3 ways Rx "middlemen" may have to reform

In his speech last week vowing to lower prescription drug costs, President Trump trained his fire on a particular target: "middlemen." He said: "Whoever those middlemen were -- a lot of people never even figured it out -- they're rich. They won't be so rich anymore."

But if you have health insurance or Medicare Part D drug coverage, you very likely know who these middlemen are. In fact you're probably carrying a prescription drug coverage card in your wallet right now, along with your insurance or Medicare card.

What's far less clear, however, is how these middlemen -- called pharmacy benefit managers (PBMs) -- operate and the effect they have on what consumers, particularly those on Medicare, pay at the drugstore counter. 

PBMs became popular decades ago as big insurance companies began to rely on them to manage their increasingly large and complicated drug coverage benefits. Now, the top three players in the PBM industry -- Express Script (ESRX), CVS Health (CVS) and Optum Rx, owned by giant insurer United Health (UNH) -- control 80 percent of the PBM market. That gives them an enormous amount of leverage over what drugs consumers get access to and the prices they pay.

PBMs are in the Trump administration's spotlight because they negotiate directly with the pharmaceutical companies for rebates on list prices in exchange for including those companies' drugs on the PBMs' lists of covered medicines. This list is often called a formulary. 

PBMs aren't required to pass on these discounts to either insurance plans or the consumer. As a result, pharmaceutical companies and many experts blame a good chunk (but certainly not all) of the skyrocketing drug price problem on PBMs.

Initial reactions to Trump's speech last week rightly pointed out that the administration's plan for lowering drug prices wouldn't take particularly bold or immediate actions to lower drug prices and would leave PBMs and pharmaceutical drug companies basically unscathed. In fact, stock prices for PBMs and pharmaceutical companies generally rose after the announcement.

But a closer look at the blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs released after the speech and previous moves on the part of the Centers for Medicare and Medicaid Services (CMS) shows three proposed changes that might at least benefit Medicare Part D consumers -- in some cases, fairly quickly, according to Marc Samuels, founder of ADVI Health and former White House health policy adviser for President George H.W. Bush.

Change the definition of negotiated prices

Currently under Medicare Part D rules, negotiated price means the manufacturer's list price. It doesn't include any rebates negotiated by the PBM. As a result, when you pay for a prescription, your co-pay is determined by the drug's list price, not the price your Medicare Part D PBM is paying.

Last year, CMS proposed a rule change that would define the negotiated price as the price including all rebates or a percentage of rebates. If the proposal goes through, Medicare recipients would likely pay much less in co-pays because their cost sharing would be calculated on the basis of the discounted drug prices, Samuels said.

Change the kickback rules

Some experts argue that the rebates PBMs collect in exchange for including a drug in their formulary amounts to nothing less than a kickback. But Medicare rules exempt rebates from being considered as kickbacks. CMS is looking into making changes to that rule, said Samuels.

Change the gag rules

Drug pricing is so crazy that it's not unusual for a Medicare Part D patient to end up paying more for a drug co-pay under insurance than she would have paid out of pocket. But current rules prohibit pharmacists from telling a patient about this. The administration's blueprint would prohibit this practice.