Prescription Drugs
| Apr 11 2019

PBM Chiefs Spar With Lawmakers Over Drug Pricing

Geoff Manville
Partner, Mercer’s Law & Policy Group

The heads of some of the nation’s largest pharmacy benefit managers (PBMs) sparred with members of the Senate Finance Committee at an April 10 hearing, arguing that the rebates or price reductions they negotiate between drugmakers and public-sector health care programs are not the cause of high drug prices. The PBM executives said that more needs to be done to compel drug makers to lower their prices and get more generic drugs to market faster.

The PBM chiefs emphasized how their negotiations bring drug costs down overall and other valuable services such as promoting generic drugs and patient adherence to medication. Several senators appeared skeptical, however, expressing concern that PBMs favor higher-cost drugs over less-expensive ones.  

Senator Ron Wyden, D-OR, the panel’s top Democrat, criticized a practice called “spread pricing,” where PBMs pay a lower price for a drug than the reimbursement they receive from the health plan. Wyden suggested that Congress ban the practice, and some of the PBM executives said they would support that change. 

Drug company CEOs told senators at another recent Finance Committee hearing that the rebates were the reason that list prices were so high. They contended that in order for their product to be included in plan formularies, they have to offer larger rebates, causing PBMs to prefer drugs with higher list prices. The drugmakers pointed to a growing gap between the list price and the net price that insurers and PBMs ultimately pay.

Finance Committee Chairman Charles Grassley, R-IA, said the committee would explore how to address rebates and other policies that could reduce drug prices for Medicare and Medicaid patients. He and Wyden also asked the Department of Health and Human Services (HHS) to investigate PBM practices, including spread pricing, in Medicaid.

The hearing came as the Trump administration works to finalize a proposed HHS rule that would effectively ban drugmaker rebates to health plans and PBMs, with violations subject to fines under a federal anti-kickback statute. The proposed HHS regulation would apply only to Medicare Part D and Medicaid managed care plans.

Republicans have also discussed making the administration’s rebate rule the law and even applying it to the commercial market. Senate legislation (S 657) would outlaw rebates or price reductions negotiated between drug makers and PBMs in transactions with private-sector health care plans — including insured and self-insured employer plans — unless directly passed through to consumers (see how employers feel about rebates).

Congress faces major challenges in advancing bills to address rebates. While the Senate could pass legislation, Democrats in charge of the House will probably demand additional reforms, such as letting Medicare negotiate drug prices and allowing drug importation. Those reforms are nonstarters with Senate Republicans. In addition, powerful industry interests are expected to line up against any big deal.

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