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PBMs, PhRMA trade blame over drug costs in House hearing

Members of the House Oversight and Accountability Committee skewered the head of the major pharmacy benefit manager lobby in a hearing on Tuesday over PBMs’ role in rising drug costs, including practices like rebates and spread pricing, as Congress inches closer to enacting legislation to reform the industry.

PBM business practices are a “scam,” said Rep. Stephen Lynch, D-Mass.

“It’s absolutely maddening and I think we have an area here, Mr. Chairman, where we can actually work together and have some bipartisanship,” Lynch said.

The House Oversight and Accountability Committee is one of several government entities currently conducting an investigation into PBMs.

It’s the committee’s second hearing into the middlemen, and the first to include representatives of both PBMs and drugmakers — both of whom attempted to pin the blame for problems in the U.S. drug supply chain on each other. 

Though PBMs received the brunt of legislators’ criticism during the more than three-hour hearing, pharmaceutical manufacturers did not escape unscathed.

“The big picture here is a lot of fingerpointing,” Rep. Robert Garcia, D-Calif., said. “Both Big Pharma and PBMs are at fault.”

Trading blame

PBMs — the middlemen that negotiate rebates and fees with drugmakers, create formularies and reimburse pharmacies for prescriptions — have been on the defensive amid rising criticism for their role in rising healthcare costs.

On Tuesday, legislators on both sides of the aisle expressed concerns about PBMs’ opaque contracts and controversial business practices.

A major focus of the hearing was rebate arrangements, where drugmakers pay PBMs to have their medications placed on a favorable tier of the formulary. Multiple witnesses testified the rebate structure incentivizes PBMs to prefer drugs with higher list prices, resulting in higher consumer costs.

J.C. Scott, president and CEO of the PBM lobby, the Pharmaceutical Care Management Association, argued that drugmakers continue to hike medication prices regardless of rebates.

PBMs only retain 6% of the drug dollar, while manufacturers retain 65%, Scott said, citing a study backed by the PCMA.

In addition, PBMs pass through most savings to plan sponsors and employers — which are under no obligation to hire a PBM in the first place, Scott said.

“Efforts to lower drug costs must start with an understanding that prices are set by drug companies. When a drug company sets its initial price, that dictates cost throughout the supply chain,” Scott said.

Lori Reilly, chief operating officer of powerful pharmaceutical manufacturer lobby PhRMA, countered that the 6% figure cited by Scott doesn’t take into account the profits PBMs receive from specialty pharmacies.

PBMs limit patients’ ability to access affordable medicines because preferring drugs with higher list prices makes them more money, and PBMs rarely pass negotiated discounts down to patients, Reilly argued. She cited a recent Government Accountability Office report that found Medicare patients paid more than the insurer for 79 of the top 100 drugs.

“While it is true our companies set the list price of the medicine, PBMs are responsible for setting terms of coverage and access and cost sharing that patients have, and their preferences do matter,” Reilly testified.

Craig Burton, executive director of the Biosimilars Council, testified that PBMs frequently restrict access to low-cost generic and biosimilar medications by not including them on formularies because of financial incentives pushing them toward high-price brands.

Even when generics are covered, they can still result in higher costs for consumers, according to a Wall Street Journal article published last week cited by multiple lawmakers in the hearing.

The article found that PBMs overcharge on generic drugs by thousands of dollars when patients fill prescriptions at in-house pharmacies, allowing them to profit from the higher prices.

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