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May 21, 2018

When President Trump spoke on May 11 about his grand plan to lower drug prices, he singled out one particular bad actor with a particularly villainous name: “the middleman.”

“We’re very much eliminating the middlemen,” said Trump during his Rose Garden remarks that day. “The middlemen became very, very rich, Right? (Applause.) Whoever those middlemen were — and a lot of people never even figured it out — they’re rich. They won’t be so rich anymore.”

While the President mentioned a list of those who might qualify for this epithet—“drug makers, insurance companies, distributors, pharmacy benefit managers”—it was the last of these that got the most attention.

At issue, says the Trump Administration in its 44-page blueprint for lowering drug prices, “American Patients First,” isn’t quite that the PBMs are getting rich. (In point of fact, Mr. Trump tends to like that quality.) Rather, the “hidden negotiation and wealth transfer between drug manufacturers and PBMs,” which is now leading to “a direct increase on consumer out-of-pocket spending that likely decreases drug adherence and health outcomes.”

FDA Commissioner Scott Gottlieb was even blunter in a speech the week before the president—suggesting that these hidden negotiations might even be “kickbacks”:

“To take one example, one of the dynamics I’ve talked about before that’s driving higher and higher list prices, is the system of rebates between payers and manufacturers. And so what if we took on this system directly, by having the federal government reexamine the current safe harbor for drug rebates under the Anti-Kickback Statute? Such a step could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition.”

I won’t get into the nitty gritty of what exactly PBMs do. You can read my previous Brainstorm Health essay here and—definitely—read Katherine Eban’s 2013 feature in Fortune, “Painful Prescription,” here.

But in any case, I agree with the President and with Commissioner Gottlieb, the PBM business at large deserves extra scrutiny right now.

Notably, however, this may come from various states before it comes from Uncle Sam. Earlier this month, the Connecticut legislature easily passed its own bill to control prescription drug costs, Public Act No. 18-41, which is awaiting the signature of Governor Dannel Malloy. That bill, among other things, requires PBMs, beginning in 2021, to report to the state’s insurance commissioner any rebates they receive, including drug formulary rebates collected from pharmaceutical companies—and disclose what share goes to consumers.

And last week, the Chicago Tribune reported that officials were investigating whether PBMs in the Windy City were “violating the city’s deceptive marketing act,” as well as a so-called “gag rule” that prevents pharmacists from revealing key information that would be valuable to consumers—such as “when a customer’s prescription would cost less if purchased outside their insurer or pharmacy benefit manager’s plan,” city officials said.

The winds of change, even outside of Chicago and Hartford, are clearly swirling when it comes to PBMs. Count on new legislation from various quarters on this front. The rules may not make all of the backroom price dealing on drugs wholly transparent at first—but a little more light will surely help a bit.

Clifton Leaf, Editor in Chief, FORTUNE
@CliftonLeaf
clifton.leaf@fortune.com
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DIGITAL HEALTH

Medicare may pay for groundbreaking—and pricey—new gene therapies. The Centers for Medicare & Medicaid Services (CMS) is considering reimbursing Medicare providers for new classes of gene therapies—often one-off treatments such as recently approved therapies from Novartis and Gilead that reengineer patients' own immune cells to fight blood cancers—for the cost of the pricey medicines. That would be a major win for hospitals that provide the treatments, which cost from $400,000 to $500,000 to administer. (Modern Healthcare)

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INDICATIONS

A long-awaited approval for AstraZeneca. British drug giant AstraZeneca just got a bit of good news: The FDA finally approved Lokelma, a much-delayed treatment for excess potassium. The third time wound up being the charm with regulators, and AZ is likely breathing a sigh of relief since it spent $2.7 billion to buy Lokelma developer ZS Pharma in 2015. Over the long-term, AstraZeneca is attempting to launch new products as old, flagship products continue to bleed sales to generic competitors. (Reuters)

Roche hemophilia drug wows with new data. New data unveiled by Switzerland's Roche could help make Hemlibra the go-to drug for the rare blood clotting disorder hemophilia A. The figures from late-stage clinical trials were striking, with patients switching over to Hemlibra from other preventive medicines seeing bleeding rates cut by nearly 70%. (Xconomy)

Congo begins distributing experimental Ebola vaccines. As the latest Ebola outbreak continues to spread in the Democratic Republic of Congo, the World Health Organization (WHO) has begun distributing experimental Merck-developed vaccines the organization has hailed as a breakthrough to medical staff in the region. More than two dozen people have died from Ebola cases since April. (Reuters)

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THE BIG PICTURE

Health care companies on the Fortune 500The 64th annual Fortune 500 list was officially unveiled Monday. You should definitely check out the full list (and the accompanying features on several big name companies); as you might suspect, health care companies have a prominent presence on it. UnitedHealth Group, drug distributor McKesson, and CVS Health all placed in the top 10 (as has been the norm for years). There's also a newcomer to the list in pharmaceuticals—New York-based biotech Regeneron. A striking note: seven of the top 10 firms on this year's list, including four non-health care companies, are heavily interested in the medical space (Walmart, Berkshire Hathaway, Apple, and Amazon). (Fortune)

Trump nominates acting VA secretary to permanent position. President Trump is nominating Robert Wilkie, acting secretary of the Department of Veterans Affairs (VA), to serve as the troubled agency's full-time Secretary. The move comes after Trump's original nominee, White House physician Ronny Jackson, withdrew his surprise nomination following allegations of improper workplace behavior, including of drinking on the job and handing out excess prescriptions. Jackson, who also served under the Obama and Bush administrations, has vehemently denied those claims. (New York Times)

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REQUIRED READING

Why Companies That Manage for the Long Term Perform Far Better. And Why Most Still Don'tby Clifton Leaf

Paper Jam! How Carl Icahn and a Billionaire Partner Blocked Xerox's Merger with Fujifilmby Shawn Tully

At Theranos, Elizabeth Holmes Didn't Work Aloneby David Z. Morris

How Amazon Is Using Whole Foods in a Bid for Total Retail Dominationby Beth Kowitt

Produced by Sy Mukherjee
@the_sy_guy
sayak.mukherjee@fortune.com

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