AILSA CHANG, HOST:
The Senate Finance Committee has been digging into the high costs of prescription drugs. In the committee's third hearing on the topic tomorrow, senators will cross-examine executives from companies known as pharmacy benefit managers. Some of them are familiar - CVS Caremark, for example, and Express Scripts. These are companies that manage the prescription drug insurance plans for most insurance companies and employers. And some senators and many others say pharmacy benefit managers carry a lot of blame for high drug prices.
NPR's Alison Kodjak joins us now. Hey, Alison.
ALISON KODJAK, BYLINE: Hi, Ailsa.
CHANG: So what are the senators on the finance committee hoping to learn tomorrow?
KODJAK: Well, there are a couple of big things. The first is they want to show how secretive this system is - this pharmacy benefit manager system - and how that secrecy can breed trouble. So the way the system works is drug companies set what they call this list price for their medication really high. Then they negotiate price breaks with the PBMs. And they control the drug benefit for millions and millions of customers. So those discounts come in the form of secret rebates that drug companies pay back after the fact.
The whole system is shrouded in secrecy, and that breeds mistrust. So I talked with Senator Chuck Grassley today. He's the Republican chairman of the committee. And he called the PBMs a secret organization. Let's hear what else he had to say.
CHUCK GRASSLEY: When you have a list price up here - and I'm raising my hand - and then you have rebates in between and then you have a price down here for the consumer, how come we don't have everybody pay that price that's down here?
CHANG: What do you expect the pharmacy benefit managers, these PBMs - what do you expect them to say to defend themselves?
KODJAK: Well, they've been defending themselves a lot recently, so I'm expecting to hear the similar thing, which is, in the end, they actually reduce overall drug spending because they can control what drugs their millions of customers buy. And so they can demand these discounts. A lot of economists and analysts I talked to say there's no question they've reduced spending mostly by directing consumers to generic drugs, which are far cheaper than brand-name drugs.
But in areas where there are no generics, the benefit's less clear. They say they save loads of money off those list prices, but many experts, including the secretary of Health and Human Services, argue the rebate system drives that initial list price artificially high. The PBMs say that's the pharmaceutical manufacturers' fault 'cause they're the ones setting that price.
CHANG: Well, are they correct about that?
KODJAK: Well, to some extent, yes. Drug companies choose their initial price, and they raise those list prices every year even on drugs that are the same. They say they have to do this so they can offer PBMs better rebates. So there's this big blame game...
KODJAK: ...Going on. And Senator Grassley even noted it when I talked with him.
GRASSLEY: The pharmaceutical companies pointed their finger at the PBMs. The PBMs point their finger at the pharmaceuticals. And then both of those are pointing their fingers at the health insurance company.
KODJAK: So Senator Grassley is really frustrated here. He actually sort of threatened that he would call another hearing bringing all these...
CHANG: A fourth hearing.
KODJAK: ...Three groups together because he wants to get them all at the same table and figure out what's going on.
CHANG: So what happens next at this point? I mean, do you expect anything to actually change?
KODJAK: Well, there's a lot of action out there on drug prices and particularly on this rebate issue. There's legislation in the House and the Senate, both Democrats and Republicans. Senator Grassley says he's going to craft a bill. But even more immediately, the Trump administration has proposed making these after-the-fact rebates illegal, that they would require premiums instead to negotiate for discounts upfront, which means customers would pay the lower price even if they haven't met a deductible. But those discounts had no longer be confidential.
CHANG: All right, that's NPR's Alison Kodjak. Thanks, Alison.
KODJAK: Thanks, Ailsa.
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