If the Aim Is to Lower Drug Prices, Who Is in the Crosshairs?

Alicia Ault

June 18, 2018

Even as the Trump administration says it is now going to take a harder line against the high cost of pharmaceuticals, it's not clear whether its proposal can successfully go after a root cause: the drug distribution system, which seems to be a key source of inscrutable layers of add-on costs.

Meanwhile, studies both past and present show that rising drug costs hurt patients — even those with insurance. With a higher copay or deductible, they may not fill a prescription. Or they may delay a refill or ration medications. And, critics say, patients are losing out on potential cost savings that are instead going to the middlemen.

The Trump administration agrees that the distribution system is a problem. "What had been a hidden negotiation and wealth transfer between drug manufacturers and [pharmacy benefit managers (PBMs)] is now a direct increase on consumer out-of-pocket spending that likely decreases drug adherence and health outcomes," said the administration in its new "blueprint" for lower drug costs.

Health plans, PBMs, and wholesalers receive higher rebates and fees when list prices increase, which means "there is little incentive to control list prices," the report said. "Consumers, however, pay higher copayments, coinsurance, or pre-deductible out-of-pocket costs when list prices rise."

Pharmaceutical manufacturers have for decades been the lightning rod for complaints about the price of medicines, and they are targeted in the proposal. But a new target has also emerged: PBMs.

"We're very much eliminating the middlemen," said President Donald J. Trump in a May 11 speech unveiling the plan. "The middlemen became very, very rich. Right? Whoever those middlemen were — and a lot of people never even figured it out — they're rich. They won't be so rich anymore," he said.

But some are questioning that commitment, especially because the administration named Daniel Best, a former executive with CVS Caremark, one of the largest PBMs, as its drug pricing czar.

Rep. Keith Ellison (D-MN) questioned the choice in a recent letter to US Department of Health and Human Services (HHS) Secretary Alex Azar, who is himself a former executive with Eli Lilly. Noting Best's past positions at CVS and Pfizer, "the decision to hire him poses significant potential for conflicts of interest, placing him in a position to make decisions that may pit the income of his former employers against the interests of patients in reducing prescription drug prices," Ellison wrote.

The congressman also noted a class action suit filed in February against CVS and CVS Caremark by HIV patients, who claimed that their previous pharmacies were suddenly labeled out-of-network, forcing them to use only CVS pharmacies or face out-of-pocket costs of as much as $2000 a month.

"These allegations, if true, would reveal disturbing, unethical behavior on the part of CVS Caremark that undermines basic consumer protections," Ellison noted.

A CVS Health spokesperson said that the lawsuit is without merit. "PBMs such as CVS Caremark are not plan sponsors and they do not make benefit design decisions for clients," the spokesperson told Medscape Medical News. CVS offers its clients the option to let their members with HIV fill HIV-related medications at in-network local independent pharmacies and other national chain retail pharmacies. "Any allegation that such benefit design decisions violate federal or state law is both factually and legally incorrect."

PBMs Increasingly Monopolistic?

Increasingly, suits alleging monopolistic practices are being filed against PBMs and big pharmacy chains.

In August 2017, a class action lawsuit alleged that CVS instituted "gag clauses" that prevented its pharmacists from telling consumers about potentially lower-cost generics. The plaintiffs' attorneys, however, voluntarily withdrew the suit a few weeks after filing, because CVS "demonstrated that it contained numerous factual misstatements that, when corrected, made it clear that the plaintiff named in the suit was not overcharged for her prescriptions," said the CVS Health spokesperson.

Trump made a key point of eliminating gag clauses near the beginning of his drug pricing announcement.

The nation's biggest PBM — Express Scripts — "doesn't support gag clauses," said the company's director of corporate communications, Jennifer Luddy. The company "doesn't support copayments that exceed a drug's cash price and this practice isn't part of how we do business," she told Medscape Medical News. Express Scripts' policy is that when the price for a medication is less than the copay for that drug on the patient's formulary, the patient will pay the lower price.

Litigation could increase if a new round of proposed mergers goes through, including CVS's proposal to buy the insurance company Aetna, and the insurer Cigna's bid to purchase Express Scripts.

Researchers at the Leonard D. Schaeffer Center for Health Policy and Economics at University of Southern California, Los Angeles, estimate that Express Scripts controls a third of the PBM market, CVS Health 24%, and Optum RX 13%. The three companies thus account for 66% of the market. Aetna is the fourth-largest insurer, with 4% of the market, and Cigna is in the third spot, with a 4.5% share. 

