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PBM execs say competition, biosimilars are solutions to lowering drug prices

The rebate rule will not solve the drug affordability problem, PBM executives told the Senate Finance Committee.

Susan Morse, Managing Editor

John Prince, CEO of OptumRx, addresses the Senate Finance Committee on Tuesday.John Prince, CEO of OptumRx, addresses the Senate Finance Committee on Tuesday.

As the Ways and Means Committee today unanimously advanced prescription drug pricing legislation, the Senate Finance Committee both told and asked executives from five of the country's largest pharmacy benefit managers what should be done to lower costs.

The executives from Cigna, CVS Health and Caremark, Humana, OptumRx and Prime Therapeutics, all said more drug competition is needed, and a faster introduction of biosimilars. When there's more competition, PBMs can bring down drug prices, they said.

Currently biosimilars are held up in the law, said Dr. Steve Miller, executive vice president and chief clinical officer for Cigna, which late last year completed its acquisition of PBM Express Scripts. The period of exclusivity needs to be shortened, said Miller, a former executive for Express Scripts. When biosimilars come to the market, Cigna and Express Scripts often take great advantage to lower the cost of drugs, he said.

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There are over 50 biosimilars in Europe, but less than six in the United States, said William Fleming, segment president of Healthcare Services for Humana.


While the PBM executives said there needs to be more competition in the drugs coming to market, they told committee members that there's already a lot of competition in the PBM market, despite the fact the three largest have a total 85 percent share.

"This is actually a wildly competitive marketplace," Miller said.

Derica Rice, executive vice president and president of CVS Health and CVS Caremark, said the highly competitive space has over 60 PBMs across the U.S.

In 2018, 2 percent of members used specialty drugs that comprised 36 percent of spending. In two years, that is expected to rise to 50 percent, Rice said.

Currently, about 90 percent of all prescriptions filled are generics. The remainder are branded drugs, which represent about 70 percent of the spend, Miller said.

Pharma companies have developed innovative medicines for formerly untreatable conditions, Miller said. But innovation often comes with a high price tag, he added.


PBMs have come under fire for negotiating rebates with drug manufacturers that are then passed on to insurers to lower the cost of premiums for all members.

There is a proposed rule to discontinue this practice and offer rebates at the point-of-sale directly to consumers.

PBMs are accused of being the middlemen which are pocketing too much money through administrative fees and rebates.

"People tell me the whole system is rigged against them," said Senate Finance Committee Ranking Member Ron Wyden.

The executives said they pass on all of the rebate money, and that the new rule does not solve the drug affordability problem.

Rebates mitigate, rather than cause drug prices to increase, said John Prince, Chief Executive Officer, OptumRx.

Senator Debbie Stabenow said PBMs are bad negotiators given the Veterans Administration can get 40 percent less on the price of drugs.

Miller said the VA limits its formulary, while the PBMs offer consumers more choice.

Managed formularies can lower prices, Rice agreed.

Stabenow suggested prices could be lowered by having states or the federal government as negotiators.

Payments for drugs go through the PBM from plan sponsors to pharmacies that dispense the prescriptions. The difference between what goes in and what goes out is the spread. Spread pricing is a calculation on the difference.

"Spread pricing is a rip-off," Wyden said. "PBMs pay a set price to a pharmacy and then turns around and charged Medicare and Medicaid many times more for that prescription; that is plain old price gouging."

Wyden wanted a commitment from the PBMs to support a ban on spread pricing in Medicare and Medicaid should Congress propose the legislation.

Three supported it outright: Rice, Fleming and Mike Kolar, interim president and CEO, senior VP and general counsel of Prime Therapeutics. Prince said he was neutral on it and Miller, who said in limited cases Cigna\Express Scripts engages in spread pricing said, "Yes, if it comes to market standard, we will support it."

The executives were asked about the practice of demanding drug manufacturers give them advance notice - in some cases up to two years - if they lower their drug prices and also demand rebates not diminish during that time.

Prince said OptumRx has asked that of manufacturers; the rest said no. In technical legal contracts, clients need time as they submit bids in June for the following year, Prince said.

The executives were asked to submit, in writing the total dollar amount they get from manufacturers and total amount they remit to health plans.

Committee Chairman Chuck Grassley gave a deadline of Tuesday, April 23, for further written questions.

This was the third hearing on drug pricing held by the committee. 

Twitter: @SusanJMorse
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