Millions of U.S. seniors were supposed to get price relief soon on their prescription drugs under a revamp of Medicare fees by a federal agency.
But even as pharmacy benefit managers were devising ways to dodge that multibillion-dollar fix, the Biden administration suddenly backed down late Friday afternoon. The Centers for Medicaid and Medicare Services delayed proposed changes until 2024 at least.
"CMS has once again bowed to PBMs and their corporate-affiliate insurers," said the head of a national group that treats cancer patients, Ted Okon.
"The integration and consolidation among PBMs and insurers have given them extraordinary market leverage, even over the federal government. CMS has the clear regulatory power to stop fee abuses but refuses to use it."
The three biggest PBMs, middlemen in the tangled web of drug price-setting and distribution, control about 80% of the market. These Fortune 15 companies include health insurers.
The trade group for PBMs – the Pharmaceutical Care Management Association – applauded the deal.
"This extra year will help to reduce disruptions to Medicare beneficiaries by allowing Part D plans time to adjust their pay-for-performance pharmacy contracting," said Greg Lopes, the association's assistant vice president for strategic communications.
More than 50 million people are enrolled either in a Medicare Advantage plan with prescription drug coverage or standalone Medicare Part D, the federal prescription drug program for those 65 and older.
What are these obscure fees causing increases to Medicare drug prices?
Driving the controversy: an obscure assessment on pharmacies called direct and indirect remuneration fees. Those DIR fees zoomed upward by 91,500% between 2010 and 2019, CMS calculated. The fees increased to $11.2 billion a year, up from $200 million in 2013.
The agency's administrator, Chiquita Brooks-LaSure, called the fee increases "troubling" when she announced the prospective federal rule change in December. The agency said its proposal would save Medicare recipients $21.3 billion over 10 years, a 2% cost savings.
In its news release Friday announcing the changes, the agency said the change "advances CMS’ strategic vision of expanding access to affordable health care and improving health equity in Medicare Advantage and Part D through lower out-of-pocket prescription drug costs and improved consumer protections."
A couple of weeks before the delay was announced, an agency spokesperson told The Dispatch: "CMS is committed to continuing to work with Congress and other stakeholders to ensure older Americans and those with disabilities who are served by the Medicare program have access to quality, affordable health care and lowering prescription drug costs to make them more accessible for people with Medicare."
The delayed response underwhelmed Scott Knoer, CEO of the American Pharmacists Association:
"We have a fleeting win that doesn't mean much since Goliath changed the playing field while we were heading toward the goal. It’s better for transparency but does not solve the problems of DIR (fees)."
PBMs already devising ways around the new federal price regulations
Perhaps the worst aspect of the DIR fees to pharmacists: They are assessed retroactively, sometimes months after the Medicare recipient fills the prescription, and their amount cannot be ascertained. In theory, the rule change in a year and-a-half would require the fees to be assessed at the point of sale.
But the PBMs are using their dominant market status to demand new take-it-or-leave-it contracts for drugs supplied by local pharmacies.
For example, CVS Caremark included an "escalator clause" in its new pacts last year that essentially allows the PBM to simply increase its fees to offset any changes in DIR fees. In a March update viewed by The Dispatch, Caremark gives itself the power to unilaterally change the contract "in order to preserve the relative economics" of all parties existing before any CMS intervention.
Express Scripts Inc. has been doing much the same, giving pharmacies notice of contract changes that would kick in if CMS acts.
The new language, contained in a confidential seven-page document obtained by The Dispatch, includes sweeping language giving the PBM broad powers. The contract says, "ESI, in its sole discretion, may apply different rates and fees.
Because of a maze of transactions, calculating DIR fees often varies from PBM to PBM, and from contract to contract. Many stem from quality metrics for pharmacies that numerous experts and members of Congress deem irrelevant. Some are based on drug ingredient costs.
Okon, executive director of the Community Oncology Alliance, called the PBMs' characterization of DIR fees as value-based contracting a "fabrication." Instead, the fees are a tactic "to bleed pharmacies dry" and create pharmacy deserts in many inner city and rural areas of the U.S., he said.
The PBMs say if drug costs are reduced for seniors whose prescriptions are covered by Medicare, then rates for all recipients must go up to make up for that reduction. Critics pan that zero-sum game, saying PBMs and health insurers are cost-shifting – making the sick subsidize health insurance for all.
Sherrod Brown, bipartisan senators' request to cut drug prices now rejected
Sen. Sherrod Brown took issue with the hold-up in price cuts, but praised the Biden administration for actually taking action.
“This reform is long overdue to save Ohioans money at the pharmacy and support Ohio’s community pharmacies. It’s why for years I’ve pushed for a crackdown on these abusive fees by corporate middlemen, and this is the first administration that’s taken any real action to get the job done,” Brown said.
The Ohio Democrat, whose October request helped spark the proposed changes, sent a letter to the federal agency last month seeking to head off the PBMs' maneuver after the Dispatch wrote about the middlemen's end-around.
Also signing the letter: Sens. Shelley Moore Capito, R-West Virginia, Jon Tester, D-Montana, and James Lankford, R-Oklahoma.
The proposed CMS rule change "will not only lower costs for seniors and individuals with disabilities across the country; it will help sustain beneficiary access to pharmacies and the essential services they provide," the bipartisan quartet wrote.
drowland@dispatch.com