In a second opinion of sorts, a government report suggests that some of the drug pricing remedies U.S. lawmakers and the Trump administration have proposed could be the right prescription for the wrong setting, especially when it comes to pharmacy benefit managers (PBMs).

Several of the pricing "fixes" coming from the White House and Capitol Hill are intended to treat the Medicare Part D prescription drug program. But a report the U.S. Government Accountability Office (GAO) released last week showed that PBM practices such as spread pricing and profiting from rebates are not as endemic in Medicare Part D as they are in the commercial market.

Citing interviews with PBM officials, the GAO said, "PBMs generally earn more from spread pricing and rebate retention from commercial plans than they do from Part D."

That's not to say rebates aren't an issue with Part D drugs. The GAO report on the role of PBMs in Part D found that the amount of rebates and other price concessions drug manufacturers negotiated with PBMs and plan sponsors increased 66% from 2014 to 2016, from $17.5 billion to $29 billion. As a result, rebates and other price concessions increased from 14% of gross Part D expenditures – what was paid to the pharmacy by the sponsor and the beneficiary – in 2014 to 20% in 2016.

The 66% growth in rebates over the three-year period far outpaced the 20% growth in gross expenditures for the prescription drug program and the 13% growth in net expenditures, which reflect the drug price minus the rebates and discounts.

While the growth in rebates benefits both PBMs and plan sponsors, the sponsors are getting the biggest share of the increase. The annual reports Part D plan sponsors are required to submit to the Centers for Medicare & Medicaid Services (CMS) showed that PBMs retained $74.3 million, or about 0.4%, of the nearly $18 billion in rebates they negotiated with drug manufacturers in 2016 on behalf of the plan sponsors. The remaining 99.6% was passed on to plan sponsors, which used the money to keep premiums in check and for other purposes.

(In some cases, sponsors directly negotiate rebates with drug companies, thus the difference in the $18 billion in PBM rebates the sponsors reported to CMS for 2016 and the $29 billion in total rebates and price concessions the GAO cited for that year.)

The GAO report supports testimony the PBMs gave in congressional hearings earlier this year as they argued against legislation that would require more transparency on rebates in Medicare Part D. Some lawmakers pushed back, citing increasing integration and consolidation in the PBM/plan market. (See BioWorld, April 11, 2019.)

Rebates encourage anticompetitive behavior, Rep. Scott Peters (D-Calif.) said at a House Energy and Commerce subcommittee hearing in April, and the risk of that behavior is amplified when the same company owns the PBM, insurance plans and pharmacies.

Rep. Buddy Carter (R-Ga.) observed that all three PBMs represented at the hearing – CVS Health, Express Scripts (now part of Cigna Corp.) and Optumrx – are integrated companies that include insurance plans and at least mail order pharmacies. When the PBMs claim they are passing all of the rebates on to their clients, they are actually passing some of them on to their own insurance plans, he said.

CMS checks

Even without new legislation, current CMS rules provide some oversight for Part D rebates, as the agency requires plan sponsors to submit detailed annual reports of rebates by drug and Part D plan. The reports must include the amounts retained by PBMs, rebate guarantee amounts, the amount reflected at the point of sale and third-party payer claim rebate amounts. The plan sponsors also must report what the rebates are for and any administrative fees charged to manufacturers.

PBMs keep a larger share of the rebates in the commercial market, which operates without as much oversight. Officials from the nation's three largest PBMs told lawmakers they pass 95% to 98% of the rebates on to their commercial clients. Of course, the 2% to 5% they keep increases the bigger the rebate. (See BioWorld, April 16, 2019.)

In her testimony for the subcommittee hearing, Amy Bricker, a senior vice president at Express Scripts, said the PBM passes about 95% of rebates, discounts and price reductions back to its core PBM commercial and health plan clients and their customers. "Some use them to lower premiums and cost sharing, others choose to expand access, fund wellness programs or provide discounts to consumers at the point of sale," she said.

Keeping a lid on premiums is a significant factor in both the commercial and Medicare markets. Threats of increased premiums caused the Trump administration to withdraw a proposed rule that would have required Part D plans to pass the rebates to beneficiaries at the point of sale. And in the commercial sector, employers that cover part or all of their workers' premiums benefit by keeping those premiums as low as possible. (See BioWorld, July 12, 2019.)

Premium concerns don't mean rebates are off the table when it comes to Medicare pricing reforms. Sen. Chuck Grassley (R-Iowa) said he wanted to add the requirement that Part D rebates be passed on to the point of sale to the bipartisan Prescription Drug Pricing Reduction Act before it's put to a vote on the Senate floor along with other drug pricing measures next month. The proposal has found its way into House bills, as well. (See BioWorld, July 26, 2019.)

Another PBM practice that's raised Grassley's hackles is spread pricing, in which the PBM keeps the difference between the amount it pays the pharmacy for a drug and the amount it charges the plan for the drug. But the GAO found that PBMs earned no Part D revenue from spread pricing in 2014 and 2015 and only $300,000 from the practice in 2016.

It's a different story in the commercial market, where spread pricing is more common, according to PBM officials interviewed by the GAO. The difference is CMS rules that are a disincentive for using spread pricing in Medicare Part D. The disclosure rules put plans that use spread pricing at a disadvantage in Part D bid determinations, the GAO said.

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