NEWS

Pharma Group Sues Government to Keep Drug Prices Secret

Woman looking at medicine at a pharmacy.

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Key Takeaways

  • The Transparency in Coverage Rule will require health insurers to publish negotiated drug pricing information.
  • The rule is set to go into effect in 2022.
  • On behalf of pharmacy benefits managers (PBMs), a group is suing to block the rule.

In late 2020, the Department of Health and Human Services (HHS) finalized the Transparency in Coverage Rule. Set to go into effect in 2022, part of the rule is designed to take the mystery out of drug pricing.

This new rule requires health insurers to disclose to consumers the out-of-pocket costs for covered services.  Part of the rule requires insurers to publish negotiated pricing about prescription medications.

But the Pharmaceutical Care Management Association (PCMA), a group that represents pharmacy benefits managers (PBMs), is suing the federal government to block it. 

PBMs, often called “middlemen,” are responsible for negotiating drug prices behind closed doors for insurers, commonly referred to as payers.

“Payers loathe the idea of providing information that would allow competitors, manufacturers, or consumers to perform true cost comparisons of medications and prescriptions on an apples-to-apples basis,” Robert D. Tookoian, JD, attorney at Fennemore Craig, tells Verywell.

The Transparency in Coverage Rule

The new rule requires healthcare drug benefit plans to disclose in-network negotiated rates and the historical net prices for covered prescription medications. Experts say these numbers have historically been kept under wraps.

What Is a Net Price?

A drug’s net price equals its list price minus all rebates, discounts, and fees. 

“Traditionally PBMs have been a bit of a ‘black box’ for people outside of that portion of the industry,” Chris Plance, a managing consulting at PA Consulting, tells Verywell.

PBMs manage prescription drug benefits for health insurance plans and employers. And they largely control which drugs are covered under a health plan’s “formulary” list. Their role is to keep costs down for insurers.  

Theoretically, the savings would then be passed down to consumers in the form of lower premiums, but experts question whether that’s the case. To save money for insurance companies, PBMs negotiate behind the scenes with drug manufacturers and pharmacies to get concessions.

“These concessions to payers include rebates, distribution fees, and other purchase discounts,” Tookoian explains. “Concessions result in the payer paying a significantly lower (net) cost for brand name medications than the public-facing list (gross) price for that medication.”

Tookoian says that to negotiate with drug manufacturers, PBMs on behalf of payers, depend on being the only stakeholders who have all the information. They have the full picture of drug pricing, including the net prices after negotiation.

“The expectation [of the rule] is that revealing the otherwise secret payments to them will allow consumers to make more cost-conscience purchase decisions and put pressure on payers to return a greater portion of the concessions to help offset premiums and/or co-insurance," Tookoian says.

Despite the PCMA complaint, the Transparency in Coverage Rule is still set to go into effect in January 2022. However, the Biden Administration announced that it will delay enforcing the rule for six months to allow payers time to implement it.

Why the Lawsuit? 

The PCMA alleges that some parts of the rule will drive prescription drug prices higher, according to an association press release about the litigation. They claim that the secrecy PBMs use is what incentivizes drugmakers to lower prices.

“The argument that’s being made against [the rule] is that they say there is such a few number of suppliers," Plance explains. "If everything’s transparent, then it’s easy for them to essentially collude with one another and keep prices artificially high. That would be the drawback to consumers if that was actually the case and that was to occur.”

“PBMs believe that their pricing, including concessions, are trade secrets and that being required to disclose this information will result in higher costs by reducing competition," Tookoian adds.

The Transparency in Coverage Rule also requires pricing information to be published in a machine-readable file, which is a format that can be processed by a computer.

“[PBMs] believe that machine-readable disclosure requirements will ultimately be meaningless,” Tookoian says.

Rising Drug Prices

The PCMA states in its press release that PBMs will oppose efforts “to further empower drug manufacturers to increase costs.” However, some experts say PBMs may actually be the ones driving up the cost of prescription drugs.

Three PBM companies manage about 80% of drug plan benefits for more than 220 million people in the U.S., according to 2021 Senate Finance Committee report. The committee found that "PBM contracting practices did little to discourage higher list prices for insulin," for example.

Drug manufacturers say they're hiking list prices to make up for the big rebates and other discounts PBMs push for, according to a report by the Commonwealth Fund. The report cites a Pew Charitable Trusts analysis showing that from 2012 to 2016, rebates paid to PBMs increased from $39.7 billion to $89.5 billion.

Although the savings should theoretically be passed on to the consumer in the form of lower premiums, experts call that into question. “These concessions and the resulting net cost of medications is a closely guarded secret of most payers because, typically, much of the difference is retained by the payer," Tookoian says.

In a report examining drug prices from 2019, Adam J. Fein, PhD, CEO of Drug Channels Institute, details what he calls a “gross-to-net bubble” where list prices for six big pharmaceutical companies had gone up but net prices had actually plummeted.

Yet, in 2019, health insurance premiums rose 5% when compared to the previous year. And they doubled on average from 2009 to 2019, as detailed in a press release about the 2019 benchmark Kaiser Family Foundation Employer Health Benefits Survey. 

As the Commonwealth Fund points out, not all discounts are passed through to health plans in the first place and therefore can't be passed on to the consumer. Instead, PBM companies profit off a portion of rebates.

“There is no clarity how the difference between the list price of medications and the net cost paid by payers is used,” Tookoian says. "And there is serious doubt that these savings are passed along to employers or employees in the form of lower premiums.”

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5 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Department of the Treasury. Transparency in coverage. November 12, 2020.

  2. The Commonwealth Fund. Pharmacy benefits managers and their role in drug spending. April 22, 2019.

  3. Department of Labor. FAQs about Affordable Care Act and Consolidated Appropriations Act, 2021 implementation part 49. August 20, 2021. 

  4. United States Senate Finance Committee. Insulin: Examining the factors driving the rising cost of a century old drug. January 2021.

  5. Drug Channels. The gross-to-net bubble hit $175 billion in 2019: Why patients need rebate reform. August 4, 2020.