These powerful but little-known companies that have been blamed for high drug prices are now coming out of the shadows for a congressional interrogation
- The US has a high drug prices problem. Obscure but powerful companies called pharmacy-benefit managers (PBMs) have been blamed for it.
- PBMs will now face tough questions from the Senate Finance Committee, which has called in many of their top executives to an April 9 hearing.
- PBMs have been under attack, so the pressure will be on.
Shadowy but powerful companies that have been blamed for the US's too-high drug prices are poised to step into the spotlight next week, when their top leaders will testify before the Senate Finance Committee.Those companies are pharmacy-benefit managers (PBMs), and their very role is to negotiate drug prices down. But drug companies, facing the heat on high drug prices, have rather successfully deflected the blame to PBMs, saying that they also benefit by helping push prices higher. That argument appeared especially persuasive to members of Congress at a prior Senate Finance Committee hearing in late February.
Drug companies have "so far run circles around the PBMs on message control," Stephens analyst Scott Fidel said.The April 9 hearing, therefore, "could give the PBMs an opportunity to shift the focus back on the manufacturers for rising Rx prices," he said.
When it comes to high drug prices, follow the moneyUS drug prices are the highest in the world, and prices rise each year like clockwork. And even though there's been more attention paid to that practice of late, US prices rose again this year on roughly 2,860 drugs, according to Rx Savings Solutions, a software that helps people compare costs of prescription medications.
That's more than last year, when the prices of roughly 2,550 drugs were increased. But this time, the price hikes seem to have been more spread out, with drugmakers waiting "until March instead of January, to avoid scrutiny," said Michael Rea, the founder and CEO of Rx Savings Solutions.
It appears that "drug companies were much more conscientious about their tactics to raise prices this year," Rea said.These calculations are based on the "list price" of a drug, which a drug company gets to decide. The backlash about high drug prices has been focused on drugmakers because, at the end of the day, prices are their purview.
But PBMs also get involved in pricing, playing different drug companies against eachother to negotiate back-door discounts for health insurers and employers.
Pharmaceutical companies say this is where the process breaks down, because bigger and bigger discounts force them to hike prices, and so on.Read: How drug rebates became a powerful force in US healthcare
PBMs on the defensiveAs PBMs have been blamed for the US drug price problem, the face of the PBM industry has been changing.
PBMs are increasingly now in-house, folded into the larger corporate machinery of health insurers or even pharmacy chains. So that's who you'll see before the Senate Finance committee on Tuesday.Set to testify are: health insurer Cigna's Steve Miller, pharmacy chain CVS's Derica Rice, health insurer Humana's William Fleming and UnitedHealth's John Prince. Those companies all now have their own PBMs, with Cigna buying the largest one, Express Scripts, last year for a whopping $67 billion.
A word that will likely rear its head a lot is "rebate," a type of discount on prescription drugs that has been especially blamed for our current US drug price quandary.Pharmaceutical executives told senators in February that rebates add to overall list prices for drugs, but patients don't always benefit from the discounts when picking up prescriptions at the pharmacy.
This argument has been picking up steam, including among the Trump administration, which has even proposed getting rid of them in some government programs.
PBMS, then, "will also need to come ready to explain why rebates are value additive to the U.S. drug pricing model, as this will likely be the most visible public forum they will have" before the final Trump administration rebate rule is released, Fidel said.
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