Brian Henderson

Based on a partnership with Urology Times, articles from the American Association of Clinical Urologists (AACU) provide updates on legislative processes and issues affecting urologists. We welcome your comments and suggestions. Contact the AACU government affairs office at 847-517-1050 or info@aacuweb.org for more information.

As the 2018 midterms approach, a growing list of senators and representatives have announced their intentions not to run for re-election. Altogether, the number of U.S. lawmakers vacating their seats in 2018 has reached 51. While some of these individuals will be seeking a new office, a surprising number have opted to retire from public office outright.

The Senate and House are losing a number of long-serving members whose institutional guidance and leadership will be sorely missed as Congress attempts to extract itself from the malaise it currently finds itself in.

Twenty-four of these retirements and resignations reside within the Republican caucus, a historically high number, which rivals the number of retirements experienced during the Nixon and Bush presidencies, according to 

. What is most striking about these numbers, however, is their distinctly partisan distribution. Only eight Democrats have vacated their positions outright heading into 2018.

A number of these seats have opened due to scandal-related resignation, with sexual misconduct as the prevailing cause. This alone, however, is not enough to explain the discrepancy. Observers have speculated that frustration over a dearth of legislative achievements has spurred the wave of retirements. Others see a controversial president and the looming prospect of bitter re-election battles as the predominant cause. The truth most likely lies somewhere in between, combined with a dose of exasperation over the White House’s seemingly mercurial disposition.

No matter the most accurate interpretation of the current spate of retirements, the volume of vacancies promises to alter the political calculus in Washington. Despite the persistence of anti-establishment backlash among U.S. voters, incumbents continue to enjoy substantial performance advantages year over year. Combined with midterm elections that are historically unfavorable to the governing party, the wave of open seats bodes poorly for a Republican majority that is already operating on razor thin margins.

Next: "Repeated attempts to repeal the Affordable Care Act demonstrated the fragility of the Republicans’ governing coalition in the status quo"

Repeated attempts to repeal the Affordable Care Act demonstrated the fragility of the Republicans’ governing coalition in the status quo. The loss of key leadership and the prospect of Democratic gains in both houses of Congress increasingly threaten what has been a tenuous governing position to date.

Within this environment, House Speaker Paul Ryan (R-WI) has expressed wishes to move ahead with major entitlement reforms. Reform of Medicare and Medicaid in particular has been one of Ryan’s longstanding goals, with funding cuts a nearly certain feature of his ambitions.

Tax law may threaten Medicare, provider pay

The chances of any entitlement reforms originating in the House passing the muster of the Senate, however, seem slim. With a margin that has shrunk even further in the wake of Democrat Doug Jones’ Senate election in Alabama, McConnell has signaled that any such effort would be doomed to fail.

With the 2018 legislative agenda unclear as of yet and partisan infighting seemingly inevitable, the fate of positive medical and health care policy reforms sought by the urology community is up in the air. One such priority, repeal of the Independent Payment Advisory Board (IPAB), made important progress in 2017. Due to Medicare spending levels potentially triggering implementation of the IPAB, lawmakers took an important step in staving off implementation and the impending access to care issues that would inevitably follow. H.R. 849, a measure designed to restore congressional oversight over Medicare, passed the House with widespread support, and awaits action.

Indeed, IPAB repeal is one of the few areas where bipartisan consensus has been reached. This, if anything, should give hope that common sense health care reforms will continue to make progress and be unhampered by the results of the midterm elections.

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"No matter the most accurate interpretation of the current spate of retirements, the volume of vacancies promises to alter the political calculus in Washington," writes the AACU's Brian Henderson.

Congressional retirements promise to make waves

Increasing scrutiny of the pharmaceutical supply chain by the public and policymakers alike has prompted some major insurers to promise that a portion of rebates garnered from drug manufacturers will be passed onto patients. On the heels of 

 in early March to pass on rebates to its beneficiaries, 

 that it would follow suit. Between both insurers, roughly 10 million patients on fully insured commercial plans may finally benefit from the discounts negotiated between payers and producers.

