Do prescription drug middlemen help keep prices high?

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• HARI SREENIVASAN:

  If you have health insurance, and it comes with a prescription drug plan, chances are, it's managed by something called a "pharmacy benefit manager." Most people aren't aware of how these pharmaceutical middlemen play a huge role in what prescription drugs you take — and the price you pay for them. As the nation grapples with soaring health care costs, the role pharmacy benefit managers play is attracting more scrutiny. NewsHour Weekend's Megan Thompson reports.

• MEGAN THOMPSON:

  A few years ago, Marc Falkowitz of Philadelphia volunteered to manage the affairs of his 91-year-old aunt. She had dementia and had moved into long-term care. So Falkowitz helps with things like paying for her prescription drugs.

• MARC FALKOWITZ:

  And the bill comes to me and I pay it out of her checking account.

• MEGAN THOMPSON:

  Last year, while picking up a prescription at a major drug chain, Falkowitz happened to be complaining about high drug prices, when the pharmacist gave him a tip.

• MARC FALKOWITZ:

  Pharmacist sort of came around the counter, and took me off to the side, and says, "You might find it cheaper somewhere else." "What? What? What could you mean?" you know?

• MEGAN THOMPSON:

  So Falkowitz did some research online. His aunt was taking eight drugs for things like dementia and high blood pressure. She was paying close to $103 in insurance copays for those drugs every month. Falkowitz found he could get those exact same drugs for $65, if he paid out of pocket at an independent pharmacy, not using his aunt's insurance plan at all. That's nearly 40 percent less. Falkowitz manages a medical practice and deals with insurance plans all the time. He says it was a total surprise.

• MARC FALKOWITZ:

  I– I– I just couldn't understand it. This is a foreign concept. Never did it dawn on me if you pay cash, do not submit to insurance, you save money. I pay all this money for insurance. What's it for?

• MEGAN THOMPSON:

  So why was Falkowitz paying nearly $103 for $65 worth of generic drugs? Where was that extra $38 going? One possibility is that the money went to what's known as a Pharmacy Benefit Manager, or PBM.

• MICHAEL CARRIER:

  PBMs are designed to help health plans and insurers manage prescription drugs.

• MEGAN THOMPSON:

  Rutgers Law School professor Michael Carrier is an expert on the pharmaceutical industry. He explains that PBMs act as middlemen between the insurance plans, drug makers and pharmacies. He says most consumers have no idea there's a PBM, not an insurance company, managing their prescription drug plans.

• MICHAEL CARRIER:

  There are three main PBMs that take up 85% of the market. You have Express Scripts, you have CVS Caremark, and you have OptumRX.

• MEGAN THOMPSON:

  The three big PBMs brought in more than $300 billion dollars in revenue last year. But Carrier says they began with a modest role in the industry.

• MICHAEL CARRIER:

  In the late '60s, early '70s, PBMs started in giving plastic drug cards to consumers so they could go to the pharmacy, they didn't have a trail of paper, it made it easier to get prescription drugs. Through the years though, they have gotten more and more power.

• HOWARD JACOBSON:

  If a patient has insurance, it's going through the PBMs.

• MEGAN THOMPSON:

  Howard Jacobson has been a pharmacist in Long Island, New York, for 40 years. He says the PBM dictates the amount of the copay he collects and how much he's reimbursed. And, he says a few years ago, he started noticing something strange on transactions every now and then. It's called a "clawback."

• HOWARD JACOBSON:

  So here's another claim. It's an inexpensive drug – you see the actual cost of the medicine is only a dollar 61.

• MEGAN THOMPSON:

  Jacobson showed us a recent transaction for the diabetes drug Metformin. It cost him $1.61 to acquire the prescribed amount of the drug. He says, if the patient paid out of pocket, he would have sold it to them for $4.00. His profit would have been $2.39. But the patient used an insurance plan, and there was a middleman- the PBM. It told Jacobson to charge a $10.84 copay it let him keep $1.93. And it took $8.91 for itself.

  So you could sell it to them for four dollars. Instead they paid a ten dollar and four cent copay.

• HOWARD JACOBSON:

  Right.

• MEGAN THOMPSON:

  But until recently, Jacobson couldn't bring this up unless the customer asked. He says that's because many of his contracts with the PBMs contained provisions- that prohibited him from pointing out that they could get their prescription cheaper if they didn't go through their insurance plan. Pharmacists call them "gag clauses."

• HOWARD JACOBSON:

  It was difficult, actually. We're dealing with patients every day. We know them personally. Why should anyone have to pay more money than is necessary?

• MEGAN THOMPSON:

  Jacobson says he's never really sure how much money he'll be reimbursed by the PBM- an amount that's been steadily decreasing over the years. He says sometimes, he actually loses money on a sale.

• HOWARD JACOBSON:

  I'm ultimately getting paid nine dollars and six cents. Now this particular drug actually cost me sixty dollars and change.

• HOWARD JACOBSON:

  I lost 50 dollars on that prescription.

• MEGAN THOMPSON:

  Jacobson says, so far, he makes enough profit on other transactions to keep the pharmacy afloat. He feels he can't object to the system because the big PBMs- which control a majority of the market will just tell him too bad.

• HOWARD JACOBSON:

  'If you want our patients in this particular network to be able to come to your pharmacy, these are the terms. Take 'em or leave 'em.'

• MEGAN THOMPSON:

  Pharmacists like Howard Jacobson aren't the only ones who are critical of PBMs.

• PRESIDENT TRUMP:

  We're very much eliminating the middlemen. The middlemen became very, very rich. Right?

