Trump’s Drug Blueprint Could Alter PBM Contracting

One proposal would make pharmacy benefit managers fiduciaries who must act in participants' best interest

Stephen Miller, CEBS By Stephen Miller, CEBS May 22, 2018
Trump’s Drug Blueprint Could Alter PBM Contracting

With much fanfare, President Donald Trump's administration recently released a 44-page blueprint for executive action on drug pricing titled American Patients First. The blueprint proposes steps to end drug manufacturers' "gaming" of the regulatory process and to create incentives for pharmaceutical companies to lower list prices. The proposals regarding pharmacy benefit manager (PBM) firms, in particular, could affect drug costs covered by employer-sponsored group health plans.

PBMs use factors such as customer volume or the availability of competing drugs to negotiate lower costs through rebates or discounts, which are incentives to include a manufacturer's drugs on the PBMs' formularies. But as SHRM Online has reported (see below), the Pharmacy Benefit Management Institute found that only three-quarters of employers directly receive any portion of these manufacturer rebates.

Here is a roundup of responses to the administration's PBM proposals.

Plan to Reduce Prescription Drug Prices Will Have an Impact

The blueprint calls for the executive branch to require that drug rebates negotiated by PBMs be passed directly on to patients using those drugs, instead of being used to reduce plan premiums generally. This should inspire more and wider use of rebates, because price-sensitive consumers will benefit from lower prices on the drugs they themselves use.

A Significant Change?

There was little in the president's speech or in the blueprint that took direct aim at the drug industry, despite the president's tough talk against pharmaceutical company pricing practices. The use of confidential rebates, however, has become a central feature of our nation's drug reimbursement system, and restricting or reducing their use would significantly change the ways in which drugs are distributed and reimbursed.
(Health Affairs)

Eliminating the Middlemen

The administration is questioning the current rebate system for PBMs, aiming to restrict its use in the future and seeking formal input on how to restructure it, Health and Human Services Secretary Alex Azar said. In the plan, the administration correlates the "hidden negotiation and wealth transfer" from drug manufacturers to PBMs with the increase in out-of-pocket costs for consumers. "The entire system is built for increased prices and high prices; this plan reverses those dynamics," Azar said.
(HealthLeaders Media)

[SHRM members-only toolkit: Managing Health Care Costs]

Make PBMs Fiduciaries

Revisiting how rebates are handled won't necessarily lower drug prices, and it's fair to assume that PBMs/insurers will make up any lost revenue in a different way. Employers should check their PBM contracts—PBMs/insurers frequently include a provision that allows them to re-rate the contract in the event of a change in the laws and regulations around rebates.

The blueprint, however, also asks whether PBMs should be obligated to act solely in the interest of those for whom they manage drug benefits. If PBMs were identified as plan fiduciaries, they would be accountable for negotiating in the best interest of the plan and its members. This could certainly change the dynamics of current PBM relationships and, if adopted, keep PBMs from accepting certain types of payments from manufacturers that favor coverage of higher-cost drugs.

Negotiating Price Transparency with PBMs Pays Off

As third-party administrators of prescription drug programs, PBMs develop and maintain the formulary that lists drugs covered by the plan and the amount of coverage provided (often specified by tiers for generic, formulary brand, nonformulary brand and specialty drugs), contract with pharmacies, negotiate discounts and rebates with drug manufacturers, and process and pay prescription drug claims.

When negotiating next year's pharmaceutical benefits, employers should ask for more transparency in their PBM contracts so they can keep track of hidden costs, experts advise. Insisting the PBM disclose all revenue sources and eliminate hidden cash flows is a good place to start.
(SHRM Online)


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