Small PBMs urge Congress: Don’t kill rebates

By | May 16, 2019

Smaller pharmacy benefit management companies, rarely in the spotlight, are urging Congress not to fundamentally alter the way prescription drugs are paid for in the U.S.

As the Trump administration advocates banning rebates under Medicare and Medicaid, these lower-profile PBMs aim to convince lawmakers not to junk the entire system. They say Congress should start by examining business models other than just of the nation’s largest PBM players.

The assumption on the Hill is that all rebates are bad — and that’s not the case, according to the Alliance of Community Health Plans, which represents some of the smaller PBMs, including Wisconsin-based Navitus, Pharmacy Benefit Dimensions and SelectHealth as well as Geisinger Health Plan and Kaiser Permanente.

ACHP hit the Hill last month with these companies, which represent more than 6 million people, hoping to persuade lawmakers that not all PBMs are alike.

“We encourage the Administration to consider these innovative, alternative PBMs and pursue policies that encourage fully transparent models that do not operate in the shadows,” ACHP President and CEO Ceci Connolly said in a statement.

PBMs, the largest of which are now owned by payers like Cigna and UnitedHealth Group, have long argued rebates are an important tool to lowering prices. PBMs use their size (the number of members they cover) to negotiate rebates or discounts with drug manufacturers. Drug manufacturers want their drugs easily accessible to the greatest amount of patients, so they offer rebates in exchange for favorable placement on a preferred tier.

But PBMs have come under fire for their role in rising drug prices as reports emerge showing the myriad ways they make money — often without their customers’ knowledge, though they have said they are transparent with their clients. Drugmakers have also successfully sought to deflect the blame for high list prices onto PBMs.

An investigation by the Columbus Dispatch in Ohio found that PBMs often use spread pricing — a practice in which they get more money from taxpayer-funded health plans by charging the health plans one price for drugs but reimbursing the pharmacies a different price. PBMs benefit from higher list prices set by drug manufacturers because they retain a percentage of rebates.

Over the years, as employers became aware of these arrangements, they have demanded greater pass-through of rebates, Geoffrey Joyce, a health economist at University of Southern California School of Pharmacy, told Healthcare Dive. He is also director of health policy at USC Schaeffer Center.

Because the PBMs are contractually obligated to pass on a certain percentage of rebates to the clients, they frequently disguise rebates or call them something else, Joyce said.

The National Business Group on Health surveyed 170 large employers, and a significant portion said they weren’t effective at decreasing drug spend.

“Three in four employers do not believe drug manufacturer rebates are an effective tool for helping to drive down pharmaceutical costs and over 90% would welcome an alternative to the rebate-driven approach to managing drug costs,” the survey said.

The rebates and pricing spreads create perverse incentives for PBMs, ACHP said.

The Trump administration has targeted eliminating rebates as a way to lower drug prices. Instead of a PBM receiving a rebate, HHS proposed a rule that would move the discounts to the point of sale, or the pharmacy counter when patients pick up prescriptions. The proposed rule would affect those in Medicare Part D plans and Medicaid. “Congress has more power to prohibit rebates in commercial insurance,” HHS said in a report.

Senator Chuck Grassley, R-Iowa, is considering legislation that would cap seniors’ out-of-pocket spend in Medicare Part D, a spokesman for his office confirmed.

But many Congressional lawmakers aren’t aware there’s a different way to perform PBM services, Brent Eberle, chief pharmacy officer for Navitus, told Healthcare Dive.

Navitus’ model is different from the traditional PBM model. Instead of taking a percentage of rebates Navitus says it passes all of the money it receives from drug manufacturers back to clients. The company makes money by charging clients up-front administrative fees.

Indeed, Navitus’ profitability and revenue “would not be impacted at all if rebates go away,” Eberle, who testified before a House committee last week, said.

But even though the disappearance of rebates wouldn’t affect Navitus’ bottom line, the company says consumers — including its clients — would be adversely affected because their drug costs would likely increase if rebates ended, creating the opposite effect of the administration’s intended changes.

A recent report from the Congressional Budget Office cast doubt on whether nixing rebates would lower drug prices. CBO also predicted federal spending on Medicare and Medicaid together would increase by $ 177 billion over the next decade if the proposal is enacted. Rebates are used to help lower the premiums for the pool of insured individuals, and, without the rebates to drive down those costs, premiums are expected to rise, according to the agency.

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