In a note published on Tuesday, Height Securities said it anticipates close scrutiny of DIR issues by policymakers would serve as an additional headwind for Pharmacy Benefit Managers, or PBMs.
PBMs are intermediaries between insurance companies, pharmacies and manufacturers, working toward reducing drug costs for insurers and insurance companies. CVS Health Corp (NYSE: CVS), Express Scripts Holding Company (NASDAQ: ESRX) and UnitedHealth Group Inc (NYSE: UNH) are among the notable publicly traded PBMs.
Analysts Spencer Perlman and Sumesh Sood noted PBMs face intensifying scrutiny of their business practices and impact on drug prices. The analysts also touched upon studies and multiple reports released over the last month that had taken PBMs to task for distorting the drug market through their use of retroactive rebates to profit off list price increases and shift risk onto government payers and other entities in the supply chain.
Among the reports mentioned by the firm were:
- A CMS report alleging PBMs' use of DIR in the Medicare Part D program jacking up beneficiary cost sharing and Medicare low income subsidy payment.
- A class action lawsuit filed in a U.S. district court that states that PBMs were instrumental in raising the cost of insulin due to the rebates they seek from manufacturers.
- The Medicare Payment Advisory Commission, or MedPAC, had discussed about how DIR growth led to a strong increase in Medicare Part D reinsurance payments, while also lowering plan liability.
PBMs In Collusion With Insurers
Consequently, the firm ran a test to determine if the plans reduce their liabilities when beneficiaries choose high-cost, high-rebate drugs. The firm said its analysis confirms findings by the CMS and MedPAC that Part D plans are incentivized to steer beneficiaries toward higher-cost drugs with higher rebates, as these drugs result in lower liability for the plan by shifting costs onto beneficiaries, CMS and manufacturers and pharmacies.
Given that PBMs negotiate the rebates on behalf of the plans, the firm believes PBMs also benefits. The firm also said it believes its findings and those of CMS and MedPAC and others are compelling and comport with its previously stated view that face margin compression in an environment of decelerating drug list price increases.
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