Opinion

While Drug Companies Raise Prices, PBMs Look for Solutions to Lower Drug Costs

By JC Scott
February 3, 2020 at 5:00 am ET

On the heels of renewed prescription drug price hikes announced recently, drug manufacturers are once again attempting to shift blame for high drug costs.

A recently published white paper by the Pharmaceutical Research and Manufacturers of America suggests drug costs are largely due to other stakeholders in the pharmaceutical supply chain. That is a misleading assertion.

To begin with, the paper includes statutorily required drug discounts from the Medicare Part D Coverage Gap Discount Program, the 340B Drug Discount Program, the Veterans Health Administration and the Medicaid Drug Rebate Program. These discounts, tied to list prices, only increase when manufacturers increase their list prices.

What drug manufacturers are not sharing is that their net revenues are increasing. Even after subtracting rebates and discounts, drug manufacturer revenues are forecasted to increase between 3 and 6 percent by 2023, with some expecting a profit margin of more than 30 percent in 2020. All the while, drug manufacturers have already increased prices by an average of 5 percent since Jan. 1 of this year alone.

Investment in research and development to find new treatments and cures is important for all of us, and we should all cheer new innovations that improve health care outcomes. But that does not tell the full story. Manufacturers raise prices to increase revenues.

This is why pharmacy benefit managers are essential to patients, employers, unions and insurers struggling to provide affordable prescription drug access for consumers. It is important to understand the role that price concessions play in lowering prescription drug costs.

Manufacturers alone set drug prices. Once those prices are set, PBMs negotiate rebates with drugmakers, which is a key tool to reduce prescription drug costs for consumers. These savings are used either to maintain lower premiums for all consumers in a health plan or to keep down the cost that consumers pay at the counter — usually a combination of both.

There is overwhelming evidence showing that PBMs’ negotiations generate significant savings for federal health programs and consumers. Recently, the Health and Human Services Department’s Office of Inspector General issued a report confirming PBM-negotiated rebates reduced Medicare Part D drug spending.

What’s more, the latest federal government National Health Expenditure survey shows that the retail prescription drug net price index declined overall by 1 percent in 2018, due in large part to PBM-negotiated rebates.

Any notion that PBMs are padding their bottom line through rebates is false. Independent research funded in part by a multinational drug manufacturer shows that for every $100 spent in the supply chain on branded drugs, PBMs retain about $2, compared to $58 for manufacturers. In addition, the U.S. Government Accountability Office found that virtually all — 99.6 percent — prescription drug rebates negotiated by PBMs with drug manufacturers in Medicare Part D are passed through to drug plan sponsors and used to lower costs for Medicare beneficiaries.

Ironically, while funding materials to paint PBM-negotiated rebates negatively, drug manufacturers themselves acknowledge that rebates collected by PBMs are used to reduce premiums, deductibles and cost-sharing on prescription drugs.

PBMs are proud of advocating for patients and others who pay for health care — including employers and taxpayers — but recognize more can and should be done to lower prescription drug costs.

Greater transparency from all players in the prescription drug supply chain would help payers and consumers get the best value for their prescription drug dollar. For example, real-time benefit tools provided by PBMs inform doctors and patients, at the point-of-prescribing, where a medication is placed on a formulary and its out-of-pocket cost to that patient at that time.

Consistent prescriber use of this tool — supplying information on the most affordable and clinically effective drugs for each patient — would enhance patient care and improve quality.

We share the goal of the administration, Congress and state legislatures to ensure prescription drugs are accessible and affordable for every consumer.

Stakeholders — payers and manufacturers alike — should be working together to come up with real solutions rather than engaging in more fingerpointing. Our industry will continue to work with policymakers and any other stakeholders who share the goal of lowering costs and giving patients more affordable access to their needed medications.

 

JC Scott is president and CEO of the Pharmaceutical Care Management Association.

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.

Do NOT follow this link or you will be banned from the site!