It’s possible Montana will soon pass a bill its creators believe could save Montanans more than $7 million dollars a year in prescription drug costs.
The bill, which was presented during a hearing Feb. 1 to the Senate Business and Labor Committee is crafted from scratch by State Auditor Matt Rosendale’s office. It’s also being eyed by other states as a possible roadmap of how they too can curb drug costs for their residents, members of Rosendale’s team boast.
The bill’s sponsor, senator and orthopedic surgeon Dr. Al Olszewski, R-Kalispell, believes Montana could lead the way in what could be the start of nationwide reform.
“This is a good bill. It’s a made-in-Montana solution for a very difficult situation,” Olszewski told the committee. “And if it works here — may I say when it works here– we may be the start of something in the country.”
Rosendale and his staff believe they can prevail where others have failed. SB71 aims to rein in what advocates believe is a major culprit responsible for high prescription drug costs for individuals: Pharmacy benefit managers (PBMs), third party administrators between insurance companies and consumers.
But instead of targeting PBMs SB71 would go after insurance companies.
“Efforts in other states to rein in the cost of prescription drugs have largely failed because they directly targeted PBMs with laws that were struck down in court due to conflicts with federal statutes,” a press release from Rosendale’s office says. “The State Auditor’s approach to solving this problem by putting the responsibility in the hands of insurance companies is unique in the nation.”
Chief legal counsel for the Auditor’s office and former Hi-Line legislator Kris Hansen says, “We wrote this bill the way we did because we believe it will survive a lawsuit from the pharmaceutical industry and actually achieve results for Montanans.”
SB71 would apply only to the individual drug market. Rosendale likened the twisting path a drug travels on its way from the manufacturer to the consumer to that of a computer circuit board. The bill aims to reform the way health insurance companies contract with PMBs with the goal of eliminating pricing schemes and reducing consumers’ health care costs.
Here’s how:
- By doing away with “spread pricing,” which is when a PBM charges an insurance company significantly more for a prescription, reimburse the pharmacy, and pocket the difference, increasing insurance costs as a result.
- By requiring that all rebates, or “kickbacks,” as some of its proponents called them, from drug manufacturers be returned to the insurance company to reduce consumers’ premiums or out-of-pocket costs instead of being retained by the PBM.
- By making additional changes to eliminate conflicts of interest when deciding which drugs are covered by insurance and given preferred status.
Not everyone agrees with the creators and advocates of SB71.
A point made repeatedly by opponents, five of whom spoke Feb. 1, is that SB71 is unnecessary because statutes already allow insurance companies to contract with PBMs in ways that don’t include practices Rosendale’s team deems hurtful. Some opponents also disagree about whether the bill would actually do what it’s meant to do, especially whether it would save consumers money. And throughout the hearing, opponents even defended some of the practices SB71 would ban by saying, for example, that said practices allow for contractual flexibility or price consistency.
One opponent, Jennifer Hensley of the health insurer Pacific Source Health Plans, was asked by committee board member Sen. Sue Malek why it would hurt the insurance company to use a PBM without “contortions” in their pricing. Earlier a representative of the PBM Navitus (also the PBM for the Montana Employee Plan), who advocated for SB71, testified that his PBM doesn’t engage in spread pricing and clawbacks.
After gauging that her initial answer to Malek may not have been clear –or perhaps unconvincing –Hensley followed up with an analogy:
As a farm girl, she learned blue cars were better on the farm, specifically because they’re better at hiding dirt, she began. And statistically, vehicles of other colors, such as red, tend to be pulled over more often by the highway patrol. But, Hensley concluded, even though driving a blue car is advantageous for multiple reasons, some day she may want to buy a red sports car. But if SB71 were to pass, she would not have that flexibility.
The Senate Business and Labor Committee passed SB71 6-4 Feb. 14. The members voted along party lines, with Republicans being the majority. The bill will now head to the full Montana Senate for a vote.
The members of the Senate Business and Labor Committee are: Steve Fitzpatrick (R), Dee Brown (R), Sue Malek (D), Carlie Boland (D), Jason Ellsworth (R), Terry Gauthier (R), Jason Small (R), Frank Smith (D), Gordon Vance (R), and Gene Vuckovich (D).
What Does A PBM Do?
It depends on who you ask.
The average cost of prescription drugs in the U.S. was $90 a year in the 1960s, Rosendale told the committee during his opening. Now, adjusted for inflation, that number has multiplied 10-fold, to $1,000. Rosendale believes PBMs increase drug costs.
PBMs came about in the 1970’s, says Marilyn Bartlett, special projects coordinator for Rosendale’s office. Their purpose was to help insurance companies manage their pharmacy benefits.