Analysts with Washington Analysis said they expect the merger deals to go through despite questions about monopoly power. However, they said, "Our concerns about these insurer-PBM mergers would materially rise if physicians, patients or employers came out against the combinations."

The White House Council of Economic Advisers has taken note of PBMs' consolidated power. "Pricing in the pharmaceutical drug market suffers from high market concentration in the pharmaceutical distribution system and a lack of transparency," the council wrote in a February report.

The commissioner of the US Food and Drug Administration also views the drug distribution chain as a culprit in rising drug prices. "The top three PBMs control more than two-thirds of the market; the top three wholesalers more than 80%; and the top five pharmacies more than 50%," said Scott Gottlieb, MD, in a March speech to the biggest health insurance trade association. 

PBMs, distributors, and drugstores are teaming up with payers and "they use their individual market power to effectively split some of the monopoly rents with large manufacturers and other intermediaries rather than passing on the saving garnered from competition to patients and employers," Gottlieb said. "And the very complexity and opacity of these schemes help to conceal their corrosion on our system — and their impact on patients."

Karen Van Nuys, PhD, research assistant professor at the University of Southern California's Schaeffer Center, said that opaque practices — such as "gag clauses" that prohibit pharmacists from discussing lower-cost alternatives with patients and not disclosing rebates or the net pricing they pay — is driving the anger toward PBMs. "When you peel it away, it starts to look nutty," Van Nuys told Medscape Medical News.

In a May 14 speech, Azar said the administration believes that rebates in particular need to be examined. "Right now, we're asking a pretty straightforward question: What if, instead of the current system where drug companies get paid rebates and middlemen take a cut, we just had fixed-price discounts?"

The HHS secretary also noted that PBMs get paid by both insurance companies and drug makers, who give them a cut of the rebates they receive. "It is easily within our power to forbid remuneration from pharmaceutical companies — to eliminate rebates, align interests, and end the corrupt bargain that keeps driving list prices skyward," Azar said.

In a more recent statement before the Senate's health committee, Azar again took a hard line against PBMs.

"We've had several drug companies come in who want to execute substantial material reductions in their drug prices," Azar told the committee. "They're finding hurdles from pharmacy benefits managers and distributors that I think will get worked out, I really do."

He said that the pharmaceutical pricing system needs to be redone and "flip on its head," again reiterating the need for fixed prices.

"We may need to move toward a system without rebates, where PBMs and drug companies just negotiate fixed-price contracts," he said. "Such a system's incentives, detached from artificial list prices, would likely serve patients far better," Azar said.

Keeping Spending in Check?

But  because it is' not clear what kind of discounts — or rebates — PBMs get, it's unknown what effect their oversight has on drug prices. The industry, meanwhile, maintains that its oversight has caused drug spending to go down.

The Pharmaceutical Care Management Association (PCMA), the industry association for PBMs, recently reported that for clients who used PBM services drug spending declined by 2.1% in 2017 — even as manufacturer list prices on brand prescriptions increased 6.9%.

The slowdown in drug spending is corroborated by economists at the Centers for Medicare and Medicaid Services (CMS). In 2016, drug spending at the retail level grew just 1.3%, they said. Drug spending was expected to grow 2.9% in 2017, and leap by 6.6% in 2018, when fewer brand name drugs will be losing patent protection, meaning fewer lower-priced generic competitors.

The economists also noted that, with each passing year, more individuals with employer-provided health insurance — and Medicare recipients as well — are having to shoulder increasingly higher deductibles and copays for pharmaceuticals.

Because of ongoing questions about the role of PBMs, PCMA has started a stand-alone website to provide what it calls "the facts" on how the industry saves money. On one page, an infographic shows that for a full-price brand name prescription a patient enrolled in a PBM would pay $268 after "PBM-negotiated savings."   

Of the $268, the manufacturer receives 88%, the pharmacy 7%, the PBM 4%, and the wholesaler 1%, according to PCMA.

How Patients Are Affected

Van Nuys and colleagues followed the money as best they could — using public Securities and Exchange Commission filings — and found similar data. For every $100 spent on drugs, manufacturers keep $41. That compares with $19 kept by insurers, $15 by pharmacies, $5 by PBMs, and $2 by wholesalers.

Manufacturers had the highest profit margins, followed by pharmacies and insurers, and then PBMs. They concluded that "more than $1 in every $5 in spending on prescription drugs goes towards profits of firms in the pharmaceutical distribution system."

But those numbers don't explain how patients are affected.

