In-Depth: Rep. Abigail Spanberger (D-VA) introduced this bill to require increased transparency of third-party intermediaries for drug discount negotiations:
“In Central Virginia and across the country, Americans are paying increasingly higher prices for lifesaving medication—and it is a crisis for families and patients, especially those living with chronic illness and the elderly. I was proud to introduce this bipartisan bill meant to address one of the root causes of this crisis and to increase transparency within the murky world of prescription drug negotiation. By requiring that PBMs report their rebates, discounts, and price concessions, we are casting sunlight on a system that has significantly contributed to rising drug prices—and we’re giving patients, physicians, and employers the opportunity to understand how they are impacted by PBMs. With today’s passage of our bill out of committee, we are making significant progress—and I’ll keep fighting to lower drug prices and bring transparency system that hurts chronically ill and aging Americans.”
Pharma critics warn that pricing transparency alone won’t fix the problem of high drug prices. At a May 2019 House Energy and Commerce Committee hearing on drug pricing transparency, Frederick Isasi, executive director of the patient advocacy group Families USA, said the question is, “Is it just transparency or is it transparency with teeth?" He added, "The government needs to say: This is not a fair price; we will not pay it. We have to combine both these things together."
At the same May House Energy and Commerce Committee, hearing, Kristin Bass, chief policy and external affairs officer of the Pharmaceutical Care Management Association, which represents PBMs, argued against making company-specific negotiations public. Bass contended that making this information public could jeopardize negotiations with manufacturers. Bass also defended the practice of PBMs pushing higher list-price drugs in their formularies, drawing higher rebates.
This legislation has three bipartisan cosponsors, including two Democrats and one Republican.
Of Note: The discrepancy between what patients pay out of pocket and what drugs actually cost is frequently created by “pharmacy benefit managers” (PBMs), companies hired by insurers to manage drug benefit programs and act as intermediaries between insurers, manufacturers, and pharmacies.
Currently, the three largest PBMs control nearly three-quarters of the U.S. prescription drug market. These powerful third-parties are responsible for negotiating rebates with manufacturers for Medicare Part D plans and other insurers. Medicare Part D plans provide beneficiaries with insurance coverage for prescription drugs, but the negotiations surrounding these drugs and their list prices are not transparent.
PBMs use their position to negotiate discounts, rebates, and other cost reductions from pharmaceutical companies in exchange for their drugs’ preferred placement on insurers’ formularies. The difference in price between the original price and the negotiated price, known as the “clawback,” is supposed to be passed on to patients — however, excess rebates and fees are often retained by PBMs rather than being passed on to patients. Consequently, patients’ out-of-pocket costs may not reflect the actual lower price of the drug.
As an example of how this might work:
- A manufacturer might originally price a drug at $100. Then, a PBM negotiates that price down to $80. A pharmacy then purchases the drug from a wholesaler and the PBM pays the discounted rate to the pharmacy. The pharmacy pays a fee to the PBM for the negotiating service based on the drug’s list price ($100, rather than $80), bringing extra profit to the PBM.
- The PBM may then charge the insurer a higher price for the drug ($90), even though it reimburses the pharmacy at the negotiated price. Simultaneously, the PBM also earns a rebate directly from the drug manufacturer for placing the drug on its formulary.
- Finally, when a patient buys the drug from the pharmacy, he or she is charged a copay amount based on the list price ($100) rather than the negotiated price ($80). The co-payment may be higher than the cash price, and pharmacists are often prohibited from informing patients about this potential cost-saving opportunity due to PBM contracts.
Summary by Lorelei Yang(Photo Credit: iStockphoto.com / esolla)