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Our Take: Senate’s push to reform PBM practices, increase generic drug competition moves forward as HELP Committee passes new bills

May 15, 2023

Following a hearing on Wednesday centered on insulin prices, the Senate Health, Education, Labor, and Pensions (HELP) Committee passed four bills on Thursday — one aimed at enhancing oversight of pharmacy benefit managers (PBMs), and the other three focused on lowering prescription drug prices by giving manufacturers of generic drugs more muscle, thus increasing competition.

The markup session began a week earlier, but the committee paused it until after Wednesday’s hearing, where the CEOs of the top three insulin manufacturers (Eli Lilly, Novo Nordisk, and Sanofi) and senior executives from the three largest PBMs (CVS Caremark, Express Scripts, and OptumRx) provided testimony on drug prices and the roles PBMs play. 

Most of the committee’s debate during markup was on the bill called the Pharmacy Benefit Manager Reform Act (S. 1339). Along with increasing transparency by requiring various types of PBM reporting, the bill would require PBMs to pass along all rebates they receive from drugmakers to the health plan sponsors they serve. It would also prohibit pharmacy clawbacks and the practice known as spread pricing, in which PBMs charge health plans more for a given drug than the amount they reimburse to pharmacies. 

Some committee members said a total ban on spread pricing in PBM-insurer contracts could force smaller PBMs out of business, handing the top three PBMs an even larger percentage of the business they already dominate. Collectively, they control approximately 80% of the PBM market. 

Sen. Mitt Romney, R-Utah, also noted that some plan sponsors, including smaller businesses and unions, find spread pricing models to be a less expensive option than alternative models and should continue to have them as a choice. 

Still, the bipartisan committee, with Sen. Bernie Sanders, I-Vt., serving as chair and Sen. Bill Cassidy, R-La., as ranking member, voted 18-3 in favor of advancing the bill. 

The remaining three bills focus on improving access to generic drugs. 

The Ensuring Timely Access to Generics Act of 2023 (S. 1067) would curtail drug manufacturers’ use of the FDA’s citizen petition process to delay the approval of generic competitors and extend their patent protections. The bill would ensure the FDA could reject citizen petitions it believes are filed for the purpose of delaying the approval of a generic drug application. Such petitions also could be referred to the Federal Trade Commission for investigation. <

The Expanding Access to Low-Cost Generics Act of 2023 (S. 1114) targets a practice known as “parking,” in which the manufacturers of brand-name drugs agree not to sue the first company to submit an application for a generic version of their drug (aka a “first filer”) as long as the first filer agrees to delay bringing its generic to market. Other manufacturers of generic versions of the drug cannot bring their versions to market for a 180-day period following the first filer’s entry into the market.  

According to a press release from the office of Sen. Tina Smith, D-Minn., at least 75% of first filer generic products have delayed their market entry as the result of parking arrangements with brand-name drug companies. Sen. Smith and Sen. Mike Braun, R-Ind., reintroduced the legislation in March. The bill would give first filers 75 days to begin commercializing their generic version or else they would lose their first filer status and the FDA could designate another manufacturer as the first filer. 

The Retaining Access and Restoring Exclusivity (RARE) Act (S. 1214), introduced in response to an appellate court’s decision in 2021 in the Catalyst Pharms., Inc. v. Becerra case, seeks to preserve access to treatments for patients with rare diseases. Companies receive tax credits to be used for researching and clinically testing treatments the FDA has designated as orphan drugs, and the companies benefit from a seven-year exclusivity period when the drugs are approved.  

The RARE Act would clarify the scope of orphan drug exclusivity — i.e., that it protects only the approved use of the drug (for instance, in a narrow patient population), and not the rare disease for which the drug was designated. The bill also would give the FDA authority to approve the same drug from different manufacturers if they intend to serve different patient populations.  

The four bills will now advance to Senate Majority Leader Chuck Schumer, D-N.Y., to schedule for debate, and an eventual vote, by the entire Senate. 

Our Take: PBMs have long blamed the pharmaceutical industry for high drug prices, while drugmakers have placed the blame on PBMs, pointing to the rebates and fees PBMs collect as a reason list prices stay so high. 

The finger-pointing played out in public at the hearing on Wednesday as committee members fired questions at executives on both sides of the debate. 

And sure enough, after the committee passed the bills on Thursday, the Pharmaceutical Care Management Association (PCMA), a lobbying group representing PBMs, released a statement that included the following: 

“Just one day after examining the pricing power drug companies use to block competition, the HELP Committee took drug companies’ bait and wrongly blamed the one actor in the supply [chain] working to reduce drug costs. The committee advanced legislation, without allowing common sense amendments, that would increase prescription drug costs.”

Some of the senators asked about the relationships between the three PBMs represented at the hearing and the insurance companies that own them (Cigna owns Express Scripts, UnitedHealth Group owns OptumRx, and CVS Health owns CVS Caremark). Sen. Markwayne Mullin, R-Okla., suggested the arrangements between the PBMs and their health plan owners were like the “fox guarding the hen house.” We’re inclined to agree with him. 

