Ron Lanton, Partner, Lanton Law PLLC, Discusses New Drugs Plus Pricing Models

Pharm Exec: Recently, CVS and Express Scripts have announced plans to set up pricing models that follow Mark Cuban’s Cost Plus Drugs model. What do you think the overall implications will be for the pharmaceutical industry?

Lanton: There's definitely going to be changes. I know we'll probably get into what other pair of eyes are looking at pricing when it comes to the drug industry. I think what Mark Cuban did transformed a lot of things. I still think we have to see where his vision is going because the last time I spoke about this, he had just launched, and he had a plan, but it seemed to go towards vertical integration. He was originally going to start with low cost drugs, and that's actually moved a lot of people. We've seen retail pharmacies that are doing cost plus models and it shows that he's really changed a lot of things for the industry. It's always been this struggle to try to get to the true cost of the drug. When you look at what he's done here with this cost plus company, he has 1000 generics, with 10 brand name medications in about 38 states. It's not a small operation by any means, but he's not a typical businessperson we would normally see. When you look at his interviews, and you see his philosophy of "Hey, I've made my money and I just want to make a change," he's definitely done that.

Pharm Exec: Specifically focusing on CVS, what were the potential motivations for large PBMs to take action on drug pricing?

Lanton: From an outsider looking in and seeing all the changes that are happening, it's purely monetary. With more and more retail pharmacies looking at this model and more policy maker scrutiny on what this model is and trying to get to the true cost of a drug, the out-the-door cost is usually what the industry calls it. With them being the largest pharmacy benefit manager, it's almost as if they had no choice but to start changing with the times.

Like many, I was very surprised when they announced their plan, the cost vantage plan, which entails customers paying drug manufacturers the list price plus a markup and a dispensing fee. They're saying that it most cases, it's going to result in lower drug prices. But, I think that many of us are skeptical. Personally, I'm skeptical, because I've dealt with CVS where we were on the other side of legislation trying to get some fairness put in as far as pharmacy reimbursement. To hear what some of those arguments have been in the past, about how things have been justified or should be justified a certain way didn't hold a lot with me. I'm encouraged that they're trying to make things right, but I think that we need some additional details to understand how this is going to work. I haven't seen it yet but maybe others have.

Pharm Exec: At this time, can you give us an update on the current state of PBM legislation in Congress? Is there anything on the horizon that you expect?

Lanton: There's quite a few things. I've done my research and there were multiple bills on point. I'll give you a few that have kind of caught momentum.

The first that made a lot of news was the Lower Cost More Transparency Act. That bill had a lot of things such as a spread pricing ban. Under their PBM transparency section, they stated that plans offered by large employers would require PBMs would have to report transparency twice a year. Some of those actions include drug selection and acquisition costs, rebates and fees, any out of pocket spending, and rationale behind formulary placement. So, these are things to really get at.

There were also some privacy issues with that regarding HIPPA, and they also have the gag clause ban. It's currently at the senate. I think things might happen with the senate this year. Hopefully, they won't change any of the language because if they do, it has to go back to the house and they have to work that out. So, I think they want to make as little waves as possible. But, over in congress they have a lot of issues to deal with right now that we've seen in the news, so I don't know if this is going to clear before election time.

Two more that I'm watching are the Pharmacy Benefit Manager Transparency Act, which prohibits PBMs from engaging in certain activities when managing drug benefits, and the Pharmacy Benefit Reform Act, which basically states what a PBM has to report regarding the amount of prescription drug copay assistance plans that are funded by drug manufacturers and a list of covered drugs under the plan during a certain report period. It's transparency, but it doesn't go to the same level as the other two bills that I had mentioned.

I think if I had to look at what were my three strongest bills right now, it would be those.

Pharm Exec: What do you think influenced Congress to take action on PBM transparency?

Lanton: I think just the business climate as a whole. It's no secret that many independents are closing for these very reasons we've been talking about. That's been an open secret for a long time. We even had a supreme court case about it where in 2020 in state legislatures, PBMs were saying "You can't pass state transparency laws." That argument was shot down. Now, it's just the aftermath of how far can a state take these things and what is their oversight when they pass a law.

This issue has been around for awhile. I think that congress has also been watching the FTC. They've been very active in what they've been trying to figure out. I know that in 2022, the FTC launched what is called a section 6B study, and that's basically a study where they were trying to investigate PBM business practices. They were asking for some additional information from the other large PBMs specifically about what some of these contracts have. Recently, we've had a couple of senators say that something now needs to be done.

Pharm Exec: What could be the long-term implications of the Cuban model on drug pricing?

Lanton: I think it's too early to say. I think right now it moves us towards that true cost of a drug, and I think it puts more pressure on a PBM to stop putting all these other things in the pot to try and sweeten it for them. I also think that this is going to push what has long been missing from PBM oversight, which is CMS. We've had many conversations with CMS over the years about whether or not they are the actual regulator of PBM, is there a federal regulator? We think there is, but every time you ask them about PBM oversight, they point to the non-interference clause. Personally, I think with the passing of the Inflation Reduction Act, that argument is significantly weakened. But, I think over time, that's going to erode. I think that outside forces such as Mr. Cuban's cost plus model is going to help accelerate that. I don't know what the future holds, but I do know that it's working. This didn't happen overnight where PBMs just got control of everything, and it's not going to happen overnight where we kind of unwind what has happened over the last 15 to 20 years.

Pharm Exec: Is there any other pending legislation that could impact the pharmaceutical landscape?

Lanton: I think many of our changes that we're going to see will come from the state legislatures. It just seems that they're able to pass things easier. I think we should just take a look at what some of these major market states are doing, and then keep an eye on the FTC. They've finally come out with something that is decisive enough to force PBMs to move faster.