It’s not easy to get Americans mad at a behind-the-scenes industry they’ve barely even heard of, but pharmaceutical companies have spent most of this year trying………………“Who decides what you pay for your medicines? Not who you might think,” a concerned woman’s voice says in a radio spot airing in the District last month. “More than one-third of the list price of a medicine is rebated back to middlemen, like insurers and pharmacy benefit managers.”
Pharma, under attack for drug prices, started an industry war
By Carolyn Y. Johnson January 2
It’s not easy to get Americans mad at a behind-the-scenes industry they’ve barely even heard of, but pharmaceutical companies have spent most of this year trying.
“Who decides what you pay for your medicines? Not who you might think,” a concerned woman’s voice says in a radio spot airing in the District last month. “More than one-third of the list price of a medicine is rebated back to middlemen, like insurers and pharmacy benefit managers.”
With national and state advertising campaigns, white papers and cartoon infographics, the powerful and well-funded drug-industry lobby spent 2017 working to redirect public anger about drug prices to pharmacy benefits managers (or PBMs): links in the supply chain that sits invisibly between the patient and the drugmaker — in the process bringing a long-simmering feud between two big health-industry players into the open.
Nearly a year ago, President Trump put drug companies on notice, accusing them of “getting away with murder.” Lawmakers, too, seemed ready to take on pharmaceutical prices, after a year bookended by outrage over EpiPen’s rising cost and the smirks of “pharma bro” Martin Shkreli, a former hedge fund manager who became notorious for ordering a 5,000 percent price increase on an old drug used by cancer and AIDS patients.
But the drug companies’ fight with PBMs and insurers has helped thwart any real action — splintering the problem into a multi-industry echo chamber of accusations that’s hard to comprehend, much less solve.
“This has been a year of finger-pointing,” said Steven Pearson, president of the Institute for Clinical and Economic Review, a nonprofit organization that receives funding from insurance and drug companies. “They’re flooding the zone — with ‘they’ being pharma — with efforts to diffuse and deflect the focus on their role in drug pricing. Part of the policy challenge is they have a point.”
[This old drug was free. Now it’s $109,500 a year.]
PBMs are for-profit companies that negotiate drug price discounts on behalf of insurers and employers. They include giant companies like Express Scripts Holding and CVS Health.
They make money from fees paid by insurers and employers and by taking a cut of the rebates they negotiate. Drug companies have argued that the need to give larger and larger rebates to PBMs is what’s driving up the list prices of drugs.
The PBMs say they typically pass along 90 percent of the savings they negotiate to customers, point to data showing no link between drug price growth and rebates — and point out that drug companies are the ones raising prices.
The nut of the dispute rests on an odd fact: a “drug price” is not one number. Drugs do carry published list prices, but few pay them. Instead, drug companies and pharmacy benefit managers, working on behalf of different employers and insurers, establish an agreed price through negotiations that are hidden from consumers. How much the patient pays at the pharmacy counter depends on their insurance plan.
“It is so convoluted and so complicated,” said Gerard Anderson, a professor at Johns Hopkins Bloomberg School of Public Health. “The PBMs have grown in power and profitability over the last 10 years, and are becoming a huge force. The drug companies, they’re the ones that raise prices. It’s definitely a synergistic relationship. We’ve got two bad actors, we don’t have one.”
To hear PBMs tell it, their industry will save $654 billion in prescription drug spending for employers, consumers and the government over the next decade.
Pharma points out that consumers in high-deductible plans never see that benefit and pay the inflated list price.
Meanwhile, pharma companies say they take big risks to invent lifesaving medicines, while PBMs are part of a tier of middlemen that slurp up — and keep — a big chunk of the drug’s list price.
“It’s our view you can’t effectively address this issue unless you diagnose the problem correctly. And we long believed the rhetoric around prescription drug costs hasn’t matched the reality of what’s really happening in the marketplace,” said Robert Zirkelbach, an executive vice president at PhRMA, the pharmaceutical lobby.
