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Drug Price Reporting Rules Foiled by Supply Chain Loopholes (1)

Feb. 17, 2022, 10:35 AMUpdated: Feb. 17, 2022, 8:35 PM

U.S. transparency rules for drug and health costs are being stymied by interlocking business deals between insurers, pharmacy liaisons, and other companies, including some that are overseas.

Those are observations gleaned from industry comments about a multi-agency rule (RIN 0938 AU66) designed to give employers and insurers a window into how the care they’re paying for is priced. Entities at every stage of the supply chain say they need more information on what the other companies in the system are paying.

Getting that information may be difficult. The Federal Trade Commission deadlocked 2-2 Thursday on a proposal to study on pharmacy benefit managers (PBMs), the entities that manage prescription drug coverage for insurers. The FTC Democrats proposed to look at the competitive impact of PBM practices that might disadvantage independent or specialty pharmacies. The motion failed because it was rejected by the two Republican commissioners.

The reporting requirements from the transparency rules went into effect in December, and regulators are seeking input into how to clarify them. The government will issue biennial public reports on prescription drug pricing trends and their impact on premiums and out-of-pocket costs starting in 2023.

One problem is that some companies in the chain don’t give up their data because they’re overseas and can avoid U.S. regulatory scrutiny. PBMs often do business with group purchasing organizations to control costs, and those organizations often operate outside the U.S.

To complicate matters further, the largest PBMs are owned by large health insurers, Shawn Gremminger, director of health policy at the Purchaser Business Group on Health, said. The group suggested that the Department of Health and Human Services extend drug price transparency requirements to organizations outside of the U.S., in a comment letter on the rule.

The PBGH is a nonprofit coalition of nearly 40 public and private organizations that spend nearly $100 billion a year to cover about 12 million employees and family members. In 2021, it started its own pharmacy benefit manager, EmsanaRx, to serve employers.

Employers are concerned that drug costs are inflated through “inside dealing” as affiliated entities mark up prices through a chain of interactions and then sell them to employer plans, Gremminger said. Employers want to know the prices at each stage of the process, he said. Large group plans want more transparency about how much PBMs pay for drugs compared to what they charge employers.

Accuracy Is a Challenge

At the same time, employers are struggling to meet their reporting obligations, which include a slew of information about the most expensive drugs they pay for, drug price increases, drug claims, as well as their spending on specific health-care services, such as hospital costs, primary, and specialty care.

Employer plan sponsors “have little or no way of verifying compliance or accessing reported data, yet they are ultimately held responsible for the accuracy and completion of the reporting,” the ERISA Industry Committee said in a comment filed with consultant Mercer. Plan sponsors lack the means to report their information if their plan administrator or PBM doesn’t report for them, they said.

ERIC, which represents large employers on employee benefit policies, asked regulators to impose “reasonable cooperation requirements” for PBMs, plan administrators, and insurers that manage health plans. The groups suggested that the rule be revised to confirm that disclosures by brokers and consultants to employer-sponsored health plans include data on pharmacy benefits and drug costs.

Employers should be able to get more information about prices paid by their own plans, Katy Johnson, senior counsel for health policy at the American Benefits Council, said. Plan sponsors sometimes have a hard time getting information about the rebates paid to their pharmacy benefit managers, she said.

The agencies currently are allowing PBMs and third-party administrators to aggregate their information across all their health insured populations, Johnson said. “So that means I won’t necessarily be getting plan-by-plan specific information.” If a plan sponsor wants its own plan-specific information, it should be able to get it to make plan design decisions, the ABC said in its letter. The ABC represents large employers that sponsor employee benefits such as health care and retirement plans.

Insurers say they don’t know what employers are paying. AHIP, which represents commercial health insurers, said its members don’t have information on the share of premiums employers pay on behalf of their employees. “Plans do not have a way to separate the amount contributed by employees nor the information to derive it.”

‘Net-Zero Impact’

The PBM industry points to a number of data and timing elements that it believes exceeds the statutory authority. The Pharmaceutical Care Management Association, which represents PBMs, said in its comment letter that the rule goes beyond the agencies’ statutory authority and asked that “amounts retained by PBMs” be excluded.

The PCMA’s comment letter states that the rule should not require any reporting beyond the law passed by Congress.

“As a form of PBM compensation, amounts retained by PBMs and not passed through to the plan have a net-zero impact on premiums,” it said.

Other sectors of the industry say they need to know what PBMs are charging and spending for drugs. Pharmaceutical Research and Manufacturers of America (PhRMA), which represents drug manufacturers, said “PBMs and health plans do not generally share manufacturer discounts directly with patients at the point-of-sale. Instead, plans and PBMs may profit from these substantial discounts while often requiring patients to pay high deductibles and coinsurance based on a medicine’s full list price.”

PhRMA said regulators should require adequate data for accurately understanding how much health plans and PBMs spend on prescription drugs.

Direct Discounts

The Campaign for Sustainable Rx Pricing (CSRxP) said drug manufacturers should be required to report discounts they offer to low-income patients. The group says those patient assistance programs are often a tactic “to increase sales” of a particular drug. Making those discounts public would “better ensure that third-party assistance directly benefits patients and does not simply camouflage needlessly high drug prices.”

Jon Conradi, the group’s communications director, said transparency about drugmaker list prices is also a priority. “We’ve seen the public pressure that comes with a brand name company’s having to defend or justify the prices they set either as launch prices on new drugs or their price increases on products,” he said.

He cited the price reduction recently announced by Biogen for its Alzheimer’s drug Aduhelm. Biogen initially set the drug’s price at $56,000 a year but later cut the cost in half after the HHS ordered a review of Medicare premium hikes tied to the drug.

(Updates with FTC vote on PBM study in the third paragraph and new detail on the PCMA's position in the 15th and 16th paragraphs.)

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com

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