Considering a Post-Rebate Future in Specialty Pharmacy

May 3, 2019

Experts offer their thoughts on what the specialty pharmacy industry will look like over the next year.

Earlier this year, HHS announced a new proposed rule concerning drug rebates. This rule, which proposes to eliminate safe harbor protections for rebates paid by drug manufacturers to PBMs, Medicare Part D plans, and Medicaid managed care plans, has many wondering what the effects may be on the specialty pharmacy, said Adam J. Fein, Ph.D., chief executive officer of the Drug Channels Institute. Many analysts have suggested that the implementation of such a rule would significantly disrupt the way the drug supply chain currently operates.

“Two years ago, did you think we would ever be talking about moving to a world without rebates?” Fein asked the attendees at his 2019 Asembia Specialty Pharmacy, in a panel he co-presented with Lisa Gill, a healthcare equity research analyst at J.P. Morgan, and Doug Long, vice president of Industry Relations at IQVIA.

In the presentation, entitled, “Specialty Pharmacy Industry Outlook: What’s Next?”, Fein used his time to discuss what he believes such a rule-and the resulting “crazy, out-of-control scenario”-might mean for the specialty pharmacy industry.

“Number one, the entire way that plans and PBMs manage specialty spending will have to change,” he said. Today, he said, plans and PBMs factor in rebates in their decision-making-and the proposed rule could affect the ability of new specialty drugs to launch as well patient access to those drugs. As a result, he believes we will see brand name drugs banishing generic equivalents as well as much narrower formularies. And in specialty categories, he said, drugs launching with new indications would be able to do so with visibly lower net prices.

“Three or four years down the road, the whole economic model of specialty pharmacy, and specialty distribution, will need to be rethought,” he said. “Now, everyone is basing their model on list price. You’re basing your revenue, your cost of goods on list price. But if that price is 20, 30, 50, or 60% lower than it is now, approximating the true net cost, the margins in this business simply would not work. This rule would not make just a little difference. This would be an explosion.”

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Gill and Long agreed that the future is uncertain. Gill discussed how so many plans use those rebate dollars to help fund important side programs like behavioral health or member incentive programs-and will have to rethink how to find the dollars to make them happen. And that is making Wall Street a bit nervous. But that said, most PBMs are now part of larger companies and have some support to weather future storms.

“How plans make their money is what will really change with this rule,” she said. “Their ability to put clinical programs in place and drive programs that make sense of patients will change. But I think those programs are still going to be there. I also think that PBMs will continue to grow.”

Long added that Wall Street “hates PBMs because they don’t understand them.” He said that PBMs add value by providing intermediary relationships between pharmaceutical companies and health plans. But part of the challenge is that their services often appear free to plan sponsors because compensation spreads, including rebates, are so opaque.

“The market, in the past, has allowed [PBMs] to operate in this way,” he said. “Plan sponsors haven’t disciplined the PBMs, which, to some extent, is really their job. So, if plan sponsors don’t like what’s going on, they should do something about it.”

The big question, moving forward, is how companies will “discipline” PBMs if rebates disappear-and whether insurance companies can “unbundle” drug costs in order to get a clear understanding of their net costs. But, despite so much uncertainty, Fein, and his fellow panel members, remained optimistic that specialty pharmacy, as an industry, will find a successful path forward.

“This is a very dynamic time-prime time for greater change than I have ever seen in this century,” Fein said. “My final piece of advice to you, with all this change, with all this trouble, and with all this complexity, is to try to stay positive but, as always, test negative.”

Kayt Sukel is a science and health writer based outside Houston.