PBMs fire back that the vast majority of the savings they negotiate are passed on to their clients.
“Pharma wants rebates at the pharmacy counter — not because it lowers the price of the drug. It allows them to continue to charge a high price. It just gets the patient off their back,” said Steve Miller, chief medical officer of Express Scripts Holding, the country’s largest PBM.
The intra-industry conflict has meant that 2017 — a year when it seemed as if concerns about the affordability of drugs might translate into action — was consumed with an effort to try to unravel what is happening in the supply chain.
The federal government has moved forward on technical policy fixes that largely spare the drug industry. But the kind of sweeping changes people were girding for — importing cheaper drugs from abroad or allowing the government to negotiate drug prices — never came. As the drug-price problem began to look more like a Matryoshka doll with many nested layers, the potential solutions became less clear.
[Out-of-pocket health spending in 2016 increased at the fastest rate in a decade]
“The pharmaceutical industry’s efforts to change the discussion to the breadth of the supply chain has, to an extent, seemed to slow down a discussion of pricing,” said M. Nielsen Hobbs, executive editor of the Pink Sheet at Informa Pharma Intelligence. “For the past year, they’ve played fantastic defense.”
The success of this strategy was on view at a congressional hearing Dec. 13, when 10 witnesses from different industries stretched across a long table — from the drug companies on one end, through to insurers, distributors, doctors, pharmacists, PBMs, hospitals and patients.
To make it even more confusing, companies along the supply chain have formed a dizzying array of alliances. Health-insurance plans side with PBMs — to the extent of coming together under one roof, as with the $69 billion deal announced last month for CVS Health to buy Aetna.
The National Community Pharmacists Association, meanwhile, accuses PBMs of driving independent pharmacies out of business with fees. They held an outreach day to lawmakers in early December and have for months been circulating a comic depicting the industry as a sinister blue dog with blazing red eyes, sharp teeth and collar labeled “PBM.”
“They’re right here in the middle, and everyone is kind of dropping a coin in their bucket. Most people have no idea that’s how it works,” said Douglas Hoey, NCPA’s chief executive.
A number of physician and patient organizations, some of which receive financial support from the pharmaceutical industry, have also formed alliances opposing PBMs.
Pharma has begun highlighting how the hospital industry marks up the cost of drugs.
Meanwhile, two of the country’s largest PBMs and employers, public-sector employees and unions came together at the beginning of 2017 in the Coalition for Affordable Prescription Drugs.
[Expensive specialty drugs are forcing seniors to make hard choices]
Without a clear direction coming from government, the players are working toward their own solutions for the high cost of drugs.
A number of drug companies reacted to public scrutiny of prices by vowing to limit their price increases on existing drugs, and manyinformally followed suit last year.
Pharmaceutical companies have started to link the price of some drugs to how well they work, for example, offering rebates to insurance companies if a cholesterol-lowering drug fails to prevent a heart attack.
CVS Health recently announced it would provide real-time information to physicians writing prescriptions about the specific cost of that drug to patients. The goal is to avoid sticker shock and to prod doctors to make the most cost-effective choices for their patients.
Other changes may start to come from employers.
Pacific Business Group on Health, which includes some of the West Coast’s largest employers, is studying the possible pros and cons of drafting its own formulary, the list of covered prescription drugs. That could transform employers’ relationships with PBMs and how they are paid — although the work is still in exploratory stages.
“The escalating cost of drugs hit the radar for employers, which means employers started asking a lot of questions — to pharma, to PBMs,” said Lauren Vela, senior director of member value for the Pacific Business Group on Health. “Of course, they’re all pointing fingers at each other. What has happened is they got caught — the entire industry got caught — making a lot of money, in ways that people didn’t fully understand.”
Carolyn Johnson is a reporter covering the business of health. She previously wrote about science at The Boston Globe.