Nobody knew healthcare could be so complicated. Banning drug rebates offered by manufacturers to insurance plans may not help control overall costs, a message that executives of pharmacy benefit managers (PBMs) were eager to advance when given a chance to testify Tuesday on Capitol Hill.
Despite being challenged at the outset to show their value as mere "middlemen" in the drug supply chain, they doubled down on their argument that a proposed Trump administration rebate ban would result in higher premiums for all Medicare beneficiaries.
Some lawmakers, at least, appeared swayed — although the committee's chairman, Charles Grassley, a Republican from Iowa, said he wants the PBMs to be more transparent in their practices. He also said he wants federal antitrust regulators to look closely at the continued consolidation of PBMs with health insurers.
The attraction of the rebate ban in Medicare and Medicaid is strong, however. As the government's gears are already in motion it may be a big task to reverse it — and if it goes into effect it could unintentionally hand more pricing power to pharmaceutical manufacturers.
"I continue to worry that the Trump approach would result in a windfall for manufacturers and the administration is unprepared for the next steps" to bring drug prices under control, said Sen. Ron Wyden, D-Ore., the committee's senior Democrat.
Manufacturer rebates negotiated by PBMs in return for granting favorable formulary placement for expensive drugs have become a flashpoint in the drug pricing debate. Somewhat counterintuitively, big pharma companies claim rebates help lead to rising costs because the PBMs take a share, giving them an incentive to prefer higher-priced drugs.
The Trump administration's plan, which has been out for public comment, would remove a legal exemption that's permitted drugmakers to hand plans rebates on prescription drugs. Instead, the proposed rule would only permit rebates given direct to patients filling prescriptions at the pharmacy.
Tuesday's hearing before the Senate Finance Committee sought to unravel the role that rebates and other cost-control practices play in drug prices. Senators questioned leaders from Cigna's Express Scripts unit, CVS, Humana, United HealthGroup's Optum PBM, and Prime Therapeutics.
It promised as many fireworks as a February one with seven big pharma executives and arguably delivered just as few.
While Wyden started with a confrontational tone — stating "whether pharmaceutical benefit managers bring any value to taxpayers is a mystery" — he also acknowledged that a rebate ban alone will not be enough to control costs.
He cited written statements from the seven big pharma executives indicating they would not support legislation to lower list prices in exchange for the rebate ban. Wyden requested the statements at the conclusion of the February hearing.
Another counterargument against the rebate ban advanced by the PBM executives is that Medicare prescription drug plans would be forced to raise premiums for all beneficiaries. This claim from the PBM executives was supported by an analysis from actuaries at CMS.
CMS actuaries forecasted that patient drug cost sharing would be reduced by a cumulative $83.2 billion between 2020 and 2029 as a result of the rule, but enrollee premiums would rise $58 billion. Government expenditures would rise a net $196 billion, thanks to increases in the direct premium subsidy paid by Medicare on behalf of drug plan enrollees.
This predicted cost shift is a reason to consider a more fundamental restructuring of healthcare financing, said Howard Deutsch, a principal and head of the managed care strategy practice at the consulting firm ZS.
"The primary issue in the landscape — and why this conversation is continuing — is that the economic model around drug pricing and discounting is not patient-centered," Deutsch said in an email. "The pharmaceutical industry is currently structured in a way that puts the primary cost burden on the most ill."
PBM executives' third argument against the rebate ban is how few drugs are actually subject to negotiation — around 7% to 8% of total prescriptions, mostly high priced specialty drugs like biologics that represent more than 70% of costs.
In the absence of rebates, the PBM executives said they have limited leverage, although they point to competition in the form of biosimilars drugs as one way to help.
Reducing the patent-protected exclusivity of biologics from the current 12 years to the five years for small molecule drugs would help weaken the pricing power enjoyed by drugmakers, along with allowing pharmacists to substitute biosimilars for brand name drugs, the PBM executives said.
The exclusivity period in particular has been a long-standing complaint of generic manufacturers and PBMs, but attempts to revise it have until now been defeated by pharmaceutical lobbyists.
A House of Representatives committee has been working on a series of bills related to drug pricing, which could reach the Senate soon. Testimony the Senate Finance Committee has heard will influence the progress of that legislation.