How the Legislative, Regulatory Landscape Impact PBMs

Experts recently broke down the impact of the legislative and regulatory environment on PBM business during a session at PCMA 2019, and in an exclusive interview with First Report Managed Care, Jake Frenz, CEO of SmithRx, shares his views regarding Congress and PBMs. 

At PCMA 2019, Ian Spatz, senior advisor at Manatt Health, moderated a session entitled, “Assessing the Legislative and Regulatory Environment’s Impact on our Business.” Speaking at this session was:

• Alex Brill, resident fellow at American Enterprise Institute;
• Jamey Millar, senior vice president of U.S. Managed Markets and Government Affairs at GlaxoSmithKline; and,
• Natalie Pons, general counsel at OptumRx.

This conference is tailored to become part of executive business strategies, and it offers value to PBMs, specialty pharmacy, and pharma industry executives. The key issues currently facing the health care industry today include pharmaceutical innovation, affordability, access, and value.  

Similar to this session at PCMA 2019, Jake Frenz, CEO of SmithRx, recently shared his views regarding Congress and PBMs with First Report Managed Care. 

Earlier this year, the major PBMs testified on Capitol Hill. In short, they said lack of transparency is not the problem. Do you agree with that?

I disagree. The lack of transparency is part of the problem. What we saw from the PBMs during those hearings was what amounts to a shell game and the blame game. I was hoping the hearings would turn out to be a watershed moment, but that did not happen. With that said, I give the senators a lot of credit. They’re making larger strides now than they have in years. There was a time where the focus was elsewhere. The makers of oxycontin, EpiPen, and others were brought in front of Congress, and rightfully so. But PBMs were never questioned in this way. 

Now, finally, both drug manufacturers and PBMs are being held accountable. This is really good progress. They are acknowledging the problem, and it appears to be bipartisan.

Nonetheless, do you see progress from the congressional hearings? 

I do. There were certainly soundbite moments, but I think the senators asked really thoughtful questions. Things are moving in the right direction. They’re starting to peel back the layers. I would encourage them to continue to push. The harder they push, the more that is going to be uncovered. 

It’s a matter of getting down to the granular economics, the incentive mechanisms in place. We’ve got to figure out where the money’s flowing, and try to figure out how you can drive a more efficient market. Washington needs to think about anti-kickback statutes that it can push on to start creating change. I fully support that. It should be as broad as possible. 

Can you give a concrete example of where the unknown inner-workings serve as a detriment? 

Sure. You may recall that Merck announced that its hepatitis C treatment, Zepatier, launched with a lower list price and therefore would not carry the same level of rebate offered by predecessors like Sovaldi or Viekira Pak. Meanwhile, a competing medication, Vieira Pak, went on the market with high rebates. Guess which medicine was more successful in getting on formularies? Vieira Pak. This unnecessary and unseen complexity ends up hurting the patient at the pharmacy.  

Much attention in the PBM hearings went to spread pricing, where PBMs charge one amount to health plans for a medication, reimburse pharmacies a lower amount, and keep the difference. Some think that the days of spread-pricing appear to be over. Do you agree with that?

No, and I don’t see spread pricing as necessarily nefarious. PBMs make money through spread pricing and rebates. That’s fine as long as it’s disclosed. When you look at the supply chain, you see a wholesale acquisition cost. From there, there is a markup—a reasonable amount of margin, or spread—that serves as the PBM’s source of revenue. That’s fine, as long as it’s transparent and follows guidelines and regulations. 

So, are you saying it’s less about the tactic, itself, and more about full disclosure, providing stakeholders a view into what the amount is and how it was arrived at? 

Exactly. The problem is that it is a secret number, and it’s based on a target that keeps on moving. Eventually PBMs look at it as an allowance. That’s why we need verifiable evidence that certain costs are being contained. We can come up with that data today, but it is staying hidden and it’s increasing at a rate that far outpaces other cost increases. 

Meanwhile, in the executive branch, the Trump administration first proposed requiring rebates go to patients at the point of sale in the pharmacy, rather than be distributed to other stakeholders. Then it reversed course. What do you make of that? 

I’m disappointed that [the administration] took the 100% pass-through Medicare rebates off the table. I thought this could have been a very meaningful move that impacted seniors positively in an immediate, direct way. Not only that, I think it should have been extended to the commercial side, as well. It would have caused more layers of the onion to be peeled back as it uncovered the inner-workings of the relationship that exists I between the manufacturers, PBMs, and payers. 

Let’s pretend you are running changes in Washington, DC. What would you do next? 

Congressional oversight needs to continue. Keep bringing in the key players to answer questions until you start seeing results. Build up bipartisan support and pass meaningful legislation. 

Beyond that, I’d like to see the federal government turn over more control to the states. Medicaid is a great example. States are requesting more control over drug benefits. Massachusetts is at the forefront and doing a phenomenal job. Ohio, Mississippi, Tennessee, and North Carolina, are all very progressive states that want more control. Give it to them. 

To read the entire interview with Mr Frenz, click here.