U.S. Senate H.E.L.P. Committee 2017 Hearings on Drug Pricing: Obfuscating the U.S. Cost-Sharing Crisis?


How patients with insulin-dependent diabetes forced by commercial insurers, with CMS complicity, to overpay for ‘deep-discount’ rebated insulin are subsidizing premiums and bailing out America’s public-private health insurance partnership.


Full report below or at: https://www.scribd.com/document/367355460/T1DF-Letter-to-US-Senate-HELP-Committee-Regarding-Drug-Pricing-Hearings-Dec-2017

In the past year, the Senate H.E.L.P. Committee held three hearings on drug pricing. As Sen. Alexander pointed out during the December 12 hearing, senators’ attention to the drug pricing crisis during the nomination hearing for Alex Azar might allow that to be considered a fourth drug pricing hearing. These four hearings have taken place during a year when senators’ constituents have been crying out under the burden of paying skyrocketing out-of-pocket costs for prescription drugs they need to manage medical conditions—and in the case of people with type 1 diabetes, whom T1DF specifically represents, paying just to stay alive. 

Four full committee hearings, seven distinguished experts, the former president of Eli Lilly, four industry lobbyists and a pro–value pricing ‘patient advocate’ (funded almost exclusively by the Laura and John Arnold Foundation) participated as witnesses in these hearings. The result, to date, has been a bipartisan agreement that the system is ‘very complicated’ and that additional hearings might be required to understand why list prices for rebatable brand name and specialty drugs are ever-increasing. T1DF begs to disagree. 

  • CMS and Congress know exactly what amount of the large rebates currently received by plan sponsors is being passed through to plan members and beneficiaries under Medicare Part D via reduction of the drug price at the point of sale (short answer: none).
  • CMS and Congress know that third-party payers and insurers are receiving, as general revenues, the vast majority of the manufacturer rebates negotiated by PBMs (about 90% on average, about 99% under Medicare Part D, up to 100% under pass-through contracts with large employer plans).
  • CMS and Congress know that for many medical conditions such as cancer (oncology class), therapies are in fact extremely expensive. These patients are not facing a cost-sharing crisis.
  • CMS and Congress know that the current cost-sharing crisis burdens a specific group of patients with certain chronic medical conditions that require the continuous use of relatively cheap to manufacture but heavily discounted rebatable specialty/brand drugs such as analog insulin (10ml vial: less than $5 to produce; supra-competitive U.S. net price around $55—about twice as expensive as European cash prices; U.S. list price over $280).
  • CMS and Congress know that people with diabetes have been unfairly singled out and shamed by commercial insurers and others for the cost of insulin and other drugs whose list prices these commercial insurers are in fact cooperating with manufacturers to artificially inflate in order to extract from those people with diabetes larger cost-sharing amounts, far in excess of the actual net cost, to insurance plans, for their treatment.  
  • CMS and Congress know that commercial insurers have been robbing Peter to pay Paul—making people with diabetes subsidize premiums for people who do not need heavily rebated specialty drugs, as well as using rebates insurers receive for the ostensible purpose of offsetting list prices for insulin toward other corporate purposes, including executive bonuses and cash distribution to their shareholders. 
  • CMS and Congress know that the technology required for delivering point-of-sale net prices under both private insurance and Medicare Part D has existed since at least 2010 and has since been commercially implemented by medium-sized progressive PBMs.
  • CMS and Congress know that the resolution of this cost-sharing crisis is first and foremost a matter of political will and moral rectitude. Some insurance premiums may slightly increase in the short run, but this is a necessary price to pay for transparency that is essential to the longterm sustainability of health insurance programs. Removing corporate moral hazard—the type of moral hazard that was at the core of the housing crisis—is now essential to protecting America’s public-private health insurance system.