As chair of the HELP Committee, Sen. Sanders is in a position to escalate his years-long war against high drug prices. 

“This committee is going to stay on this issue,” he said the day of the hearing. “We need profound change in the [pharmaceutical] industry and in PBMs.”

Changes are practically a certainty now that a light has been shined on the inner workings of PBMs. Whether they’ll be profound changes, well, we’ll just have to wait and see. 

Meanwhile, these bills are a solid step in the right direction, as the consumer advocacy group Patients for Affordable Drugs Now noted in a statement:

“On behalf of patients across the U.S., we applaud Chairman Sanders, Ranking Member Cassidy, and the members of the Senate HELP Committee for passing bipartisan legislation to increase competition, incentivize innovation, require transparency, and crack down on opaque practices of pharmacy benefit managers. This package of bills represents a significant step towards restoring accountability to the U.S. drug price system so that it prioritizes patients, rather than the bottom line of the pharma and PBM industries.”

Health Care Rounds: Organizational Performance and Physician Engagement, with HonorHealth’s Dr. John Neil

In large part, 2022 was a financially perilous year for health systems across the country. As provider organizations look to cut costs and maximize revenues, delivering care through value-based models becomes even more challenging and, potentially, rewarding. Today, Dr. John Neil speaks on the importance of leveraging physician engagement and clinical integration to align financial incentives and improve care outcomes. Dr. Neil is Executive Vice President, Chief Physician Executive and Network Strategy Officer for Scottsdale, Arizona-based HonorHealth.

What else you need to know
Premier’s board of directors is evaluating strategic alternatives, including a sale of part or all of the company, the Charlotte, N.C.-based group purchasing organization announced Monday. “Evolving market dynamics, coupled with an uncertain and challenging operating environment, compel us to take further action to adapt and help ensure Premier is best positioned for future success,” said Michael Alkire, Premier’s CEO. Other possibilities the board and an independent special committee are considering include recapitalization and partnership opportunities. The company’s member network consists of more than 4,400 hospitals and health systems. In a research note, an analyst with SVB Securities said separating Premier’s two business segments — performance services and supply chain services — through a sale could more than double the enterprise value of Premier, from its current $3.3 billion valuation to as much as $7 billion, Healthcare Dive reported. 

Ochsner Health is reducing its workforce by 770 positions, or about 2%. CEO Pete November said in a message to employees the jobs being eliminated are “management and primarily non-direct patient care roles.” No physicians will be affected, he noted, and employees with active clinical credentials who are affected will be offered direct patient care roles. November said Ochsner, a 47-hospital, not-for-profit health system based in New Orleans, has experienced the same issues as other health systems across the country: increased labor costs, a shortage of patient care clinicians, high inflation, and the end of pandemic relief funding. He added that the job cuts are necessary despite the health system’s “significant efforts to reduce expenses,” calling the decision to eliminate the jobs “the hardest change we have ever had to make at Ochsner.”

Sutter Health signed a non-binding letter of intent to acquire Sansum Clinic, an outpatient organization based in Santa Barbara, Calif., with 20 locations along the state’s central coast and more than 300 providers representing a range of specialties. Sacramento, Calif.-based Sutter Health said in a press statement the two not-for-profit organizations intend to increase access to primary care and ambulatory multispecialty care through their partnership, and they anticipate formalizing their plans “in the coming weeks.”  

Kaiser Permanente reported first-quarter net income of $1.2 billion, in contrast to a net loss of $961 million for the same quarter a year ago and a $4.5 billion net loss for all of 2022. The Oakland, Calif.-based non-profit health system also reported operating income of $233 million for the first quarter (vs. a net loss of $72 million in Q1 of 2022), total operating revenue of $25.2 billion (vs. $24.2 billion in Q1 of 2022), and total operating expenses of $25 billion (vs. $24.3 billion in Q1 of 2022). Citing favorable financial market conditions, the health system said it had $975 million in total other income and expense for the first quarter of 2023, compared with an $889 million loss in the same quarter a year ago. 

Otsuka Pharmaceutical and Lundbeck’s Rexulti (brexpiprazole) is the first drug to be approved in the U.S. for treating agitation associated with dementia due to Alzheimer’s disease. In a press release announcing the FDA’s approval of Rexulti for this indication, Otsuka noted that symptoms of agitation are reported in about half of all patients with Alzheimer’s disease and cover a range of behaviors, including restlessness and verbal and physical aggression. According to Otsuka, in two Phase III studies, patients receiving Rexulti achieved a 31% greater reduction from baseline in the frequency of agitation symptoms as compared with the placebo group. The drug, a serotonin-dopamine activity modulator, was originally approved in 2015 as an adjunctive therapy to antidepressants for adults with major depressive disorder and as a treatment for schizophrenia.

What we’re reading 
Dr. Ezekiel Emanual has a 3-part series in Health Affairs Forefront. It’s a must-read.
Nine Health Care Megatrends, Part 1: System And Payment Reform. Health Affairs Forefront, 5.9.23
Nine Health Care Megatrends, Part 3: Patient Care. Health Affairs Forefront, 5.11.23

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