The first quarter of 2019 brought a renewed interest in bringing transparency to drug pricing. Legislation proposed in late January would lower drug costs for patients at the pharmacy by lowering the medication’s list cost. The proposed law classifies PBM rebates as “kickbacks”, effectively eliminating rebate practices for those on Medicare and Medicaid.
“Every day, Americans—particularly our seniors—pay more than they need to for their prescription drugs because of a hidden system of kickbacks to middlemen. President Trump is proposing to end this era of backdoor deals in the drug industry, bring real transparency to drug markets, and deliver savings directly to patients when they walk into the pharmacy,” states Secretary Azar. He continues, “We may need to move toward a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts. Such a system’s incentives, detached from these artificial list prices, would likely serve patients far better, as would a system where PBMs receive no compensation from the very pharma companies they’re supposed to be negotiating against.”
If the law goes into effect, it will provide better transparency for all parties and create a level playing field in the PBM market as they move to fixed-rate contracts. Depending on outcomes, the model could eventually prove successful in the commercial market.
The law’s focus on rebates and kickbacks spurred a larger and ongoing conversation about which entities were responsible for the initial rise in list prices. Pharmacy companies claim that PBMs force big rebates, thus forcing the manufacturer to raise the list price. Meanwhile, PBMs claim that they are effective at lowering drug costs (in 2018, Express Scripts achieved a 0.4% drug trend for their commercial clients) and state that most rebates go back to the plan sponsor.
While the future of the proposed legislation is uncertain, both consultants and employer groups should anticipate continued scrutiny on drug pricing and can start by evaluating their own models for transparency and performance.
Changing the rules for rebates will not curb the high cost of new drugs coming on the market. Breakthroughs in gene therapy are expected to provide treatment and, in some cases, cures for deadly diseases. One such example of the many new high-cost specialty medications that will be hitting the market soon is a one-time infusion that could cure infants with spinal muscular atrophy. But with a price tag of more than $1 million, how would such innovation impact plan sponsors?
With the uncertainty that legislation will reduce the cost of medications and the pipeline of new medications has no end in sight, how will plan sponsors continue to maintain a meaningful pharmacy benefit for their members? The answer requires that plan sponsors actively manage the pharmacy benefit to ensure that only life-saving and life-sustaining medications are covered. A deeper dive into two ongoing developments, bio-similars and authorized alternatives:
The Humalog/Lispro example demonstrates a need to evaluate the value of a medication compared to others that treat the disease. This is the best way plan sponsors can prepare for the new medications that will hit the market. By removing low-value medications from coverage such as heavily-rebated combination drugs and other non-essential drugs, plan sponsors will have a better chance of bearing the cost of the high-value drugs coming to market. PBMs will also need to scrutinize “me-too” medications (drugs coming on the market that offer no greater clinical value than existing drugs) to make room for specialty drugs ready to hit the market.
From PBM/insurer consolidation to Haven, the newly named venture from Amazon, JPMorgan and Berkshire Hathaway, all eyes are on how entities will answer the industry and consumer demand for lower healthcare and pharmacy costs.
Strides forward for corporations like Haven show promise for companies of all sizes. Outside of the headline-making acquisitions and partnerships, mid-size companies are already realizing savings. Companies looking to follow their lead can take the following steps: