What the IRA could mean for PBMs

What the Inflation Reduction Act means for PBMsTimes of News

This is a strange little article trying to fill a gap in knowledge. The italicized sentences are mine. It does make some sound points on PBMs so I kept it. If you can get into Seeking Alpha or Modern Healthcare, you may find a better version.

The sweeping law President Joe Biden enacted Tuesday offers relief to some prescription drug users. However, the pharmacy benefit managers now playing a key role in how much patients pay for medicines will mostly carry on as usual.

PBMs will only be with commercial Healthcare insurance. One has to wonder why Congress did not allow Medicare to use the VA formulary?

The Inflation Reduction Act limits drug companies and pharmacy benefit managers from charging rates on select Medicare drugs thereby allowing them to pocket high rebates. But it mostly spares the pharmaceutical middlemen, who have self-serving business practices including a lack of transparency, from major changes due to the new act.

Part of the new $740 billion law aims to bring down drug costs for medicare patients. It allows the government to negotiate the prices of 10 medications under Medicare Part D drugs starting in 2026, 15 per year beginning in 2027, and 20 per year starting in 2029.

Which ten drugs? Start with Insulin which is overpriced, Epipens, Daraprim, Humira, etc.? What is the relationship between costs and prices, heh? We need to know cost in order to judge price fairness.

Medicare’s authority to negotiate drug prices is clearly an “indictment” of PBMs, which are supposed to manage costs for Medicare Part D enrollees. Antonio Ciaccia, president of 3 Axis Advisors. Government officials:

“through PBM actions, we are saying, ‘You guys, are not cutting it, and we can do better.’ So from a PBM perspective, I think that this, in some ways, undercuts their value,”

PBMs will still hold great sway over prescription drug prices for those outside of Medicare. The IRA further delays a 2019 regulation eliminating safe harbor protections for Medicare Part D rebates until 2032.

The Pharmaceutical Care Management Association, which represents PBMs, praised the law for postponing the rebate. Once again, the blame for high drug prices is passed off to pharmaceutical companies and health insurers.

“The sad reality is that, rather than focus on how to ensure every American can access affordable coverage and high-quality healthcare, the finger pointing is in full swing in Washington with big pharma blaming PBMs and insurers for prices only they can set.”

PBMs likely see the passage of the new law as a victory, said Lindsay Bealor Greenleaf, vice president of policy and reimbursement at the consulting firm ADVI Health. Although the statute encroaches on their Medicare Part D operations, it doesn’t change anything about what PBMs do in other markets, such as employer-sponsored health insurance. And PBMs will continue to dictate what drugs make it onto insurers’ formularies and how much pharmacies get paid for dispensing medicines. She said.

“They’re spared in this because there’s nothing that changes their business model or their ability to operate on a rebate system. There is nothing requiring the transparency of PBMs.”

Even losing a sliver of the Medicare Part D market won’t hurt Pharmacy Benefit Managers, who are capable of making up for lost revenue elsewhere. Greenleaf said.

“PBMs are crafty at coming up with new revenue streams and coming up with new fees that you know, look and smell like rebates or something else.”

Why do PBMs exist independent of pharmaceutical companies and insurance companies? Mostly PBMs exist to set pricing and Tiers and leaving the formulary insurance and pharma alone.

Associate Director at University of Southern California-Brookings Schaeffer Initiative for Health Policy in an email.;

“If PBMs could squeeze additional revenue from the commercial market, they would already be doing it. he wrote in an email. It would have to be the case PBMs holding bargaining leverage they choose not to use at present, even though using that leverage would make them more money.”

Laura Martin Dillon, Washington Council Ernst Young’s Senior Manager,

The IRA could have some spillover effects on the commercial market, however, employers worry drugmakers will make up for lower Medicare Part D prices by raising costs on job-based insurance.

The true effects will depend on what specific drugs the Health and Human Services Department chooses for direct negotiations. The agency is likely to select some of the most expensive medications. Those drugs typically face little to no competition. They offer meager rebate opportunities for PBMs and losing them won’t affect the companies much.  Antonio Ciaccia, of 3 Axis Advisors:

While the Inflation Reduction Act may not transform the pharmacy benefit manager industry, these companies will continue to face scrutiny. 

The Federal Trade Commission launched an inquiry into the consolidated industry in June. The agency is investigating how Pharmacy Benefit Managers are shaping the prescription drug market. In particular, given how little competition exists in the market. During the same month, the Senate Commerce Committee advanced the bipartisan Pharmacy Benefit Manager Transparency Act of 2022, banning the industry from profiteering on spread pricing and claw backs.

This is a business which has grown up between pharma manufacturing, distribution, retail, and insurance companies. I wonder how Congress is going to know prices versus costs. Europe has similar issues with negotiating prices. We have a tendency to interchange the words prices and costs as if they mean the same thing. They do not.

Article original source: https://www.modernhealthcare.com/politics-policy/what-inflation-reduction-act-means-pbms

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