Drug deals

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NICK EICHER, HOST: It’s The World and Everything in It from WORLD Radio, celebrating 15 years. Today is Tuesday the 3rd of November.

Thanks for making us part of your morning routine. Good morning. I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard.

First up: new federal rules targeting the middlemen in prescription drug pricing.

The Labor Department wants more transparency from so-called PBMs, pharmacy benefit managers. PBMs negotiate drug prices for employers and insurers.

EICHER: But how much value do these middlemen deliver, and at what cost? WORLD’s Mary Muncy reports.

MARY MUNCY: Chris Hobart is a pharmacist and pharmacy owner in Texas.

HOBART: My patients love my pharmacy. I know them by name… I give them recommendations. They call me and ask me questions. I work with their doctors if the medicine's too expensive.

He’s also an executive board member for Pharmacists United for Truth and Transparency, a watchdog group against pharmacy benefit managers. He thinks the current laws regulating PBMs hurt his business.

HOBART: They offer us worse terms than their pharmacies.

PBMs bill themselves as wholesale buyers, working with insurance companies, employers, and government drug plans. They negotiate a lower price from drug manufacturers by buying in bulk. Then they pass those savings on to the companies they work with. PBMs say they keep a small profit for themselves. Hobart thinks that margin is higher than they say.

HOBART: I've negotiated with these PBMs to get better rates. They don't. I've tried to use middlemen to them to get better rates. And there's no way on earth I ever get as good a rate as the pharmacies that they're affiliated with.

Hobart’s pharmacy is independent, and the three biggest PBMs in the U.S. have their own pharmacies. Hobart thinks PBMs favor the pharmacies they own. Meaning sometimes Hobart’s patients can’t come to his pharmacy because he’s out of network, and if they are able to come, his patients may have to pay more, and the PBM doesn’t pay him as much as they would their own pharmacist.

In one instance, Hobart and a patient petitioned for information about how his drug was priced. Hobart says at his pharmacy, the patient paid about $10 for it, and the insurance company paid Hobart $30 for it.

The same prescription at a PBM’s mail-order pharmacy cost the patient $20, and the pharmacy was paid $80. Meaning Hobart’s pharmacy was paid $50 less for the same medication.

HOBART: In Texas and a lot of other states, we have laws that say PBMs are not allowed to pay their affiliated pharmacies more than their competition. It's very hard to enforce that.

Now, the Labor Department will require more transparency. PBMs, their brokers, and their consultants must tell large employers with self-insured group health plans what the PBMs fees and compensation are on a given deal. If they don’t give employers the information, PBMs could be fined.

The department says the plan could lower prescription drug costs for health care plans by as much as 22 billion dollars over ten years.

Hobart thinks the new laws will enable insurers to hold PBMs accountable.

Domestic Policy Council Director Vince Haley.

HALEY: The logic is clear: better information gives purchasers a better chance to get better terms.

But some people think if the changes do anything it will be raising drug prices.

NIGHOHOSSIAN: PBMs are one of, one of the most opaque sectors, probably in the in the in the economy, and that's largely because they are serving as a middleman.

Jeremy Nighohossian is a senior fellow and economist at the Competitive Enterprise Institute focusing on healthcare policy.

He says PBMs try to lower drug prices by pitting pharmacy against pharmacy and manufacturer against manufacturer.

NIGHOHOSSIAN: And sometimes this also leads to contractual terms that are relatively beneficial to the PBM and harmful to the pharmacist because the pharmacist wants the most money for its product.

The Labor Department hopes the new regulations will curb what’s called “spread pricing.” That’s when an insurance company pays the PBM a higher price for a drug than the PBM pays the pharmacy. But Nighossian says spread pricing has gotten a bad rap.

NIGHOHOSSIAN: In every other industry, we just call that a profit margin, right? In every other industry, you just say like, "Oh, whatever I'm buying for this car, if I'm buying it from a dealer, the dealer didn't pay that much for the car,” right? They just paid their costs.

He also thinks the plan calls for more transparency than is necessary… If employers know the price for them, their employees, and whether the PBM is fulfilling their contract…that’s enough. He says the added requirements will increase administrative costs.

But inside the industry, pharmacist Hobart thinks these laws will enable him to better help his patients.

HOBART: We're going to be able to see where all this money is really going… So it's great that this new law is here to finally shine a light on that and make it required to shine a light on that.

The new rules go into effect this summer.

Reporting for WORLD, I’m Mary Muncy.

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