Pharmacy Benefit Managers Proposal to Super Committee: Cut Everyone but Us

In an effort to deflect cost cutting heat from PBM’s last month, Mark Meritt, President & CEO of the Pharmaceutical Care Management Association (PCMA), wrote a letter to Senator Patty Murray (D-WA) and Representative Jeb Hensarling (R-TX), Co-Chairs of the Joint Select Committee on Deficit Reduction, to offer “debt-reducing solutions that could save the federal government more than $100 billion dollars over ten years in prescription drug costs.” 

PCMA represents America’s pharmacy benefit managers (PBMs), who administer prescription drug benefits for more than 210 million Americans with health coverage provided through Medicare, Medicaid, Fortune 500 employers, health insurers, labor unions, and the Federal Employees Health Benefits Program (FEHBP). 

The letter noted that as administrators of Part D, “PBMs have helped the program beat budget projections and lower expected premiums for seniors.” According to Medicare Trustees, Part D costs came in $53 billion dollars under Congressional Budget Office (CBO) projections in 2010, or 47 percent less than expected. In addition, the average beneficiary premium is roughly 30 percent lower than projected.

Using innovative cost-saving tools and technologies, PCMA asserted that, “PBMs have worked closely with payers in designing drug benefits that lower costs and expand access to prescription drugs. These tools – including pharmacy networks, home delivery, utilization management (such as step therapy and prior authorization), and formularies – help make prescription drug benefits more affordable.”  PCMA also offered the following recommendations: 

• Modernize Medicaid Pharmacy. Over the next decade, the federal government could save $21 billion – without cutting benefits or payments to doctors and hospitals – by modernizing Medicaid pharmacy benefits. Currently, the program uses fewer generic drugs and pays drugstores more than double the dispensing fees that Medicare or private insurers pay.  
• Maximize Generic and Therapeutic Substitution in Part D. Fully realize the potential savings available as outlined by CBO to increase generic and therapeutic interchange opportunities in Part D by shifting spending from the most expensive single source drugs to equally effective lower cost options. 
• Expedite the Approval of Biogenerics. Increase competition for biologic drugs by reducing the number of years a drug company has “exclusivity” or monopoly pricing power. As the number and costs of these expensive biologic drugs drastically increases, so does the urgency to begin the approval pathway for biogenerics as quickly as possible.  
• Allow Part D Plans to Negotiate Greater Discounts on All Drugs. Increase price competition among brand drug manufacturers by removing the mandate that “all or substantially all” drugs in six protected classes be covered. Manufacturers with a guarantee that their drug is covered have no incentive to offer a discount to Part D plans or beneficiaries.  
• Ban a Tax Deduction for Direct-to-Consumer (DTC) Drug Advertising. DTC drug advertising is a key tool used by brand drug manufacturers to drive consumers to take brand medications and the costs of this advertising are tax deductible. While the First Amendment allows for such advertising, it does not require taxpayers to subsidize promoting the most expensive drug treatments.  
• Encourage Chronic Care Pharmacy and Home Delivery. Currently, due to restrictions in Medicare Part D, beneficiaries in private-sector retiree plans use home delivery four times more often than those in Part D plans. Home delivery is popular with patients because it offers less expensive 90-day prescriptions and is more convenient than driving to the drugstore. With mail-service pharmacies, patients can get private counseling over the phone from trained pharmacists seven days a week, 24 hours a day. Removing Medicare’s restrictions on home delivery and encouraging beneficiaries to get their maintenance medications by mail could improve drug adherence and save Medicare hospital and physician costs.  
• Ban Pay-for-Delay Drug Settlements. Currently, brand drug companies are making deals with generics to delay offering a competing generic, allowing the more expensive brand drug to stay on the market for a longer period of time, resulting in higher costs. Prohibiting pay-for-delay agreements would facilitate quicker access to lower-cost generics.  

While it is certainly noble of PCMA to propose such ideas to reduce the deficit, some of their recommendations are problematic because they put the health of patients at risk and make it more difficult for the life sciences industry to do business in America.  As we are already seeing clinical trials and companies move jobs and manufacturing sites outside of the US, following some of PCMA’s recommendations would lead to further job loss and Americans would lose the taxes and earnings companies would produce.  

Specifically, we should not be motivated by saving money and switching patients onto generics if that puts a patient at risks. Putting patients onto generics is a decision that a physician makes with his or her patient, not because an unelected bureaucrat wants to save a few pennies.

Moreover, advertising is a crucial part of making the public and doctors aware of new products and treatments for patients created by the pharmaceutical and medical device industry.  Advertising on major cable networks and publications is extremely expensive.  Taking away the tax break for this kind of advertising—without any substitution, such as the use of online advertising, for which there is no FDA guidance—would mean higher costs for companies, which could lead to even higher drug costs. In addition, this should be of small concern to PCMA considering at least 75% of all medicines prescribed in the US are generics, and thus, such advertising has minimal effect on the prescribing of brand name drugs.

We all agree that Congress needs to control spending in America and reduce our deficit. However, this should not come at a cost to patients or to the companies that are trying to save Americans lives and make us healthier.  The pharmaceutical and medical device industries are two of the strongest sectors in America and the world.  The jobs they produce are high quality and the products they make are lifesaving and changing.

Instead of thinking about ways to squeeze more money out of these companies, thereby sending their investments, spending, and jobs abroad, Congress should be thinking about how to attract life science companies into our markets to encourage job and market growth, which will help with the deficit.