Earlier this month, top executives from pharmacy benefit managers (PBMs) Express Scripts, CVS Caremark, Humana, Optum, and Prime Therapeutics were called before members of the Senate Finance Committee to discuss high drugs prices and solutions for lowering them.
Committee Chairman Chuck Grassley, R-Iowa, and Sen. Ron Wyden, D-Ore. made it clear that they were not out to regulate PBMs out of business but work with them to better understand how the system currently works and find ways to improve it.
PM360 spoke with Dea Belazi, President and CEO of AscellaHealth, a smaller PBM that was not present at the hearing, in order to get his opinion about what was said, the impact of the hearing, the biggest issue facing PBMs, and what changes to the system could lead to greater efficiency for every stakeholder.
PM360: What was your reaction to the hearings?
Dea Belazi: I expected more reproach or pushing the blame towards the pharma companies in terms of price increases because that’s where a lot of this comes from. But I was pleasantly surprised by the Senate’s response and overall tone. Outside of a couple of contentious points, Congress seems to be pretty neutral, which tells me that there’s not going to be any significant policy changes in the near future. There was really only one representative who said, “If you guys don’t work together and collaborate, we’re going to put policy in place.”
How do you think it compared with the pharma CEOs in front of Congress, when they blamed PBMs for high drug prices?
Mostly I’m concerned by the ongoing lack of understanding between legislators and pharma on how the payer and the PBM business model works. The fact that you’ve got pharma executives saying they are paying billions of dollars of rebates and that they think it’s going to a PBM’s bottom line shows how little they understand about how it works. It is shocking how they don’t understand how payers utilize premiums and rebates to reduce pharmacy and overall healthcare costs. I don’t know if that’s ever going to change. But being on the PBM side, it shows we need to do a better job of educating everybody, including clients and legislators.
Perhaps one of the reasons for the confusion, at least on the part of legislators, is the lack of transparency in the process, which is something that was brought up Sen. Tom Carter. What are your thoughts on increasing transparency?
I understand the intent of transparency, but this carries significant consequences. For example, take the analogy of retail stores. Many of them are stocking similar products. What if those prices were shared between them? At the end of the day, it would affect competition. This is especially true when you put a bigger PBM against a smaller one. For instance, if I knew what Express Scripts, Optum, or CVS Caremark were getting it would impact their ability to utilize their influence, volume, and the breadth of their organization to its fullest extent.
It would be more helpful if transparency could be shared with the government and to help people understand the discounts out there. But there has got to be a way where it’s not public, but maybe still shared with the end customer, which is typically a lot of where the business model is today. But, again, having the competitors know what other pharma companies are giving a payer in terms of a rebate creates havoc and ultimately stifles competition.
The other big issue that came up during the hearing was spread pricing in Medicare and Medicaid. The panel brought up the potential for a law that would ban it, just to get the PBMs leaders’ thoughts on that. What are your thoughts on putting limits on spread pricing?
Again, it goes back to my earlier point about the ignorance on the business model. If you take any other sector, whether it’s healthcare or even pharmaceutical companies, why is there such a press on PBMs to not allow them to make money for their services? At the end of the day, there are two ways we PBMs do this. We either take spread pricing, which is something as simple as there being a difference between the service that we’re offering, whether it’s a drug price or something else, and what the client is paying. The other is we take administrative fees.
Spread pricing gets all this attention in part due to the ignorance in understanding that we as PBMs aren’t going to do this for free. We never will. And the fact that people think you can walk into a CVS or a Walgreen’s or any retail pharmacy and get the best price is unrealistic. PBMs need to be able to negotiate the best discounts and provide that to the end customer and collect a fee for that service.
With that said, if they ban spread pricing it’s not going be a problem for the PBMs. We would switch to the administrative fee model, which is being done today anyway. Spread pricing has decreased over the years, so it would not be that significant of an issue. The bigger issue is the lack of understanding about why it’s being done.
In the past, the Trump administration has referred to PBMs as middlemen and talked about eliminating them. However, as you mentioned, this panel wasn’t really contentious and they said that they weren’t out to get rid of PBMs. Even if you think there won’t be any significant changes from Congress, do you expect the Trump administration to push for changes that would impact PBMs?
No, I don’t see any long-term effects coming from this. And the fact that the administration has hinted at PBMs being middlemen once again shows the lack of understanding about what we do. If PBMs didn’t exist, our nation would probably be spending twice as much of the $400 billion a year that we currently spend on pharmaceutical costs.
So, I don’t know how Congress or the administration could make any significant changes to what is currently being done. Yes, spread pricing could potentially be illegal and the rebates in Medicare and Medicaid could potentially be directed in a different direction, but it isn’t going to go away. And I doubt the rebate model is going to go away on the commercial side.
Those are near-term potential issues, but overall, I don’t see the industry as a whole being eliminated. Especially now with the Aetna and CVS merger, the Cigna and Express Scripts merger, and integration of Optum and UnitedHealth Group—PBMs that are Fortune 500 companies. They’re not just going to go away overnight, and I don’t see anything over the next five years, at least, that is going to change the business model or wipe out these organizations altogether.
So if there’s not going to be a change that affects PBMs, do you think the government is going to go in another direction to try to lower drug pricing since this seems to be a priority for them? Unless you think all of this talk about drug pricing is just much ado about nothing with the election coming up in 2020.
HHS head Alex Azar is a former pharma guy, so my sense is the administration is more pharma-friendly than previous administrations. So, I think the likelihood of the government going down the path of negotiating pricing is very small. I don’t think even in Medicare and Medicaid that the government is ever going to get to that point, at least not in the next five to 10 years.
There is no question that drug pricing is out of control. But I don’t know if that’s the answer. There are better approaches. For instance, value-based agreements are an interesting path. We have a lot of inefficiencies in our pharmacy process. Half the drugs don’t work most of the time for a number of different reasons, so what if as a pharmacy services system we only paid when the drug works? That might bring some of the financial, efficiency, and clinical relief that we’re looking for without the government negotiation that we see in Europe and other countries.
We’ve been hearing about value-based contracting for a while. Are more people in the industry negotiating those types of contracts or are they still struggling to determine the best way to make them work?
We are, but the implementation of these types of agreements are still very difficult. There is still a data issue, as well as the fact that defining if a drug works is very difficult. It is not easy to develop the calculation to justify if an individual product is working, because there are a lot of variables. And the biggest issues are patients—they don’t take their medications all the time. What if the patient takes their drugs half the time versus 70% versus 25%? Even if they are taking their medications, how do you pull the data in a way that demonstrates the drug is working? Many of the drugs we use are to prevent, for example, a heart attack, which could be decades away from occurring. So how do we know if the drug has actually been effective between now and that potential event? And at what point do you hold the pharmaceutical company liable for the drug not working? All of this is a very difficult to measure.
Then are there other models or options available that could potentially help lower drug prices that are easier or more realistic to implement?
The model that we’re using today has a lot of layers and complexity with trying to negotiate for discounts and rebates and trying to negotiate better pricing at the pharmacy level, so the best way—which is somewhat capitalistic—may be letting the players do the best they can to achieve more efficiency without hamstringing them.
If you’re going to start limiting PBMs then you’re going to also have to limit the pharma companies, because if you start to tip the scales one way or another then you will see issues. So, my caution to legislators is this: If you are going to inhibit this process then you need to make sure it’s a balanced approach in trying to achieve greater efficiencies and cost savings.
