Benefit managers grilled on whether business practices drive up drug prices

Executives of the nation's largest pharmaceutical benefit managers, including two based in the Twin Cities, faced tough questions Tuesday from the U.S. Senate Finance Committee about whether their business practices are inflating — rather than helping control — consumer medicine prices.

In recent years, some state Medicaid programs and employer groups have questioned whether the companies, which are known as PBMs, are passing along the savings they generate via rebates from manufacturers and the prices they set with pharmacies.

One allegation is that PBMs steer patients to higher-priced drugs in some cases, because those choices generate bigger rebates that can enrich the management companies.

"The current system is so opaque that it's easy to see why there are many questions about PBMs' motives and practices," said committee chairman Sen. Chuck Grassley, R-Iowa. "Some even argue that PBMs force drug companies to raise their list price."

The executives argued they pass along the value of rebates to help make drugs affordable, and they highlighted a number of measures they said are being taken by the industry to control drug prices. The root of the problem is the price set by manufacturers, said John Prince, the chief executive of OptumRx, which is the PBM at Minnetonka-based UnitedHealth Group.

"List prices have increased in the 20 most prescribed drugs by average of 12 percent each of the past five years," Prince said. He was joined by four other PBM executives including Mike Kolar, the interim president and CEO at Eagan-based Prime Therapeutics.

Health insurers, states and employers hire PBMs to manage the drug-coverage portion of health plan benefits. OptumRx is the PBM for UnitedHealthcare, which is the nation's largest health insurer, as well as other health plans. Prime Therapeutics is the PBM for Eagan-based Blue Cross and Blue Shield of Minnesota, as well as other health insurers that use the Blue brand.

PBMs negotiate prices with drug manufacturers and create formularies that specify how much patients pay out-of-pocket for different medicines. The companies also create networks of pharmacies where subscribers can get prescriptions filled — sometimes with incentives to use one pharmacy over another.

In February, the Senate Finance Committee called drug-company executives to Washington D.C. for a similar hearing on the growing cost of prescription medicines. Sen. Ron Wyden, D-Ore., said his constituents feel the current system for setting drug prices is "rigged."

"They look at the drug companies, the middlemen, the insurance companies and they say: 'They're just a bunch of health care corporations scratching each other's backs and keeping our prices up and taking advantage of us,' " said Wyden, who is the ranking Democrat on the committee.

Earlier this year, the Trump administration proposed eliminating the rebates negotiated by PBMs, saying manufacturers attributed rising drug prices to the growing demand for rebates from PBMs.

But Kolar of Prime Therapeutics told the Senate committee that "rebates are a powerful tool to offset high prices, which are set by pharmaceutical companies — and pharmaceutical companies alone. … Rebates are a key to mitigating rather than causing high drug prices."

OptumRx is moving toward "point-of-sale" rebates to make sure individual consumers at the pharmacy counter see the savings, Prince noted. Currently, PBMs say they pass the value of rebates to the health plan, which can opt to share savings in different ways such as lowering premiums for all enrollees.

Sen. Todd Young, R-Ind., said some stakeholders have called on PBMs simply to disclose the value of negotiated rebates, and he asked whether such a requirement would cause a "race to the top or race to the bottom" with drug prices. Prince replied that such transparency to the broader market would hurt OptumRx's ability to negotiate lower prices.

"Our clients have audit rights to actually look at our rebate contracts … to look at line-item detail on how much we get and tie it back to their contracts," he said. "So we have transparency to who hires us."

Rebates were just one of the business practices questioned on Tuesday by senators. Wyden took issue with "spread pricing" policies, where PBMs reimburse pharmacies for medications but then charge state Medicaid programs and health plan customers a higher price for the same drugs.

"In my view, it's as clear a middleman rip-off as you're going to find," Wyden said.

Four PBM executives testified their companies do use spread pricing, saying it's simply a way customers can elect to pay for the PBM's services. "It's a client choice," said Prince of UnitedHealth Group's OptumRx business.

But Kolar of Prime Therapeutics said: "We are focused on creating savings for our plans and not margins. We do not engage in spread pricing as part of our business model."

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck