One day after the close of the comment period for the proposed rule regarding the removal of the drug rebate safe harbor and creation of a point-of-sale (POS) discount safe harbor, leaders of the nation’s largest pharmacy benefit managers (PBMs) met in Washington for a Senate Finance Committee hearing on drug prices. This follows the Committee’s prior hearing held six weeks ago that focused on pharmaceutical manufacturers and their role in rising drug prices. Many fingers have pointed to drug middlemen and the incentives of the current industry structure as the drivers of ever-increasing drug prices. The follow-up hearing gave the Committee the opportunity to press PBMs on pricing issues and the PBMs a chance to justify the value they bring to the marketplace. Today’s hearing featured leaders from Cigna (Express Scripts), CVS, OptumRx (UnitedHealthcare), Prime Therapeutics, and Humana.
The team at BlackPoint tuned in – overall, we weren’t surprised by much that came out of this hearing. Nevertheless, here are some of the key takeaways:
- Emphasis on lowest net cost to clients. PBMs repeatedly emphasized the value they bring to the pharmacy benefit ecosystem lies in their negotiating the lowest net cost for drugs for their clients. Note their clients are defined as health plans, plan sponsors, and employer groups and not necessarily their clients’ members. PBMs hinted that there’s some burden on the plans to ensure the savings are passed on to patients.
- POS discount technology exists at PBMs. Several of the PBMs noted their current technical capabilities to administer POS discounts and the fact that they offer these programs in the market today.
- Transparency. Transparency. Transparency. PBMs offered their willingness to be transparent with their clients in terms of rebate pass through and minimization of spread pricing. PBMs are (rightfully) worried about full transparency when it comes to drug manufacturers during negotiations. However, there continues to be a lack of transparency regarding the administrative fees PBMs collect and retain.
- Premiums will go up; drug prices may not fall. It was implied that the finalization of the proposed rule would lower drug prices for a small percentage of patients but raise premium costs for many more. Further, PBMs and the Committee noted that the rule would not necessarily result in a direct lowering of list prices by pharma manufacturers.
Clearly all parties in the current system will be impacted when (and if) the proposed rule is finalized. To that end, we have outlined several elements that the industry needs to consider and prepare for heading into the 2020 bid season:
- Commercial market impact remains unclear. The proposed rule, as written, only applies to Medicare Part D plans and is silent on the impact to the commercial marketplace. Besides the nightmare of operating two separate drug pricing systems, should the rule only apply to Part D, there exists a very real risk that drug prices will remain high given the continued incentives in the commercial marketplace and, at the same time, Medicare Part D premiums will go up with the change on the Part D side. Net-net: the public will see list prices remain high and premiums going up. Probably not the best scenario heading into an election year. Seems as if manufacturers are supportive of applying the changes to both books of business but today’s hearing was all but silent on the PBMs’ stance as it relates to the commercial market.
- The mechanics of implementing the proposed rule will require some level of overhaul of the current environment. Will the proposed “chargeback” system for administering POS discounts be adjudicated by PBMs, pharmacy switches, wholesalers, or some other third party? Many of the large PBMs currently have programs that deliver POS discounts – considering the shrinking size of the pricing pie, there’s no doubt the PBMs will do their best to position themselves as the key stakeholder here. However, if third parties or wholesalers take on this challenge, a greater disruption can be expected.
- Value-based contracting momentum could take a hit. Removal of the rebate safe harbor (as written) would have a significant impact to the availability of value-based contracting, which ties reimbursement to overall (i.e., long-term) value and savings to the total cost of care. These contracts have historically relied on the rebate system to deliver additional monies to health plans and plan sponsors when medicine does not work as advertised. Oftentimes, the data needed to confirm whether drugs have not met their end points is not available for many months after the time of dispense and, therefore, cannot be applied at the point-of-sale. It’s unclear whether the proposed rule will devise a mechanism to allow for value-based contracting, which has become a promising way to allow health plans to provide patient access to new drugs. Given its current momentum in the industry, we would hope there would be some concessions made in this space.
What’s clear is that the proposed rule, should it be finalized, will shake the very foundation upon which health plans, PBMs, wholesalers, pharmacies, and pharmaceutical manufacturers run their businesses. What remains to be seen is how a new system without rebates will effectively operate and what role each player will have in negotiating POS discounts and ensuring they are accurately adjudicated. If your team needs support in grappling with some of these issues contact the BlackPoint team at info@blackpointcg.com