“When they first came in, their role was pure,” Bartlett said. But things began to change in the 1990s and have continued on a similar path since. “They became very powerful and very secretive and the money really started flowing into the system.”
The American Pharmacists Association says PBMs’ practical role is developing and maintaining the formulary (a list of medicines), contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims.
The Pharmaceutical Care Management Association, the national association representing America’s PBMs, puts PBMs in a most benevolent light:
The third party middlemen “reduce prescription drug costs and improve convenience and safety for consumers, employers, unions, and government programs. PCMA’s mission is to lead the effort in promoting PBMs and the proven tools they utilize, which are recognized by consumers, employers, policymakers, and others as key drivers in lowering prescription drug costs and increasing access.”
Not everyone agrees with the Pharmaceutical Care Management Association’s version of the role of PBMs, including local physician and ophthalmologist at Northern Montana Health Care Dr. Marc Whitacre.
Whitacre, who testified during the hearing, had even put together a power point slide presentation to explain what he views as the negative effect of PBMs on consumers.
PBMs are gatekeepers between insurance plans and users of prescription drugs, Whitacre’s illustration begins. In theory, they keep prices down by negotiating cheap prices for drugs and preventing over-utilization of expensive or ineffectual drugs. They are paid a percentage of a drug’s list price by the drug manufacturer (a rebate). They are also paid by the insurance plan for managing the drug benefits for that plan.
The problems with PBMs, Whitacre continues, is that they sell the medicine at list price and receive a kickback from the drug manufacturer, which encourages the manufacturers to keep prices as high as possible to maximize their profits. It also encourages PBMs to keep prices high.
The PBM “foodchain“:
- PBM buys drug from drug company for $400
- Drug company sends PBM $200 kickback (“rebate”)
- Patient buys drug for uncertain price (depends on arbitrary pricing of drug plan).
- PBM and/or insurance company and or pharmacy split remaining profits.
Local Voices Denounce PBMs & SB71 Opponents Defend Them
PBMs have garnered national attention. In a Wall Street Journal commentary, “Don’t Blame Drug Prices on ‘Big Pharma,’” the author gives a notable mention to PBMs:
“What Americans pay at the pharmacy counter is determined by a complex, opaque third-party payment system for prescriptions. By focusing only on list prices, politicians ignore the huge rebates and discounts drug companies give to multiple parties involved in distributing their products: wholesalers, hospitals, physicians, pharmacies and pharmacy-benefit managers, the third-party companies that purchase drugs and treatments on behalf of employer health plans. These rebates and discounts mean drugs almost always sell far below their list prices.”
The author, who is CEO of Drug Channels Institute, says the payments to PBMs are massive.
“Last year manufacturers paid $166 billion in rebates and discounts, amounting to a 40% reduction in prices for off-brand drugs. Certain essential drugs like insulin sell at even deeper discounts. PBMs are able to demand these big rebates from drugmakers because a small number of them handle most of the drug purchases for America’s insurers.”
Proponents of SB71 agree that PBMs are making lots of money.
The three largest PBMs in the country have annual revenues approaching $500 billion, Rosedale’s office says.
During the hearing at the capitol, Rosendale warned the senators in the committee to dismiss any sob stories they may hear from PBM advocates about hard times and thin margins.
“The lobbyists are going to stand up and they’re going to tell you the difficult times the PBMs have, the services that they’re providing and the thin margins that they’re working on,” Rosendale said. “I want to tell you something: The (Securities and Exchange Commission) reports show that OptumRX CEO in 2017 made $18,454,153. OK? That’s $354,000 a week, a week that the CEO made based on those thin margins that we’re going to hear about. CVS CEO made $18 million in 2017. That’s $346,000 a week. Apparently, he couldn’t quite negotiate as well as OptumRX.”
Nobody did ever testify during the hearing about PBMs’ small profit margins.
SB71 has at least two local supporters.
Sarah McKinney testifies about PBMs before the Senate Business and Labor Committee.
Sarah McKinney, a Havre City councilwoman and board member of Bullhook Community Health Center testified during the Feb. 1 hearing. As did Dr. Whitacre, the ophthalmologist at Northern Montana Hospital.
As a councilwoman, McKinney said she’s learned one of the most exorbitant expenses are the city’s employee health care plans. So anything that can be done to curb those costs would allow the savings to be allocated to other needed projects.
McKinney emphasized that she was testifying more so as a tax-paying voter who pays her own health insurance.
“As I dig into the bill and how PBMs have been affected in other states, the savings are extraordinary and almost immediate,” McKinney told the committee.
