Fri 05/11/2018 06:15 AM
Editor’s Note: Event Driven, in coordination with Reorg Research, will be co-hosting a panel event, “From Drugmaker to Insurer: The Changing Landscape of the Pharmaceutical Supply Chain” on Wednesday, May 23, from 8 a.m. to 9:30 a.m. ET in New York. Click HERE to register.

Event Driven Takeaways
 
  • During a press call on the evening of May 10, a senior administration official touted President Trump’s FY19 budget, which calls for reform in areas such as drug rebates, formularies, and out-of-pocket spending caps.
  • However, the Trump Administration’s comments about PBMs are mostly a cover for rebate reform, rather than a signal of opposition against insurer-PBM consolidation, according to a Capitol Hill source familiar with the proposed transactions.
  • Tim Greaney, a law professor at UC Hastings who previously worked at the DOJ, told Event Driven that high market concentration among PBMs is contributing to the “lack of industry transparency and flawed rebate formulas.”

The Trump Administration’s focus on pharmaceutical prices may stoke reform on industry rebates, but it is expected to have limited impact on the pending Aetna/CVS and Express Scripts/Cigna deals.

Yesterday evening, May 10, a senior administration official said during a press call that President Trump’s remarks today will build on the agenda outlined in the proposed FY19 budget.

While the President’s budget is light on details, it does call for: 1) health plans and their pharmacy benefits managers, or PBMs, to share a portion of their drug rebates at the point of sale; 2) Part D plans to have greater negotiation power with manufacturers by allowing for “additional flexibilities” in formulary management; and 3) new out-of-pocket spending caps.

According to Tim Greaney, a law professor at UC Hastings who previously worked at the DOJ, there is a connection between rebates and competition among PBMs. “The lack of transparency and flawed rebate formulas are in part attributable to the lack of competition in the PBM sector with the largest three firms controlling almost 80% of the market,” Greaney told Event Driven. “The vertical mergers under review now pose problems not previously addressed by the enforcement agencies in the courts, but are certainly worthy of close attention.”

Notably, the administration official pointed out yesterday that the President's remarks and the administration’s “blueprint” to tackle high drug prices will essentially revolve around administrative actions without Congress’ involvement. This means that even though today’s speech is being billed as a major policy announcement by the Trump administration on drug pricing, the actual impact could be fairly limited.

In the context of Aetna/CVS and Cigna/Express Scripts, perhaps the most relevant agenda item to watch for in the president’s speech would be his policy position on PBMs. In a public speech in March, Trump’s Health Secretary Alex Azar reiterated the administration’s intent to “bring down the discounts” that middlemen such as PBMs are getting and “how those rebates will be passed on to patients and individuals.”

However, comments from within the administration about PBMs are mostly a cover for rebate reform, rather than a signal of opposition against insurer-PBM consolidation, according to a Capitol Hill source familiar with the proposed transactions. Further, President Trump’s proposed budget and public comments are likely to have a bigger impact on the FDA’s agenda than competition or antitrust, the source said.

Geoffrey Manne, executive director of the International Center for Law & Economics, said that White House attention to pharmaceutical issues could “give more power to the claims that the mergers could reduce drug prices.”

Trump’s speech also comes at a time when the political temperature in Washington is picking up in the run up to the midterm elections. The administration clearly believes that any policy move that can bring down out-of-pocket costs which patients can actually see and feel would be an accomplishment to present to voters.

Manne, who testified in February to the U.S. House antitrust subcommittee about the proposed Aetna/CVS deal, said that “Congress is already directing a lot of attention to this issue, and the folks I've talked to on the Hill seem to recognize that it's by no means clear whether PBMs help or hurt or, more to the point, whether the mergers would make things worse.”

In addition, “better aligning PBM and insurer interests could mitigate some of the dynamics that are claimed by some to cause problems,” Manne said.

CVS did not have an immediate comment, as the company is planning to release a public statement after Trump’s address. Cigna did not respond to a request for comment.

-- Ryan Lynch and Shrey Verma