Last week, Senate Finance Committee Ranking Member Ron Wyden (D- Ore.) introduced the “Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act of 2017.”  As its name suggests, it seeks to require parties (e.g., PBMs) that contract with pharmaceutical manufacturers for drug rebates to be more transparent regarding the rebates they receive on behalf of their health plan clients, specifically Part D plans and qualified health benefit plans that participate on ACA Exchanges (“Exchange Plans”). The Act would: (1) require the Secretary of the Department of Health & Human Services (HHS) to make available on its website the PBM transparency data submitted by PBMs that contract with Part D Sponsors or Exchange Plans, (2) require the Secretary of HHS to adopt a minimum percentage of drug rebates that a PBM would need to pass through to its Part D or Exchange Plan clients, and (3) amend the definition of negotiated price under the Part D program to change what price concessions would have to be reflected at the point-of-sale.  This post focuses on the first two changes.  The third change will be addressed in a separate post.

Publishing PBM Rebate Data

Section 1150A of the Social Security Act currently requires PBMs that contract with Part D plans and Exchange Plans to provide to its plan clients aggregate data regarding the rebates, discounts or price concessions that the PBM negotiates that are attribute to patient utilization.  PBMs must also report to its plan clients the aggregate difference between what the PBM pays pharmacies for drugs and what the PBM charges the plan client for drugs.   These two disclosures cover both areas where a PBM can potentially retain “spread” – rebates and pharmacy pricing.

Section 1150A currently prohibits HHS from disclosing the submitted information except under certain circumstances.  When HHS is permitted to disclose the information, it must be “in a form which does not disclose the identity of a specific PBM.”  C-THRU ignores this prohibition (but does not delete it) and instead requires HHS, in a new subsection, to publish on its website the information submitted by each PBM, so that parties can compare PBMs’ ability to negotiate rebates, etc.   The new subsection appears to be in direct contrast with the prohibition forbidding the disclosure of data in a manner that identifies a specific PBM and requires HHS to publically disclose PBMs’ competitively sensitive information.  While the new disclosure requirement continues to prohibit disclosure of information that would identify the drug or plan to which the information relates, some individuals in the industry have suggested that the disclosure required by subsection (e) would give manufacturers an edge in negotiating rebates.

Adopting a Minimum Percentage

C-THRU would require a PBM to pass through to its Part D or Exchange Plan client a minimum percentage of the aggregate rebates, discounts or price concessions that the PBM “negotiates that are attributable to patient utilization under the plan.”  The minimum percent would be adopted by HHS.

Many plans prefer a full pass-through pricing/rebate model and as a result, many, if not all, PBMs offer that option.  It is unclear how setting a minimum percentage assists plans or members if the minimum percentage would in almost all instances be below what most PBM arrangements currently achieve.   Further, at a high level, PBM services can be paid for in two ways, through administrative fees and through pricing/rebate spread.  Many plans prefer a model where the plan receives the full benefit of the pharmacy pricing negotiated and rebates received by its contracted PBM, and in return, pay a higher administrative fee for the PBMs services.  However, some plans prefer that the PBM retain a portion of the rebates or difference in pharmacy pricing in return for lower administrative fees.  Should that option be taken off the table?

Finally, as currently drafted, the bill refers to the rebates, discounts or price concession that the “PBM negotiates.”  For purposes of determining the minimum percentage,  what a PBM “negotiates” versus what it “receives” can be different.  First, depending on the point in time the measurement is taken there can be a significant difference because many rebate contracts result in rebates being paid three to six months after the close of a plan year which can be almost eighteen months after the actual patient utilization.  Second, manufacturer rebates require a significant amount of data from a plan and/or PBM and discrepancies and disputes can arise regarding: (i) what utilization qualifies for a rebate, and (ii) what rebate percentage the utilization is qualified for.  The bill does not address these issues and could result in a PBM inadvertently missing the minimum percentage because of differences in determining the price concessions that the PBM negotiates.