HHS Secretary Argues For Eliminating PBM Rebates

During a White House Press Briefing, Alex Azar, secretary of the HHS, argued for eliminating rebates negotiated by PBMs in order to bring drug list prices down.

Mr Azar said that the math for low list prices does not work because there are no incentives for drugmakers to lower their list prices.

“We have to bring incentive to lower list prices,” he said. “Right now, every incentive in the system is to increase and have high list drug prices, because everybody in the system except the patient and the taxpayer are wetting their beak along the way.”

H explained that currently, stakeholders including payers, PBMS, and drugmakers, are getting a percentage of the high list price.

“List price goes up, and everybody makes more money along the way,” he said. “We need to try to flip the incentives backwards, so that financially it makes less sense to increase list prices.”

Mr Azar then explained that the Administration is considering how to eliminate drug price rebating through pharmacy benefit mangers.

“The other area we have to look at is the entire system of rebates with pharmacy benefit managers,” he said. “We are calling into question today, the entire structure of using rebates as the method of negotiating discounts in the pharmacy channel.”

He claimed that the incentives are for drug companies to have very high list prices, which are then negotiated down in nontransparent ways by PBMs.

Mr Azar then proposed completely eliminating rebates and instead using a flat pricing model.

“What if instead we said no rebates, flat price, fixed price in the contracts,” he said. “Take away the whole gross-to-net spread that makes people indifferent to the list price in that system, and take away incentives where the pharmacy benefit manager makes more money from high list prices.” 

Mr Azar then called into question how PBMs make money through rebates and administrative fees.

“We also have to take a look at the role for compensation for pharmacy benefit managers,” he said. “They are taking it now from both sides, they are getting compensated by their customer—the insurance companies, but they are also getting compensated by the drug companies that they are supposed to be negotiating against.”

He proposed moving to a fiduciary model where the PBM works for the payer or patient, and is only compensated by that party, and forbid remuneration from drugmakers.

Mr Azar also said that PBMs are responsible for some high out-of-pocket costs that their customers face due to the pharmacist gag rule.

“Right now, some pharmacy benefit managers are telling pharmacists ‘you’re not allowed to tell the patient that if they paid cash for this generic drug it would be cheaper you than if you run it through your insurance’,” he said. “We think it is unconscionable, and in Part D we are going to work to block that.”

Mr Azar then claimed when he was an executive at Eli Lilly, he looked into how to lower drug prices and found that it wasn’t possible.

“I know this from running a drug company, I actually looked at if you could lower drug prices,” he said. “It didn’t work for any one company. This is how perverse the system is. You put yourself at a disadvantage in this system by having a lower list price than others… because every player in the system makes more money as a percent off of that list price. The math doesn’t work,” he added.

In a response to the Administration’s new drug pricing proposals, Express Scripts released a statement emphasizing how much money their services save the health care system.

“By taking on tough challenges, we helped employers save $32 billion on their prescription drug bill in 2017 alone,” Express Scripts wrote. “Express Scripts stands up to drug companies and drug stores to make sure everyone—patients, employers, health plans, unions, and government entities—get a fair deal for the money they spend.”

Additionally, CVS Health, who owns the PBM CVS Caremark, explained that their PBM services work in the best interest of their customers.

“As a pharmacy benefit manager, CVS Health negotiates the lowest possible net price from drug manufacturers for clients, which are health plans, employers, unions, government programs like Medicare Part D and Medicaid, and ultimately for the millions of Americans who pick up their prescriptions at pharmacy counters every day,” CVS Health said in a statement on President Trumps drug pricing announcements. “CVS Health returns approximately 95 percent of discounts and other price concessions like rebates to commercial clients and their members, while at the same time keeping drug price growth at a minimal 0.2 percent, the lowest level in five years, despite manufacturer brand list price increases on drugs near 10 percent.”

—David Costill

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