Post-election, PBMs will face tough questions as drug costs are scrutinized
The election of Donald Trump to the presidency has sent shockwaves through the healthcare industry as the prospects of a major overhaul, if not outright repeal, of the ACA looms large. While it’s uncertain how the proposed changes will directly affect the PBM industry – other than the potential decrease of covered lives – recent comments by Trump indicate increased scrutiny for a market sector that is already receiving its share of criticism.
Initially, a Trump victory may have been reassuring: Republicans had made no major announcements regarding drug price reforms which would directly impact them. But in recent weeks, Trump has expressed support for reducing drug prices, particularly for Medicare. Like many of the president-elect’s comments that could affect future policy, details are scant, but it was enough to raise concerns.
For their part, PBMs are no stranger to criticism for their role in rising drug prices. Stakeholders such as employers and payers have noted the lack of transparency in the industry, and the use of rebates and other incentives that, in the view of some, can inflate drug prices.
Some large employers such as IBM, Shell, Macy’s, Coca-Cola, and American Express have formed a coalition called Health Transformation Alliance to address their concerns about rising drug costs. These employers spend more than $20 billion a year on health benefits as a group.
Employers are also concerned about Obamacare’s Cadillac tax starting in 2020, which will levy 40 percent excise tax on health plans that exceed certain spending thresholds. The alliance is probing how PBMs negotiate and pay for drugs. The goal is to revise their pharmacy-benefit contracts to remove the hidden drug-price increase through which the PBM industry makes its profits, and instead offer them lower administrative fees. The success of this coalition would significantly impact market leaders such as Express Scripts or CVS.
The recent EpiPen controversy has also focused attention on prescription drug price inflation and pharmaceutical pricing practices. During Congressional hearings in the fall, Mylan Pharmaceuticals officials, facing sharp criticism, pointed to PBM rebates as one of the factors contributing to the sharply increased price of EpiPen. Critics within the drug industry maintain those rebates inflate drug prices artificially.
From a regulatory stance, the scenario is more worrisome as the federal prosecutors conduct a civil investigation of agreements between PBMs and pharma companies (, Merck and Endo International), looking for False Claims Act violations. Within the past two years, Novartis and AstraZeneca have paid fines to settle claims regarding incentives to PBMs designed to boost sales of certain drugs. Both Novartis and AstraZeneca have denied any wrongdoing.
If those concerns about PBMs isn’t enough, the industry now faces the specter of a repealed ACA, which in its starkest form would leave millions of now-covered enrollees without insurance. Obviously, an enrollment decrease of that magnitude would create significant headwinds for PBMs, drug companies, and payers.
For all of the criticism PBMs have received, there is something to be said for the part they play in value-based purchasing, wellness initiatives, and patient adherence to drug regimens. Whatever the future of the ACA, certain transformative elements will likely remain as payers look for strategies to bend the cost curve and decrease medical utilization. PBMs have been part of those efforts. As scrutiny of the industry increases, the importance of communicating those benefits will be paramount … and more transparency wouldn’t hurt, either.
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