In battling high drug prices, Pennsylvania auditor general takes aim at middlemen

Pennsylvania’s auditor general has once again zeroed in on the role of pharmaceutical middlemen, and this time for their “behind-the-scenes” negotiations with drug companies, in the agency’s study of rising drug prices, according to a report released Thursday.

Auditor General Eugene DePasquale called for legislation that would require pharmacy benefit managers — whose role in the state Medicaid program came under review last year — to be paid by flat fees rather a percentage of the rebates they negotiate and win from drugmakers.

DePasquale’s office found that rebates from drugmakers are working well for Pennsylvania’s Medicaid program, by returning about $2 billion to the state on nearly $3.5 billion in prescription spending in 2017 — thereby saving taxpayers about 50 percent on Medicaid drugs. But the report raised concerns about how rebates are serving people with private insurance.

“When consumers go shopping they are accustomed to getting a fair price, but when it comes to prescription drugs, the price is often a mystery,” DePasquale said during a news conference Thursday at a pharmacy in Western Pennsylvania. “The price can vary greatly, depending on who is paying, and how.”

He said one reason for that variation is rebates, which are essentially discounts on a drug’s list price. In the Medicaid program, rebates are federally regulated, and states have to receive the lowest available price for a drug. “But for people with private insurance, rebates do not save money,” DePasquale said.

For one thing, he said, rebates incentivize drugmakers to “simply set a higher starting list price” to maintain their profits. Citing discussions with drug manufacturers, the report said rebates drive up prices as much as 30 percent.

And, DePasquale said, rebates might never reach the consumer. “Instead of returning money to you, the patient, the rebate process is a behind-the-scenes exchange among a drug manufacturer, your insurer, and your pharmacy benefit manager, or PBM,” the report said.

The Pharmaceutical Care Management Association, a trade group for PBMs, blasted the report as “biased” and “factually wrong," and for reciting drug manufacturer “talking points.”

“Contrary to the narrative promoted by some, manufacturer pricing strategies are unrelated to the rebates they negotiate with PBMs,” April Alexander, the group’s assistant vice president for state affairs, wrote in a letter to DePasquale.

“The solution to high list prices is very simple: Just cut the price,” Alexander said in the letter.

The trade group said that PBMs pass on “most, if not all” rebate funds to insurers, and argued that rebates “are the only tool” to force drug companies to drive down net costs.

U.S. spending on prescription drugs reached $333.4 billion in 2017, and drug companies and PBMs are both fighting for their respective pieces of the market as Washington bears down on rising drug prices.

Seven drug company executives appeared before the U.S. Senate’s Finance Committee this week, and were warned against “finger-pointing” at other industries – while also being assured that PBMs would get their turn for a hearing, too.

Sen. Ron Wyden of Oregon, the committee’s ranking Democrat, demanded commitments in writing from the executives that they would lower drug prices if lawmakers got rid of rebates through legislation.