People who use insulin are facing a cost-sharing crisis created by private insurers’ benefit design. The cost-sharing crisis may not be the only drug pricing crisis Americans are facing, but the cost-sharing crisis remained the elephant in the room throughout this year’s hearings, which have focused anywhere and everywhere but on the problem that is most readily within the federal government’s power to solve. Although PBMs and manufacturers are complicit with a reimbursement system from which they derive substantial economic benefits, they are neither its instigators nor its primary beneficiaries. And fixing Medicare Part D does not require a new law; CMS can and should immediately mandate that drugs’ negotiated prices be used to assess patient cost-sharing payments as required under the Medicare Prescription Drug, Improvement, and Modernization Act, also called the Medicare Modernization Act or MMA. 

As to private plans managed by insurers/third-party payers, the growing number of ERISA-based class action lawsuits should address their breaches of fiduciary duties towards people with insulin-dependent diabetes and other chronic medical conditions. The federal government neglected its oversight responsibilities toward patients for more than a decade. These lawsuits, which concern the possible misallocation by private insurers of part of the $127 billion in rebates that manufacturers pay annually to gain formulary placement, will ultimately engage the federal government in acknowledging the injury caused by its breach of oversight and thus in compensating those the dual-pricing scheme has injured—a critical matter the H.E.L.P. Committee’s hearings also failed to consider publicly. 

The current crisis, as experienced by patients, is a cost-sharing crisis: these costs are being borne by patients at the end of the complete drug-pricing channel that begins with manufacturers and ends at the insurers who create benefit designs that determine patient payment. The H.E.L.P. Committee’s hearings failed to acknowledge insurers’ refusal to pass market access and formulary rebates, negotiated and passed through by PBMs to insurers/third-party payers, on to patients. This failure continued even during the nomination hearing for Mr. Azar, who has explicitly and publicly described the injury to patients. Mr. Azar has already admitted that at the other end of Lilly’s reimbursement contracts “a significant number of people who already paid premiums for their health insurance then end up paying more than their insurer does for a medicine” (Manhattan Institute, 11/2016). As of December 2017, the Senate H.E.L.P. Committee has yet to acknowledge this fact.

Since the FTC investigation of Medco in 2003 and the subsequent 2003 class action filed by Hagens Berman on behalf of Community Catalyst’s Prescription Access Litigation fund and third-party payers, the range of PBMs' retained rebates has been broadly known. The percentage of rebates retained by PBMs peaked at about 40 to 60% in 2002 and then dropped to about 18% in 2008, when Hagens Berman withdrew its California rebate pass-through lawsuit. It is public knowledge that CVS and Express Scripts currently keep, on average, about 10% of the price concessions paid by manufacturers, as confirmed by Credit Suisse, U.S. government agencies (e.g. CMS/OIG) and other experts. As to Medicare Part D, a recent investigation by the Office of the Inspector General concluded that PBMs retain only 1% of negotiated rebates and thus pass 99% of their value to plan sponsors.

We can thus trace these rebates to the doors of commercial insurers, and we believe commercial insurers account for these payments as general revenues. AHIP alleges that they are being used for lowering premiums. We don’t know. The only other certainty we have regarding this cost-sharing crisis is that commercial insurers are unfairly blaming people with insulin dependent diabetes for the unintended consequences and perverse incentives of a dual-pricing system that commercial insurers have been working to their own corporate advantage under private plans, ACA plans, and Medicare Part D. Clarifying what happens to the remaining 90% of the rebates reportedly passed through to commercial insurers on plans as a whole (and the remaining 99% of rebates reported passed through to plan sponsors under Medicare Part D) —and countering the insurance industry’s public messaging against the very class the pricing scheme has injured—should thus have been the primary purpose of 2017’s Senate drug pricing hearings. 

The H.E.L.P. Committee failed, after a year-long investigation, even to arrive at a meaningful public definition of the different causes of patient injury by therapeutic class (the injury depends on the specific market dynamic and drug channel related to that therapeutic class). Instead, the Committee consistently sidestepped the reality that the actions of insurers also “affect what patients pay” and that insurers’ decisions regarding patient cost-sharing and allocation of the passed-though rebate amounts insurers receive is a critical element in “making medicines affordable”—and also in making medicines unaffordable.