The White House and Centers for Medicare & Medicaid Services have considered adding a similar pass-through provision to Medicare, allowing its beneficiaries to access cost savings from manufacturers. Such a move is vehemently opposed by the insurance industry, however, which argues that while insurers are willing to make the change in the private market, requiring the same consideration for Medicare beneficiaries would cause premiums to skyrocket.

 on the pharmaceutical supply chain and the role that rebates collected by payers' pharmacy benefit managers (PBMs) have played in inflating prescription drug costs for patients. In an environment where patients are paying more for their medications while payers continuously pay less, the news from Aetna and UnitedHealth is welcome.

"Significant issues remain with the share of resources retained by PBMs"

On the surface, the insurers’ decisions appear to rectify issues identified by critics of the current structure of the pharmaceutical supply chain, but significant issues remain with the share of resources retained by PBMs. The three largest PBMs occupy the sixth, seventh, and 22

 spots on the Forbes 500 list, outranking the closest pharmaceutical manufacturer by 13 spots. This enormous success is due in large part to the vast amount of “rebates” paid by drug manufacturers to PBMs.

Indeed, newly published transparency reports 

 that the average discount paid from the list price of a prescription drug ranges from 42% to 51%. It seems highly unlikely that patients will see the majority of these financial benefits.

The reason for this revolves around the manner in which PBMs use convoluted language in their contracts to retain manufacturers’ discounts for themselves instead of passing them onto patients. According to a 

 from Express Scripts, the PBM agrees to pass on the vast majority of rebates to a health plan, but there are certain poison pills in the language that allow the PBM to circumvent these requirements. For example, rebates are defined to not include things such as “administration fees,” “inflation payments,” or “other pharma revenue.” By classifying certain financial benefits from pharmaceutical manufacturers as these types of payments, a PBM can retain an enormous amount of rebate money for itself.

This would explain the vast incongruence between what pharmaceutical companies report losing in “discounts” to PBMs and what health plans end up receiving; the end result of which is the enormous growth experiences by PBMs.

Aetna and UnitedHealth’s decision to pass through rebates to patients is laudable, but it does not address key concerns with PBM practices that drive up the cost of prescription drugs. Among these are lack of transparency and the intense industry consolidation that the AACU has 

 These developments are a step in the right direction, but they do not reduce the necessity of further action to lower patients' exposure to skyrocketing drug costs.

"Aetna and UnitedHealth’s decision to pass through rebates to patients is laudable, but it does not address key concerns with [pharmacy benefit manager] practices that drive up the cost of prescription drugs," writes the AACU's Brian Henderson.

Health plans will pass on drug rebates to patients: Is it enough?

Based on a partnership with Urology Times, articles from the American 

Association of Clinical Urologists (AACU)

 provide updates on legislative processes and issues affecting urologists. We welcome your comments and suggestions. Contact the AACU government affairs office at 847-517-1050 or 

	Amid concerns about the escalating cost of prescription drugs, the Senate’s Health, Education, Labor, and Pensions (HELP) Committee held hearings this summer to frame the Senate’s efforts moving forward. The committee heard a broad variety of proposals ranging from utilizing outcomes-based payment to removing barriers for importation of Canadian medicines.

	Eventually, the committee turned its attention to pharmaceutical supply chain structure and the role it plays in raising the cost of prescription drugs for patients. It was here that scrutiny of the muddled practices of pharmacy benefit managers (PBMs) intensified, and the members appeared capable of reaching a bipartisan consensus.

	PBMs operate as intermediaries contracted by health plans to process prescription drug claims, implement utilization management tools, and determine the structure of a health plan’s drug benefits program. An evolution of their original role in which PBMs simply processed transactions and claims for a health plan, PBMs now play a key role in structuring a health plan’s business model. Given purview over a health plan’s drug benefit program, PBMs control a key aspect of the pharmaceutical supply chain. Their purchasing decisions determine which prescription drugs are available to a health plan’s policy holders, providing enormous influence over distribution and sales of manufacturers’ products.

