Published by CNBC
The battle over rising drug prices has become a full-blown he-said-she-said.
Drug companies have pointed the finger at middlemen in the health-care system, saying they not only benefit from rising drug prices but contribute to their increases.
Those middlemen — namely, pharmacy benefits managers (or PBMs) — have said the only parties responsible for drugs’ list prices are the manufacturers.
So who’s right?
In a study released today, the PBM lobbying group, the Pharmaceutical Care Management Association, says an analysis it commissioned revealed no correlation between drug prices and rebates paid back to PBMs.
The drug industry’s lobby, the Pharmaceutical Research and Manufacturers of America, or PhRMA, disagrees.
The reason this matters: Bubbling beneath pronouncements from President Donald Trump that the pharmaceutical industry is “getting away with murder” when it comes to their prices is a more complicated discussion. It focuses on PBMs and manufacturers, list prices, rebates and discounts.
Stick with us. Here’s a quick explainer:
Pharmacy benefits managers, like Express Scripts, CVS Caremark, and UnitedHealth’s OptumRx, negotiate rebates on behalf of clients, including insurers and employers. They wield power in the form of formularies: plans that rank drugs in tiers that determine how much patients end up paying out of pocket.
Drug companies want patients to pay as little out of pocket as possible (exposure to bigger portions of drugs’ costs leads to outcries like last year’s around the EpiPen), so they make concessions to PBMs to get more favorable formulary placement.
Drug companies argue that PBMs have incentives to drive list prices higher, because part of how they make money is based on the size of the rebates they negotiate. So, if Drug A is priced at $100, and a PBM wrings a 20 percent discount, it keeps a portion of that $20 rebate. The net price of Drug A is then $80.
But, the drug industry argues, PBMs can make more money if Drug A starts instead with a list price of $120, and the negotiated rebate takes the net price down to $80. Then the PBM gets paid a portion of that larger, $40, difference. And the net price is the same.
During an appearance Wednesday on CNBC’s “Closing Bell,” Stephen Ubl, the CEO of PhRMA, said that PBMs “are negotiating a harder and harder bargain.”
“Rebates and discounts have nearly doubled over the last few years alone, and those rebates are not making their way to patients at the point of sale,” Ubl said. “And we have to ensure, particularly with more Americans in high-deductible plans that are finding themselves having to purchase insulin for chronic disease, for example, that they’re able to access the same discounts that insurers and PBMs are negotiating for everyone else.”
However, the study commissioned by the Pharmaceutical Care Management Association says that 90 percent of the value of the rebates are passed along to companies that sponsor health plans and to consumers.
Mylan Chief Executive Officer Heather Bresch thrust this discussion onto the national stage last summer in defense of the price of the EpiPen. She told Congress and Wall Street that more than half the EpiPen two-pack’s $608 price goes to middlemen, including the rebates paid to PBMs.
Mark Merritt, CEO of PCMA, on “Closing Bell” Wednesday called Mylan’s argument “one of the biggest scams in the health-care debate today.”
“They claimed they had to raise prices because of the middlemen costs and all these other things, and then as soon as the political heat came down they cut the price in half and called it a generic. So what’s the big deal?” Merritt said.
“The reality is we negotiate discounts, drug companies are sellers, we are buyers, and drug companies want the prices to be as much as they can, like any other business. I’m not saying that’s good or bad.”
Mylan had no immediate comment on Merritt’s remarks.
Industry lobby groups have been joining in the narrative. BIO, the Biotechnology Innovation Organization, last fall released a video explaining the drug supply chain, called “Understanding Your Drug Costs: Follow the Pill.”
And PhRMA produced a study showing that more than a third of medicines’ list prices go back to the government or insurance companies through rebates or are retained by others in the system, including PBMs.
The PBMs have fought back against the drug industry’s narrative, saying they exist to bring prices down. Now, they’re coming with data.
The study released Wednesday, commissioned by PCMA and conducted by health-care consulting firm Visante, analyzed data from SSR Health to look for a correlation between prices set by drug companies and rebates negotiated with PBMs.
“Manufacturers have theorized that a correlation exists between drug rebates and price increases,” the study authors wrote. “One would expect to see high price growth for categories with higher rebates if the theory were valid.”
Data from 2011 to 2016, they say, “show rebates are not correlated with price increases.”
For example, medicines for rheumatoid arthritis and multiple sclerosis, which have seen higher-than-average price growth, are shown to have lower-than-average rebates, according to the study. Their annual price growth is between 15 and 20 percent, while their rebates are less than 20 percent.
Conversely, drugs for asthma and diabetes show higher rebates, closer to 40 percent, with price growth below 15 percent.
Their conclusion: “Based on this analysis, it is clear that rebates reduce plan and consumer costs and that there is no causal relationship between the prices manufacturers set and the rebates they negotiate with PBMs.”
So, case closed? With a situation this confusing, it’s unlikely. And Trump’s continual return to the issue is likely to keep the debate on the national stage.