Drug-Price Plan Echoes a Regulatory Remnant of Financial Crisis
(Bloomberg) -- Forcing prescription-plan middlemen to put clients first is one tool the Trump administration could use to try to cut high pharmaceutical costs, though such a move is likely to face vigorous industry opposition.
President Donald Trump said last week that high drug prices have made pharmacy-benefit managers “very, very rich” as they negotiate the cost of everything from cancer treatments to cholesterol drugs for U.S. health plans and employers.
The White House plan suggested possibly looking at whether benefit managers should be considered fiduciaries, which would force them to put their customers’ financial interests ahead of their own. The suggestion echoes a rule rejected by Trump that put a similar constraint on investment advisers in the wake of the financial crisis.
The $280 billion drug-benefit industry has fought off efforts by a number of states to impose a fiduciary standard by arguing that U.S. employment law takes precedence. But the federal government could try and overcome that resistance with new regulation, or press Congress to solidify such a change through legislation.
“Fiduciary language requires that the PBM act first in its client’s best interest,” said Tyrone D. Squires, managing director of Las Vegas-based Transparent Rx, a benefit manager run on a fiduciary model. “It eliminates the loophole of the PBM being able to leverage its clients’ purchasing power.”
Some of the biggest players in the industry have warned that a fiduciary standard could be deeply damaging to their business. Express Scripts Holding Co., which agreed to be bought by health insurer Cigna Corp. this year, said in a 2015 filing that a fiduciary rule “could have a material adverse effect upon our financial condition, results of operations and cash flows.”
Benefit managers don’t believe a fiduciary designation will lower drug costs, said Stephanie Kanwit, outside counsel for the trade group Pharmaceutical Care Management Association. They’re responsible for honoring a contract, she said.
“It’s an idea whose time should never come,” she said. “PBMs aren’t fiduciaries for their customers and they don’t want to be.”
The market power of the biggest pharmacy-benefit managers has made them a critical part of the wider debate about soaring drug prices. Express Scripts, UnitedHealth Group Inc.’s OptumRx, and CVS Health Corp. together process roughly 70 percent of U.S. prescriptions. The U.S. spent $328.6 billion on prescription drugs in 2016, according to the journal Health Affairs, up by 30 percent since 2010.
Imposing a fiduciary standard on the firms would contrast with the Trump administration’s approach to regulating the financial sector. Trump delayed a Department of Labor rule that would have made investment advisers put their clients’ interests over their own. Earlier this year, a federal court vacated the rule.
The administration could put a fiduciary standard in place for pharmacy-benefit managers by writing a rule, though that could invite the kind of legal challenge that stymied the standard for investment advisers.
“That’s the chance you take when you try and do this by regulation,” said Andrew L. Oringer, an attorney with Dechert LLP who counsels clients on employee-benefit plans.
Another path the administration could take would be to ask Congress to alter the Employee Retirement Income Security Act, a 1974 law that sets out standards for pension and private health plans for individuals. That law is frequently amended, including for large changes in U.S. health policy, like the Affordable Care Act.
The PCMA opposes changing ERISA to require fiduciary status, said Kanwit, the trade group lawyer. She said employers and patients want drug benefits to be consistent across states.
“It would be a really dumb move. Sorry, but that’s the truth,” she said.
ERISA has been the main weapon brandished against state laws attempting to regulate PBMs. In a recent Ohio lawsuit brought by HIV patients who claim CVS illegally revealed their HIV status, CVS Caremark, a unit of CVS Health, asked that the case be dismissed on the grounds that the company isn’t a fiduciary and therefore can’t be liable under ERISA.
Despite such setbacks, states have kept pushing. Nevada passed a law last year that includes a fiduciary provision that has been challenged by the Pharmaceutical Research and Manufacturers of America, the drug makers’ trade group. The PBM industry is also opposed.
The National Community Pharmacists Association, which represents independent pharmacies, said that if the industry has fiduciary status, it would be forced to reveal to state Medicaid agencies the difference between what they reimburse community pharmacies and how much they bill Medicaid for prescription-drug coverage.
“PBMs deserve a reasonable return but not excessive returns,” said Squires, who runs the PBM that has embraced the fiduciary standard. “The fiduciary responsibility will eliminate those excessive returns.”
©2018 Bloomberg L.P.