Congress is grilling little-known middlemen over the high cost of prescription drugs. Here's how they're defending themselves.

Lydia Ramsey

Apr 9, 2019, 19:45 IST

Congress is grilling little-known middlemen over the high cost of prescription drugs. Here's how they're defending themselves.

In February, Congress brought in a group of pharmaceutical CEOs and executives from seven companies to testify about the high price of prescription drugs.
On Tuesday, Congress is set to keep the conversation going, this time grilling pharmacy benefit managers, the little-known middlemen responsible for negotiating drug prices.
In their testimony, executives from the PBMs owned by companies including Humana, Cigna, and UnitedHealth Group made their cases as to why they shouldn't be to blame for the high price of prescription drugs.
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A group of executives representing little-known middlemen in the pharmaceutical industry are having their day in the hot seat.

On Tuesday, the Senate Finance Committee is set to grill these pharmacy benefit managers or PBMs, the entities responsible for negotiating lower drug prices.

"It's our duty to understand how the system is working today and what we can do to improve it," Senator Chuck Grassley, a Republican from Iowa, said in his opening statement. Grassley leads the Senate Finance Committee.

Those set to testify include Cigna chief clinical officer Steve Miller; CVS Caremark president Derica Rice; Humana's healthcare services segment president William Fleming; Mike Kolar, the interim president for Prime Therapeutics; and John Prince, the CEO of UnitedHealth Group's OptumRx unit.

List prices for prescription drugs have been increasing over the past decade. Drug companies set the list prices for their drugs directly. But they say the list prices don't reflect the real cost of their drugs.

Instead, drug companies point to a measure called net price, which takes into account rebates and discounts negotiated by PBMs on behalf of employers and insurers. They say that's increased far less, or even declined for some drugs. Pharma companies say consumers are paying high out-of-pocket costs for their drugs because of policies set by insurers and pharmacy benefit managers.

Drugmakers pay out more than $100 billion in rebates annually. Rebates are a big business for PBMs, whose clients can opt to pay for the PBM's services via those rebates or have them passed directly on. In their written testimony, the executives worked to downplay the role these rebates play in their business.

What rebates?

The Trump administration is targeting the rebate system, saying it drives up out-of-pocket costs for consumers. The Department of Health and Human Services proposed a rule earlier in 2019 that would effectively ban some rebate payments unless they're passed along to consumers. Big pharma companies applauded the rule, while PBMs and health insurance companies criticized it.

With rebates in the crosshairs, the executives in their testimony tried to contextualize how big of an impact rebates have.

For instance, Humana's Fleming noted that in 2019, only 255 of the drugs covered in Medicare had rebates, or about 7% of all the drugs Humana's Medicare plans cover.

Some provided estimates of what percent of their rebates were passed along directly to their employers or insurers.

For instance, Cigna's Miller said that nearly half of his clients have opted for 100% of their rebates to be passed through. CVS's Rice said that more than 98% of discounts are passed along to their clients, noting they're often used to bring down the cost of monthly premiums.

And Prime's Kolar said that the company's model is built to send the entire rebate back to the client.

Where prices are still going up

The executives were quick to note in their testimonies examples of pharmaceutical drugs where they weren't receiving rebates. Drugmakers have argued that they raise their list prices because they've had to pay out higher rebates. In turn, the PBMs argue that the cost of drugs is rising because pharma companies are raising their prices.

For instance, Humana pointed to Celgene's cancer drug Revlimid, AbbVie's cancer drug Imbruvica, and Merck's HIV treatment Isentress as examples of treatments where it doesn't receive rebates. Revlimid's list price rose from $6,195 a month to $16,691 between 2007 and 2017.

"Data show that in many cases list prices are increasing faster for drugs with smaller rebates than for medications with substantial rebates," CVS's Rice said in his written testimony, though he didn't provide any specific examples.

Impact on premiums

The rebates drugmakers pay out to PBMs can in turn be used to offset the monthly premiums of the health insurance plan's members. Should the Trump administration's rule requiring rebates to pass directly to patients be enacted, it could lead to higher monthly premiums.

Humana's Fleming calculated out how Medicare recipients would be impacted by the Trump administration's new rebate rule, of which everyone was against. He found that 17% of Medicare beneficiaries would see savings at the pharmacy counter as a result of rebates being passed through there, and 12% would save more than $70 annually.

On the other hand, 83% would face higher prices for their prescription drug coverage via their monthly premiums. Those premium price hikes would be higher than any savings at the pharmacy counter, Fleming said.

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