“If one PBM won’t give it to them, they’ll get it from an­other PBM”

Modern Healthcare - - Q & A -

Some drug in­dus­try of­fi­cials have tried to shift blame for ris­ing re­tail drug prices to phar­macy ben­e­fit man­agers,

who are hired by in­sur­ers, em­ploy­ers, unions and govern­ments to ne­go­ti­ate prices and es­tab­lish for­mu­la­ries. Con­sol­i­da­tion among PBMs left just a hand­ful of pow­er­ful play­ers, and even the Medi­care Pay­ment Ad­vi­sory Com­mis­sion has lamented there is “a real com­plex­ity in how PBMs op­er­ate and where they get their rev­enues.”

Mod­ern Health­care Mid­west Bureau Chief Bob Her­man re­cently in­ter­viewed Mark Mer­ritt, CEO of the Phar­ma­ceu­ti­cal Care Man­age­ment As­so­ci­a­tion, the PBM in­dus­try trade group, to get his take on the is­sues. The fol­low­ing is an edited ex­cerpt.

Mod­ern Health­care: Is there is enough com­pe­ti­tion in the PBM in­dus­try?

Mark Mer­ritt: I think there’s been con­sol­i­da­tion across the health­care space, start­ing with providers. And cer­tainly pay­ers have wanted to make sure that they can com­pete and ne­go­ti­ate ef­fec­tively with an in­creas­ingly con­sol­i­dated provider mar­ket. So you’ve seen with in­sur­ers and phar­macy ben­e­fit man­agers an em­pha­sis on gen­er­at­ing scale: scale to ne­go­ti­ate dis­counts, scale to ne­go­ti­ate ef­fec­tively with drug man­u­fac­tur­ers that of­ten ne­go­ti­ate not just na­tion­ally, but in­ter­na­tion­ally.

You need to be big enough to be able to gen­er­ate the dis­counts and have enough mar­ket share to re­ally give pay­ers the lever­age they need in this mar­ket­place. For­tu­nately, the Fed­eral Trade Com­mis­sion reg­u­larly looks at this and has said there is abun­dant com­pe­ti­tion among PBMs.

MH: What’s your view right now of merg­ers among phar­ma­ceu­ti­cal com­pa­nies?

Mer­ritt: I won’t say it’s im­ma­te­rial to us be­cause we have to have the same busi­ness strat­egy re­gard­less. But cer­tainly, as man­u­fac­tur­ers get larger, we need to get larger, too, to com­pete with them and make sure that we have enough mar­ket share to drive the value that our clients want and that pa­tients need.

MH: But do you think there is a point where a player be­comes too big, ei­ther on the pharma side or the PBM side?

Mer­ritt: With man­u­fac­tur­ers, they have monopoly pric­ing for brand drugs, at least for a pe­riod of time, so I think that’s the big­ger is­sue that keeps prices high. We’re sup­port­ive of patent pro­tec­tions for drug man­u­fac­tur­ers. But we’re also sup­port­ive of get­ting gener­ics to mar­ket as fast as pos­si­ble and get­ting biosim­i­lars to mar­ket as fast as pos­si­ble to com­pete with them.

MH: Drug­mak­ers have been rais­ing prices on their drugs by a lot over the past sev­eral years. The prac­tice has been con­demned uni­ver­sally. How much pres­sure have PBMs been ap­ply­ing to kind of keep prices in check?

Mer­ritt: Cer­tainly pay­ers are very con­cerned about brand drug price in­creases. It’s been a sig­nif­i­cant is­sue. Pay­ers are tak­ing a closer look at their for­mu­la­ries to make sure that the most af­ford­able op­tions are on the for­mu­lary. In many cases, the for­mu­la­ries are be­ing al­tered if pay­ers have a sense that a drug is un­rea­son­ably priced and there are other al­ter­na­tives in the mar­ket.

Com­pe­ti­tion is the key here. And the more com­pe­ti­tion there is for each high-priced prod­uct, the harder it is for man­u­fac­tur­ers to keep the prices ar­ti­fi­cially high. The mar­ket­places won’t de­mand it.

