Biopharmaceutical Industry Takes Bold New Policy Position on How Payments Should Work in Supply Chain

Advocating for Reforms that Prevent Pharmacy Benefit Managers and Other Entities in Supply Chain from Being Paid off the List Price of a Medicine

Washington, D.C. (July 16, 2018) — Demonstrating its commitment to changing the status quo, the biopharmaceutical industry today announced a bold new policy position on how payments should work in the supply chain. The industry is advocating for reforms that prevent pharmacy benefit managers (PBMs) and other entities in the supply chain from having their compensation calculated as a percent of the list price of a medicine and instead a fee based on the value their services provide.  

Over time, how we pay for medicines in the United States has evolved into a complex system of list prices and rebates that move through an opaque supply chain. A medicine’s rebate – rather than its actual price – often determines if it is covered or where it sits on a formulary. This creates an unfair system in which patients are often paying higher list prices regardless of the discount their insurer receives. Reforms to prevent PBMs and others in the supply chain from being paid off the list price of a medicine can fix broken incentives and make the system work better for patients.

“Our industry agrees with the Administration that the status quo is not working in the best interest of patients and our health care system needs to change,” said Stephen J. Ubl, president and chief executive officer of PhRMA. “Delinking supply chain payments from the list price will be disruptive and requires our companies and others to adapt, but it is necessary to improve patient affordability. We hope realigning these incentives will result in a greater shift toward value and lower costs for patients.”

In addition, in PhRMA’s comments to the Department of Health and Human Services request for information, HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, the industry advocates that patients should receive access to negotiated rebates at the pharmacy, rebates should not be allocated solely to premiums and payers should have tools and information to ensure PBM incentives are well-aligned with plan interests.”

Although discounts and rebates created savings of $150 billion in 2017, insurers are increasingly asking patients who rely on medicines to pay more out of pocket due to the complex system of list prices, net prices and rebates. Furthermore, patients with high-deductible health plans or coinsurance do not realize the benefit of negotiated savings because their out-of-pocket costs are often based on the medicine’s undiscounted list price.

The industry also continues to support other changes that move toward a value-driven health system that minimizes market distortions, including promoting value-driven health care, fixing the 340B program and preventing other countries from free riding off U.S. innovation.

View the industry’s full written submission here and executive summary here.

About PhRMA

The Pharmaceutical Research and Manufacturers of America (PhRMA) represents the country’s leading innovative biopharmaceutical research companies, which are devoted to discovering and developing medicines that enable patients to live longer, healthier, and more productive lives. Since 2000, PhRMA member companies have invested more than $900 billion in the search for new treatments and cures, including an estimated $79.6 billion in 2018 alone.

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