In a separate study published online in the Journal of the American Medical Association (JAMA) in March, Van Nuys and colleagues found that patients overpaid for 23% of brand name and 28% of generic prescriptions. The mean overpayment was $13.46 for brands and $7.32 for generics. In those cases, the copays exceeded the amount that the insurance company had to pay the pharmacy to settle the claim, Van Nuys said. That overpayment was pocketed, most likely by the insurer, but the PBM may have taken some also, Van Nuys said.

Insurance is supposed to help people guard against risk. "In this case, not only are they not helping you bear the burden, they're charging you for being sick," she told Medscape Medical News.

Jules Lipoff, MD, a dermatologist, wanted to know how the cost of acne medications affected his patients. He conducted 26 structured interviews and found that 17 (65%) of the 26 patients interviewed said they'd intended to fill the prescription, but didn't because of cost — making cost the major barrier to starting therapy with the prescribed acne drug. Lipoff's study was published online in JAMA Dermatology in April.

An assistant professor of clinical dermatology at the University of Pennsylvania, Lipoff told Medscape Medical News that he conducted the study because he'd found that patients often did not tell him if they hadn't filled their prescriptions. The structured interviews revealed that patients were not only inhibited by cost, but that they didn't know how to discuss the issue with clinicians.

"Despite anticipating this barrier, they rarely brought up costs with physicians during the initial visit and generally did not expect their physician to be knowledgeable in this area," wrote Lipoff and colleagues.

The average patient won't question what a doctor has prescribed, which adds to the problem, said Lipoff. The complexity of the distribution system also "probably does prey upon the fact that physicians generally really are oblivious" to the multiple layers, he said.

Both Lipoff and Van Nuys said that physicians should be more cognizant of cost and talk about it with patients. "It would be helpful if doctors knew not just the clinical consequences of prescribing one medication versus another, but also the financial consequences to their patient," Van Nuys said.

Attempts at Transparency

But the financial consequences can be difficult to fully weigh without more transparency.

The Patient Right to Know Drug Prices Act (S. 2554) and the Know the Lowest Price Act (S. 2553) attempt to require some clarity. Sen. Susan Collins (R-ME) said her Patient Right to Know Drug Prices Act would prohibit gag clauses. The Know the Lowest Price Act, introduced by Sen. Debbie Stabenow (D-MI), would provide this same protection under Medicare.

"Americans have the right to know which payment method — insurance or cash — would provide the most savings when purchasing prescription drugs," said Collins in a news release. 

In response, PCMA said in a news release that it opposes gag clauses. "We support the patient always paying the lowest cost at the pharmacy counter, whether it's the cash price or the copay. This is standard industry practice in both Medicare and the commercial sector," the group said.

The Trump administration, however, said it would be taking aim at those gag clauses, at least in Medicare. "You ought to know how you can get the best deal possible, and your pharmacist should be able to tell you how," said Azar in the May 14 speech. He said CMS would start sending letters to all Medicare Part D plan sponsors "saying that we consider such behavior unacceptable."

The larger PBMs now offer in some fashion real-time price information for pharmacists, physicians, and patients. Express Scripts' website and mobile app offer, for instance, side-by-side drug comparisons showing the price of a therapy at retail and for home delivery, according to the patient's formulary, and displays 25 or more possible lower-cost options. The PBM also is now providing prescribers with real-time drug cost data in the electronic medical record, Luddy said.

SureScripts, another PBM, began offering a similar program in 2017.

CVS Health is a bit later to the game. It has just unveiled an app that it says will give real-time information on drug prices.

The program currently is available only to individuals who receive pharmacy benefits through CVS Caremark and use CVS pharmacies. Patients can use the CVS portal or the app to check prices and look for lower-cost alternatives.

Retail pharmacists will be able "to evaluate quickly and seamlessly individual prescription savings opportunities," said a CVS spokesperson.

For prescribers, the program is integrated into the e-prescribing workflow — and is available through Epic, Cerner, Aprima, ReMy Health, and Waiting Room electronic health record (EHR) platforms. The prescriber can view a drug's cost based on the patient's coverage and review up to five clinically appropriate brand-name alternatives or therapeutically equivalent generic medications available at a lower cost, and on the patient's formulary. Prescribers can also see in the EHR whether the medications require prior authorization and immediately submit a request if needed.

CVS said that, so far, prescribers are switching to a lower-cost alternative for about 30% of prescriptions that have an available low-cost substitute. The lower-cost therapy costs an average of $75 less, the CVS spokesperson said.

"Providing this level of drug cost transparency to patients will help them facilitate conversations with their entire care team, including providers and pharmacists, and have greater visibility of and control over out-of-pocket drug costs," she said.

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