MH: Are PBMs still see­ing prices for gener­ics go­ing up just as much as the brand­name drugs? What are PBMs do­ing to com­bat that?

Mer­ritt: I tes­ti­fied be­fore Congress nu­mer­ous times on that very is­sue, in­clud­ing with Martin Shkreli of Tur­ing, be­cause we had been the most vo­cal against that prac­tice of buy­ing a generic or an old brand drug that doesn’t have a huge mar­ket share, that doesn’t have any com­peti­tors, and just buy­ing the drug for the ex­clu­sive pur­pose of rais­ing prices.

The two big­gest abusers of that, Tur­ing and Valeant, have both seen their stocks spi­ral down­wards be­cause the busi­ness model they had built and sold to in­vestors—that they could

“These are the largest, most so­phis­ti­cated health pur­chasers in the world that we deal with.”

“The busi­ness model they had built and sold to in­vestors—that they could just buy drugs and raise their prices—proved to be un­sus­tain­able.”

just buy drugs and raise their prices—proved to be un­sus­tain­able. Some of our com­pa­nies have found com­pounded drug op­tions and other more af­ford­able op­tions where we can sim­ply cut some of the ex­tremely high-priced drugs out of the for­mu­lary be­cause more af­ford­able op­tions are avail­able.

But gen­er­ally, with gener­ics, you need so­lu­tions from the Food and Drug Ad­min­is­tra­tion. You need faster generic ap­provals.

MH: It seems like there is still an un­clear no­tion of how PBMs make money and what ne­go­ti­a­tions are like with drug com­pa­nies. Why isn’t there more trans­parency be­hind re­bates and so-called spreads?

Mer­ritt: It’s im­por­tant to re­al­ize that the phar­ma­ceu­ti­cal ben­e­fits mar­ket­place is still rel­a­tively new. Twenty-five years ago, peo­ple didn’t even have phar­macy ben­e­fits be­cause there weren’t a whole lot of brand drugs in the mar­ket that were truly won­der drugs that solved ma­jor na­tional health crises.

We ne­go­ti­ate price con­ces­sions with drug man­u­fac­tur­ers if they want ac­cess to a for­mu­lary, and there are sev­eral com­peti­tors that have the same ef­fi­cacy. Drug com­pa­nies are go­ing to have to ne­go­ti­ate—they’re go­ing to have to com­pete against each other on price—and the ones that of­fer the best price con­ces­sions are the ones that are go­ing to get the best for­mu­lary place­ment: pre­ferred sta­tus on a for­mu­lary with lower co­pays, some­times no co­pay.

Drug com­pa­nies that of­fer less se­ri­ous dis­counts are go­ing to find them­selves with big­ger co­pays or some­times not even on the for­mu­lary, de­pend­ing on what the payer wants to do. So, I think when you look at re­bates, a lot is made out of that, but they are the nor­mal dis­counts and price con­ces­sions that ev­ery busi­ness uses. It’s just say­ing, “Hey, look, if you want ac­cess to this par­tic­u­lar mar­ket­place, you’ve got to give us a rea­son­able price, and if you don’t, we’re go­ing to go to your com­peti­tors.” And that’s re­ally all it is.

I think there’s been a mythol­ogy out there that there’s this huge de­mand for trans­parency among pay­ers, when, in fact, these are the largest, most so­phis­ti­cated health pur­chasers in the world that we deal with. We’re deal­ing with the big in­sur­ers, the big gov­ern­ment pro­grams. These guys get what­ever they want, and if one PBM won’t give it to them, they’ll get it from an­other PBM.

In the end, you have to re­al­ize that none of these com­pa­nies have to hire a PBM in the first place. The only rea­son they do is be­cause PBMs are de­liv­er­ing value. And if they weren’t de­liv­er­ing big-time sav­ings, then none of these For­tune 500 com­pa­nies would be giv­ing PBMs the time of day.

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