New rule will bring down drug costs by forcing competition, Ohio expert says

An Ohio drug-pricing expert said it was a game changer when U.S. Labor Department officials announced in late October a new rule forcing pharmacy middlemen to show big employers how they make their money.

An industry group for the middlemen said it might only make prescription drugs more expensive.

The Columbus-based expert, Antonio Ciaccia, has advocated for years to force more transparency on the middlemen, known as pharmacy benefit managers or PBMs.

As state legislatures and health agencies have passed laws aimed at shedding light on the practices of the big PBMs, which are part of huge health conglomerates, PBMs simply changed tactics, Ciaccia said.

“This ends the game of whack-a-mole,” he said during a panel discussion that was part of the announcement at the Labor Department in Washington, D.C.

“It says you can’t hide the ball anymore — that transparency is finally going to be a given for the employer. This is not another instance where the government is creating another program… This is a solution given to employers to finally control their own destinies.”

The PBM industry group, the Pharmaceutical Care Management Association, said adequate transparency rules already exist.

“Patients, employers, and unions will have no new meaningful transparency from this action, but prescription drug benefits will now be more expensive,” David Marin, president and CEO of the group said in a written statement.

The Labor Department is finalizing a new rule that requires those in charge of large employers’ self-insured health plans to seek detailed information about how PBMs make their money so the plans can be smart shoppers for their services. It also requires PBMs to turn over that information.

“Wherever there’s a dark corner, somebody’s making money,” Mehmet Oz, administrator of the U.S. Centers for Medicare and Medicaid Services, said of the need for transparency.

PBMs sit in the middle of prescription-drug transactions. They work on behalf of insurers and contract with drugmakers and pharmacies.

PBMs often extract rebates from makers of patented drugs in exchange for covering them. They use a dizzying array of nontransparent price lists to decide how much to reimburse pharmacies that dispense drugs.

The big three PBMs — CVS Caremark, OptumRx and Express Scripts — collectively control 80% of insured drug transactions in the United States. Each also is part of a Fortune 15 health conglomerate that also owns a top 10 health insurer.

Critics say the companies’ dual roles as payer and payee in millions of drug transactions create clear conflicts that drive up prices and drive non-PBM-owned pharmacies out of business.

Critics also say that the rebate system creates a motive to inflate drug prices by giving PBMs a motive to prefer more expensive drugs — for which drugmakers are willing to give bigger rebates — over cheaper ones that serve the same medical purpose. 

Because part of those rebates flow back to companies with self-insured plans, they can seem like a good deal to executives who have little visibility into transactions PBMs are making on their behalf, said Assistant Secretary of Labor Daniel Aronowitz. 

“The word ‘rebate’ makes everyone feel good — money coming back, savings,” he said. “But before anyone around the conference table celebrates, someone needs to ask, what did the plan and our workers pay to get it? A rebate tells you how much money came back. It does not tell you if the price was reasonable in the first place or what your workers paid at the pharmacy counter.”

Aronowitz added, “If a car dealer offered you a generous rebate, you would still want to know the price of the car.”

The new Labor Department rule requires PBMs to disclose all their sources of money prior to entering into or renewing contracts with large, self-insured plans covered under the Employee Retirement Income Security Act of 1974. It also requires them to make semiannual disclosures and to allow those plans to audit PBMs’ books.

The rule doesn’t begin to apply to all insurance arrangements. But with 136 million Americans covered by the rule, the changes are likely to influence the rest of the marketplace. 

It also requires the plans’ “fiduciaries” — executives responsible for getting the best deal for their workers — to use the new tools to make sure they are. Not only does overpaying for drugs make the plans more expensive, it jacks up workers’ out-of-pocket costs at the pharmacy counter.

“The cost is not a rounding error,” Aronowitz said. “A cholesterol drug for which the pharmacy receives $5.25 can be billed to the plan at $84 — 16 times the price. Multiply that across thousands of prescriptions a year. That is money that can support better health benefits, lower premiums or higher wages.”

Marin of the PBM industry group said he was concerned the new rule “will lead to higher patient costs and less competition, the opposite of the (Labor) Department’s stated intent.”

He also said that it created no additional transparency. Even so, he seemed to hint that the industry might sue.

“We are committed to protecting patients, employers, and unions from the consequences of unnecessary and expensive regulatory overreach, and we will evaluate available pathways to do so,” Marin said.

Ciaccia, the Columbus-based drug-pricing expert, said the rule will provide sorely lacking transparency.

“I’ve been doing this for over 10 years,” he said. “We helped Ohio uncover over $245 million in hidden spread pricing back in 2018. When we caught them, I would have told you this is going to change everything. They’re not going to be able to mark up these drugs anymore.”

But, Ciaccia said, what followed was a long game of cat-and-mouse.

“Now you’re going to be able to see (your PBM charged you) $22,000 for a drug that is being sold by an independent, cash-pay pharmacy for $300,” he said. “There are drugs where that’s literally happening. You cannot manage what you can’t measure. This gives you the ability to measure.”