McKinney wrapped up her testimony with the praise that SB71 is a great example of what elected representatives should be doing–identifying problems, figuring out solutions and moving forward to repair a broken system.
Whitacre has been a vocal opponent of PBMs long before he testified in Helena. He approached this reporter about his concern with PBMs many months ago.
Marc Whitacre testifies about PBMs before the
Senate Business and Labor Committee.
Whitacre testified that he’d been involved in his patients’ drug costs for decades.
“I’ve seen a steady skyrocketing of costs of even the most simple generic drugs, which I believe is attributable to these practices we heard briefly about, such as rebates, spread pricing, and clawbacks,” Whitacre said. It’s gotten to the point that a $4 eye drop to treat a patient after cataract surgery is now routinely priced at over $40 when a patient goes to their insurance carrier pre-pharmacy, he added.
Two decades ago, Whitacre continued, patients with dry eyes could get a certain drug for $200 a month. Now they come back and say they can’t afford it because it costs $500 a month, a spike he says is the fault of PBMs.
Whitacre said he first became aware of PBMs’ negative impact on consumers after reading in an industry ophthalmology journal that PBMs were manipulating the drugs available to patients.
“And clearly there’s some funny business going on in the terms of the rebate, or what you could less graciously call a kickback,” Whitacre said.
Sean Slanger of America’s Health Insurance Plans, a lobby organization, argued that rebates, or “shared savings agreements,” are useful for keeping drug costs low. SB71 would jeopardize that. “This bill removes the flexibility from payers,”Slanger told the committee, after explaining that rebates are on of three ways PBMs are paid. “This flexibility leads to lowest cost.”
Hensley, a PBM advocate, told the committee the bill is part of a diversion tactic by big Pharma. It’s Pharma who should be under the microscope, not PBMs. Pharmacy manufacturers, she said, have done a fantastic job nationwide “of turning our lens toward PBMs and away from their own cost-fixed price gouging practices.”
Richard Miltenberger, chief executive of Montana Health Co-Op, told the committee that his health insurance company already contracts in a way that doesn’t include spread pricing. But his main concern with SB71 was that his company could be fined for the actions of another party.
Olszewski addressed this point. General contractors in other industries are responsible for their subcontractors, he said. Insurers too should be responsible for their subcontractors, which include PBMs. They can’t just come, build something, and when something goes wrong say, “You’re going to have to talk to the plumber,” Olszewski said.
Bruce Spencer of Express Scripts defended PBMs.
“PBMs do good things,” he said. “They’re necessary partners with health plans in lowering prescription drug costs for all the people of Montana and people in the U.S.”
Because of spread pricing, the money coming back to the health plans is more stable and consistent, Spencer said. And if an insurer doesn’t want a contract that includes spread pricing that too is available. There’s no need for SB71, a point he made several times during his testimony. He pointed to multiple sections of the bill to tell the committee of various statutes that already allow for what SB71 is designed to do.
Addressing this point, Rosendale told the committee what SB71 would do is change what insurance companies “may do” to what insurance companies “shall do.”
Spencer of Express Scripts said the section of SB71 banning rebates wouldn’t lower the price of prescription drugs at all. He doubted whether SB71 would lead to the kind of savings Rosendale’s team claims.
Bartlett, who had worked at the state employee health plan, said she discovered what large PBMs were doing, worked to switch to a smaller PBM that didn’t engage in spread pricing and other practices, and as a result ended up with savings of $7.4 million in the first year.
David Root with Prime Therapeutics, the PBM for Blue Cross Blue Shield, was unequivocal in what effect SB71 would– or wouldn’t– have.
“This bill does nothing to lower drug cost for the state of Montana and the citizens therein,” Root said.
When speaking of conflicts of interests in Pharmacy and Therapeutics committees (P&T committees decide which drugs will appear on that entity’s list of available drugs), Root said the fact that many of those on said committees are part of the industry is perfectly logical.
“They are not your neighbor, they are not your primary care physician. These people are on the cutting edge,” Root said. “So often they will have a connection to a manufacturer or to an institution that has a connection to an institution that has a connection to a manufacturer for research purposes.” And besides, there are already requirements for conflicts of interest to be disclosed, Root added.
Root was the last SB71 opponent questioned by the committee.
Sen. Jason W Ellsworth asked Root if Blue Cross Blue Shield receives money from Prime Therapeutics.
“I don’t understand,” Root said. “Receiving money from whom for what?”
“It’s really a simple question,” Ellsworth said. “Does your company give money to Blue Cross Blue Shield?”
“Yes,” Root said.
This story has been updated to include the Feb. 14 vote by the Senate Business and Labor Committee.
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