Drug Plans Are Fighting States to Keep Prices in the Dark

  • California bill, Nevada law aimed at pharmacy-benefit managers
  • Firms say more oversight threatens savings on medicine costs

California is the biggest state so far to seek to pull back the curtain on pharmacy-benefits managers, as the industry aggressively tries to thwart a wider push for transparency.

Lawmakers in the General Assembly advanced a bill that would require more disclosures of discounts negotiated between the companies and drugmakers, but the measure is on hold after Governor Jerry Brown’s administration last week asked for changes. Benefits managers have stymied several attempts at the state and federal levels to pry open their workings.

“There’s been huge push-back,” said the legislation’s sponsor, Jim Wood, a Democratic assemblyman from Northern California and dentist. “It really makes me more suspicious that there’s simply things they don’t want us to know.”

Politicians, pharmacies and patients say they understand little about how the $280 billion industry uses its clout to influence costs. The three largest pharmacy-benefit managers -- Express Scripts Holding Co., UnitedHealth Group Inc.’s OptumRx, and CVS Health Corp. -- process roughly 70 percent of U.S. prescriptions. 

This Bloomberg QuickTake looks at how President Trump is looking to lower prescription drug prices.

(Source: Bloomberg)

The fight is just one battle in a nationwide struggle between lawmakers who want more light on drug plans’ practices and the companies, who say that increased regulation will disrupt their ability to seek lower drug costs. In addition to state efforts, the U.S. Congress is also considering legislation.

“Those bills aren’t going anywhere,” said Mark Merritt, chief executive officer of the Pharmaceutical Care Management Association, the industry’s lobbying arm. “Every industry has numerous bills introduced by this or that member of Congress, whether you’re selling shoelaces or health care, that they don’t like. That’s just a normal cost of doing business.”

Poor Visibility

A Nevada measure signed in June by Republican Governor Brian Sandoval requires pharmacy-benefit managers to reveal rebates they receive from insulin makers, how much of those rebates are passed on to insurers, and what they keep for themselves.

Diabetes affects 12 percent of Nevada’s population; another 38 percent are estimated to be at risk of the disease. At the same time, the price of insulin, a century-old treatment, has surged. Eli Lilly & Co.’s Humalog cost $21 a vial when it hit the market in 1996. Today, it has a list price of $275. Annual insulin sales worldwide exceed $20 billion.

Pharmacy-benefit managers say such rules deprive them of bargaining power they need to contain costs. The PCMA has blocked state efforts to regulate reimbursements, curb their ownership of mail-order pharmacies, and make them disclose financial conflicts.

In a six-page letter to Sandoval, the industry said the law would raise drug costs and likely be struck down by the courts for violating federal laws. Sandoval, a former state attorney general and federal judge, said when he signed the bill that it was unlikely to lose in court.

On Sept. 1, the Biotechnology Innovation Organization and the Pharmaceutical Research and Manufacturers of America, two drug-industry lobbying groups, sued Nevada, hoping to keep the state from implementing the law, which they say violates patent rights and jeopardizes trade secrets.

Resistant to Regulation

Nevada isn’t alone. In July, Connecticut became the latest to ensure that pharmacists can tell patients the cheapest way to get their prescription drugs. Oklahoma has a law aimed at increasing clarity on pricing and giving pharmacists ways to dispute reimbursements. 

But most states haven’t been able to make their efforts stick.

An Iowa PBM law was found by the U.S. Court of Appeals for the Eighth Circuit to run afoul of federal law preventing states from regulating employer-sponsored health plans. An Arkansas law was partially set aside on similar grounds. Laws in Maine and Washington, D.C., tagged pharmacy-benefits managers with a fiduciary duty to clients, but Maine’s law was eventually repealed, while Washington’s was struck down by courts. 

“I still believe there’s a lot to be gained by cracking the PBMs’ practices,” said Kate Gainer, executive director of the Iowa Pharmacy Association, which represents more than 1,000 pharmacists and technicians. “I just don’t know how to get there.”

The California bill is expected to be reintroduced early next year. The governor’s office declined to comment.

The Federal Front

Transparency with drug-price negotiations is a “double-edged sword,” as some research has found revealing details could result in higher costs, Stephen Ubl, the chief executive officer of PhRMA, said in an interview. “So much of the transparency discussion that we see primarily at the state level is little more than veiled attempts at price controls.”

U.S. Representative Doug Collins, a Republican from Georgia, has a bill that would make companies that contract with the U.S. government detail how they reimburse pharmacies for drugs. A bill from Senator Ron Wyden, the Oregon Democrat, would force disclosure of discounts.

Merritt, the PCMA chief, said that his industry works to educate lawmakers on how proposed regulations will increase health-care and drug costs.

“We do it all the time, usually successfully,” he said. “The single most compelling thing we do, and do regularly, is show policy makers the real cost impact of the anti-PBM policies.”

Merritt said the better way to lower drug costs is for the U.S. Food and Drug Administration to increase approvals of generic and branded treatments -- a strategy that the agency’s new leadership has embraced. Merritt said that companies don’t have to hire pharmacy-benefit managers, but do because of the savings they receive for their employees.

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