Rebates to pharmacy benefit managers are a hidden contributor to high drug prices

In the furor over high drug prices, both Congress and the media have largely focused on the role played by drug companies such as Turing Pharmaceuticals, Valeant, and Mylan. Another contributor — pharmacy benefit managers and the rebates they get from drug companies — is only now getting the attention it deserves.

Pharmacy benefit managers serve as intermediaries between the plan sponsor, such as an insurance company, and pharmacies. They determine which pharmacies will be in the plan’s network, develop the formulary (list of covered medications), and negotiate price rebates with drug manufacturers. Manufacturers provide these rebates in exchange for having specific medications listed on the formulary.

It’s all perfectly legal. Yet the non-transparent nature of these arrangements makes it difficult to know what percentage of these rebates are passed on as savings to plan sponsors and how much is kept by the pharmacy benefit manager.

In a hearing before the House Committee on Oversight and Government Reform, Representative Earl “Buddy” Carter (R-Ga.), the only pharmacist currently serving in Congress, pressed Mylan CEO Heather Bresch on how much her company paid in rebates to pharmacy benefit managers. She could not provide an answer, so it remains unclear precisely what portion of the high list price of Mylan’s EpiPen is attributed to these rebates.

The National Community Pharmacists Association and independent pharmacists around the country have been raising concerns about the non-transparent nature of pharmacy benefit managers and their contributions to higher drug prices for several years. Practices such as “rebate pumping,” which means favoring higher-cost drugs on a formulary to increase rebates, and “spread pricing,” in which the pharmacy benefit manager charges the plan sponsor a higher cost than what is paid to the pharmacy, can lead to higher costs for the plan sponsor which in turn can increase premiums and copays for patients.

Since the House hearing, others have taken interest in this subject. Publications such as the Columbus Dispatch, Business Insider, and STAT have begun spotlighting how pharmacy benefit managers may be influencing the rising costs of prescription medications.

Take, for example, Nexium, a commonly used heartburn drug with a generic alternative. A month’s worth of the generic version could cost as little as $25, while the same quantity of the brand-name version could cost as much as $700. Yet some pharmacy benefit managers continue to favor the more costly brand. As Business Insider noted, Nexium’s manufacturer, AstraZeneca, had to pay a fine of $7.9 million in 2015 after allegedly paying kickbacks to a pharmacy benefits manager, Medco Health (now Express Scripts), for keeping Nexium on its formulary.

The Columbus Dispatch explored another questionable practice called consumer copay “clawbacks.” They work like this: A pharmacy benefit manager requires a pharmacy to collect from a patient a copay for a specific medication that is set by the pharmacy benefit manager. If the patient copay imposed by the pharmacy benefit manager is higher than the ultimate reimbursement to the pharmacy, the pharmacy benefit manager requires the pharmacy to send it the excess copay, keeping it as profit. In some cases, the patient could pay less if they paid for the medication directly instead of using their insurance. However, many pharmacy benefit manager contracts contain “gag clauses” that forbid pharmacies from voluntarily informing patients what the cash price would be if the patient did not use insurance. Patients have to ask, but most don’t know that they should.

All of this needs to be examined by Congress and others for the potential effects on overall drug prices. Further, it begs for more transparency to help ensure that consumers and plan sponsors are not being overcharged.

The National Community Pharmacists Association recently wrote to the chair and the ranking member of the House Committee on Oversight and Government Reform requesting a hearing to explore these questions. The recent disclosure by Express Scripts, the nation’s largest pharmacy benefit manager, that it had received subpoenas from the Department of Justice as well as US attorneys in New York and Massachusetts seeking, among other things, information related to its relationship with pharmaceutical companies, should raise additional concerns for the committee.

Voters have ranked the cost of prescription medications as the most important health care issue Congress should address in 2017. Answers to questions about pharmacy benefit managers and their contributions to rising costs would help lawmakers properly address this issue. Greater transparency from pharmacy benefit managers would be a good place to start.

B. Douglas Hoey is a registered pharmacist and chief executive officer of the National Community Pharmacists Association.