	These purchasing preferences are represented in the design of tiered formularies, where a PBM’s “preferred” drug is placed on a lower tier that requires a smaller co-payment by patients. Non-preferred drugs are placed on a higher, more expensive, tier or excluded altogether. Where possible, patients will gravitate toward the least costly effective treatment, making the tier a drug is placed on hugely influential for volume of sales. This system of drug benefit program design has made PBMs exceptionally effective at negotiating price concessions from pharmaceutical manufacturers by forcing a race to the bottom for advantageous tier placement on a plan’s formulary.

	PBMs’ negotiating leverage in this respect is enhanced by the small number of PBMs that control the vast majority of covered lives in the United States. Only three PBMs control roughly three-fourths of all covered lives in the United States, making refusal to acquiesce to concession demands untenable. Market share losses of the magnitude controlled by the top three PBMs are prohibitive, and competing manufacturers are always waiting in the wings to underbid competitors.

	The concentration of plans represented by only three PBMs is necessarily anticompetitive, but it is not an inherently deleterious development with respect to delivering lower drug costs to consumers. Indeed, the negotiating power afforded by such a concentrated market share necessarily lends itself to leveraging substantial concessions from pharmaceutical manufacturers during negotiations. Problems arise when consumers fail to realize the savings produced by this consolidation, and are met with onerous and escalating prescription drug costs instead.

 spots on the Forbes 500 with the closest pharmaceutical manufacturer ranking 35

, stakeholders must wonder whether their collective bargaining power has been commandeered by PBMs to line their own pockets under the façade of delivering savings to patients. Profits earned by PBMs have soared over the course of the last decade while patients’ drug costs have increased, suggesting an immense incongruence between PBMs’ interests and those of their de-facto downstream clients.

	Indeed, the manner in which PBMs generate revenue makes them subject to perverse incentives where escalating prescription drug prices are good for business. Instead of passing price concessions on to health plans, PBMs will often retain a substantial portion of the concession for themselves, leaving health plans, and ultimately consumers in the form of premiums, to bear the full cost of procuring the drug.

	Due the steep nature of rebates and other discounts produced by PBMs, manufacturers report retaining only between 40% and 60% of the list price of a drug. Because the list price does not accurately represent the actual revenue generated by the sale of a drug, the system of rebates exerts artificial inflationary pressure on list prices where pharmaceutical manufacturers will set list prices with the expectation of substantial concessions baked in. This is not inherently problematic as the list price does not represent the final cost of acquiring a drug, but because patients pay their cost-sharing obligations based on list prices, there is often a substantial difference between the actual cost to acquire a drug and what a patient pays at the pharmacy level.

	This price differential is then recouped by a PBM in the form of a “claw back.” In this scenario, it would be cheaper for a patient to pay for their prescriptions out of pocket, but pharmacists are subject to gag clauses in their contracts with PBMs that prevent them from relaying this information. This asymmetric information economy prevents consumers from making informed decisions by obfuscating real costs in the pharmaceutical supply chain.

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	Legislators in Washington have finally begun to take notice of the harmful effects that the opacity PBMs have introduced to pricing in the pharmaceutical supply chain have had on prescription drug costs. Aside from garnering attention during the Senate HELP Committee hearing this summer, Sen. Ron Wyden (D-OR) sponsored legislation seeking to remedy the issue. His “Creating Transparency to Have Drug Rebates Unlocked (

) Act of 2017” was introduced last spring.

	Wyden’s bill would require that PBMs that administer drug benefits for Affordable Care Act Exchange plans or Medicare Part D recipients operate with greater transparency. It would require disclosure of data concerning price concessions negotiated from manufacturers, establishment of a minimum percentage of rebates that must be passed back to health plan sponsors, and amendment of the definitions to make it harder for PBMs to reclassify rebate income to avoid passing it back to plan sponsors. The bill is not perfect, but offers transparency measures that provide stakeholders further elucidation of how money moves through the pharmaceutical supply chain, providing a clear path toward reducing unsustainable prescription drug costs.

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A recently proposed bill “offers transparency measures that provide stakeholders further elucidation of how money moves through the pharmaceutical supply chain,” writes the AACU’s Brian Henderson.

Author | Brian Henderson

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