While the H.E.L.P. Committee carefully avoided any meaningful investigation of insurers’ (and, by association, the federal government’s) role in the current cost-sharing crisis during the several-month-long time span in which these hearings have taken place, CMS has been working on a proposed rule that finally acknowledges the need to close the cost-sharing loophole it allowed insurers to carve out for themselves in 2005, despite explicit legislative mandate that Medicare Part D beneficiary cost-sharing be based on “negotiated price” as defined by MMA (the price of the drug, net all manufacturers’ rebates and other price concessions). In the 14 years since the Medicare Prescription Drug, Improvement, and Modernization Act was enacted in 2003, insurers have continued to base patient cost-sharing on unrebated list prices rather than the mandated negotiated price—and have blamed the resulting inflated drug price at the point of sale on people with diabetes and, paradoxically, on Medicare Part D itself. 

We hope that the Committee will begin the new year by tackling the cost-sharing crisis people with diabetes are actually facing, the perverse incentives and dual-pricing reimbursement system that have created it, and the system’s corollary harmful consequences for the uninsured. As of December 2017, the general workings of the prescription drug distribution channel, and its pricing system, are well known. As stated in CMS proposed rule CMS-4182-P, the the key issue to address, going forward, is insurers’ failure to apply “some [or all] manufacturer rebates and all pharmacy price concessions to the price of a drug at the point of sale” and to pass the full value of those rebates (negotiated price) to the individual plan member who actually purchases the rebated drugs. 

The Committee’s work should also address the uninsured, whose numbers are likely to increase as the result of legislative and policy changes driven by the current Congress. They deserve equal protection, under the law, from the predictable effects of the current dual pricing reimbursement regime that commercial insurers have so deftly taking advantage of. In the absence of Congressional action, some form of relief should derive from T1DF’s three class actions. These actions, assuming they can survive the current consolidation process, will address, for people with type 1 and other insulin-dependent diabetes, the nature and scope of the injury manufacturers, PBMs, and insurers have caused to patients who purchased highly rebated insulin, test strips and glucagon and were forced to pay-cost sharing based on their drugs’ unrebated acquisition costs, rather than the net cost to plan (for private insurance) or negotiated price (Medicare Part D) or were forced to pay the high cash price that is a byproduct of reimbursement contract negotiations (uninsured). 

To guide your ongoing investigation, we attach below a more detailed statement on the prescription drug cost-sharing issues currently before the Committee. We hope H.E.L.P. Committee members will approach this statement with all due consideration the insurers’ role (and the role of their PBM agents) in the cost-sharing crisis, in addition to the role of manufacturers that has already received much public attention, and that you will do so in full awareness that the lives of Americans with type 1 diabetes have been placed in direct danger by what T1DF believes to be accounting fraud on a massive scale.

Again, T1DF thanks the Chairman, Ranking Democratic Member and other members of the Senate H.E.L.P. Committee for their attention to the concerns of your constituents with type 1 and other insulin-dependent diabetes. Please don’t hesitate to contact us if we can be of any assistance. Your staff can reach me at 541.257.8878 (PST) or julia.boss@t1df.org. 


About T1DF

The Type 1 Diabetes Defense Foundation is a nonpartisan Oregon-based 501(c)(3) nonprofit dedicated to advancing equal rights and opportunities for Americans with type 1 and other forms of insulin dependent diabetes. T1DF accepts no funding from the pharmaceutical, medical device, pharmacy benefit management, or insurance industries or from any organization they fund. We support regulatory frameworks in which manufacturers compete directly on innovation and price to consumers and where drug channel actors can engage in open and efficient price arbitraging, without price discrimination and asymmetries of information.