing so far we’re not getting actual proof.”

PBMs are steadfast in their stance that they help to keep down patient expenses by persuading drug makers to offer discounts on the list prices they charge for medicine.  The most heavily discounted medications get market share from the PBMs and the plans they back.  Yet, some are not so successful, and these drugs become more expensive and difficult to obtain.  Thus, PBMs are advocating for consumers, they contend, and the drug makers are the ‘bad guys.’

Of course, the system is not as straightforward as it may, at first, seem.  Negotiated discounts commonly take the form of rebates that don’t always bring down costs, and there’s an incentive for drug makers to put higher price stickers on their products in order to offer larger discounts.  There is also an incentive for PBMs to favor more expensive medications, because they currently pocket a chunk of the rebates.

The executives claimed at the hearing that percentages of the rebates they keep are “a small or nonexistent part of their business, and their efforts are focused on keeping prices low,” but the Senators weren’t buying their philanthropic position.  The panel pushed the executives on everything from spread pricing to the fine details and financial incentives behind the decisions over which drugs they should cover.

Some senators acknowledged that PBMs are one of the few forces pushing back against pharma’s pricing power.  But, overall, the hearings drew attention to the need for streamlining the process and creating more transparency.


Drug Middlemen Deserve Their Turn on the Hot Seat

Missing from the PBM hearings: value-based drug reimbursement

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