• MEGAN THOMPSON:

  In May, President Trump announced his plan to lower prescription drug prices. He put many players in the crosshairs – drug makers, wholesalers, insurance companies and pbms. And he criticized a practice called, "rebates."

• PRESIDENT TRUMP:

  Our plan will end the dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients.

• MEGAN THOMPSON:

  So how do so-called rebates work? In addition to managing business involving consumers, pharmacies and insurance plan, PBMs also broker deals between drug makers and insurance plans. For instance, they help decide which drugs will be covered by the plan. The list of covered drugs is called a "formulary." In a bid to get a drug on a plan's formulary, drug companies sometimes pay pharmacy benefit managers. The payments are known in the business as "rebates" and they can total millions of dollars. PBMs say they pass most of this money on to insurers who say they use the money to lower copays and premiums for patients.

  Another issue that we've– been hearing a lot about, that the President has even been talking about, is something called rebates. That sounds like a good thing.

• MICHAEL CARRIER:

  So it certainly does sound like a good thing. Rebate is money back, it could lower price for the consumers. The problem is that, in this opaque world, where we have no idea what these contracts say, rebates actually can increase price.

• MEGAN THOMPSON:

  Michael Carrier says because these business deals are secret, it's not clear how much of the payment is being used to reduce patients' costs. And how much is being pocketed by the PBMs and insurers themselves.

  Carrier also says this system could be inflating drug prices. Because drug makers have the incentive to increase the price of the drug in order to afford the payment to the PBM.

• MICHAEL CARRIER:

  By increasing the price of the drug, the manufacturer has more leeway to give a big rebate to the PBM, the PBM is happy, the drug is covered on the formulary. Unfortunately for all of us, drug prices go up.

• ALEX AZAR:

  Everybody wins when list prices rise, except for the patient. It's rather a startling and perverse system that has- that has evolved over time,

• MEGAN THOMPSON:

  Secretary of Health and Human Services Alex Azar testified in June before the Senate Health Committee about the President's drug pricing plan. Azar said the administration is considering regulatory changes that would allow rebates to be scrutinized under federal anti-kickback laws.

• ALEX AZAR:

  We may need to move toward a system without rebates, where PBMs receive no compensation from the very pharma companies that they are supposed to be negotiating against.

• MEGAN THOMPSON:

  Azar- a former pharmaceutical executive- also said he's heard reports of PBMs threatening drugmakers.

• ALEX AZAR:

  We've had several drug companies come in who are- want to execute substantial material reductions in their drug prices. They are finding hurdles from pharmacy benefit managers and distributors where they might say, "Well, if you decreased your list price, I will take you off formulary, compared to your competitor who will have a higher list price where I will make more money." I find that unconscionable.

• MEGAN THOMPSON:

  So what do the pharmacy benefit managers have to say about all of this?

• MARK MERRITT:

  Well, if we didn't save money, nobody would hire us.

• MEGAN THOMPSON:

  Mark Merritt is the President of the Pharmaceutical Care Management Association, an industry trade group that represents the nation's largest PBMs. He says, according to their research, PBMs can decrease drug benefit costs for patients by 30%.

• MARK MERRITT:

  We save a ton of money and improve benefits for millions of Americans. Our clients bring PBMs in because they want to make sure that benefits are good and that people have access to the drugs that they need.

• MEGAN THOMPSON:

  He objects to the accusations by Secretary Azar that PBMs have anything to do with keeping drug prices high.

• MARK MERRITT:

  That's inaccurate, and plus, to the Secretary's credit, he criticized everybody in health care, most of all the drug companies for their high prices. And you have to start with that drug companies set the prices, nobody else has anything to do with it.

• MEGAN THOMPSON:

  Merritt also defends the system of rebates.

  So the rebates go to the PBM, but how do we know that those rebates are then passed on to the consumer?

• MARK MERRITT:

  What we do is we send the rebate dollars up to the insurer- typically they want 90% or more and they determine what they do with them. Typically, again, it's used to reduce premiums, but that is really up to the health insurance plan, it's not the PBM.

• MARK MERRITT:

  We have said repeatedly as an industry we'd be happy to look at other models besides rebates, all we want to do is get to the lowest net cost for our customers. If there's a way to do it besides rebates, we'd be open to it. If there's a better way to do it, a better way to get savings, we'd be open to it.

• MEGAN THOMPSON:

  As for the complaints from pharmacists Merritt says he thinks PBM reimbursements are fair. And when it comes to clawbacks lawsuits have been filed against OptumRX and the insurers it works with, accusing them of profiting from excessive copays. But Merritt says the practice is not something his organization condones. Merritt says the practice is not something his PBM trade organization condones.

• MARK MERRITT:

  If it is happening, it should stop and that's our position as an industry. We don't support it- in any way.

• MEGAN THOMPSON:

  In a statement to NewsHour Weekend, OptumRX said we believe lawsuits are without merit, and denied using clawbacks at all. The two other big PBMs, CVS Caremark and Express Scripts, also said they do not engage in clawbacks.

  Legislators in 26 states have banned clawbacks or gag clauses. Members of Congress are looking to do the same. A bill is currently pending in Pennsylvania.

  Where Marc Falkowitz lives. He hasn't used his aunt's health insurance to buy her medications in a year, and says he now shops around for his entire family's prescriptions. Although he finds it ridiculous that even has to in the first place.

• MARC FALKOWITZ:

  I just think there's something so terribly wrong with the system. It just defies rational sense.