Defending the 'middlemen' in the battle on drug prices

Defending the 'middlemen' in the battle on drug prices
© Greg Nash

Pharmacy benefit managers (PBM) — the “middlemen” in drug price negotiations — are under attack, and, for the past 15 years, Mark Merritt has been the point man in charge of defending them.

Merritt, who recently underwent open-heart surgery, is stepping down as president and chief executive officer of the trade group Pharmaceutical Care Management Association (PCMA) at the end of the year, even as the PBM industry is smack in the middle of a drug pricing war involving drug companies, insurers and the Trump administration.

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PBMs administer prescription drug plans for large employers and are tasked with negotiating discounts on drugs with pharmaceutical firms and insurers. As the middlemen, PBMs are being demonized by both the drug industry and President TrumpDonald John TrumpCNN analyst Kirsten Powers: Melania's jacket should read 'Let them eat cake' CNN's Cuomo confronts Lewandowski over 'womp womp' remark Sessions says FBI agent Peter Strzok no longer has his security clearance MORE.

Trump put PBMs squarely in his crosshairs on Friday when he laid out his long-awaited plan to lower drug prices.

“We’re very much eliminating the middlemen. The middlemen became very, very rich, right? Whoever those middlemen were — and a lot of people never even figured it out — they’re rich. They won’t be so rich anymore,” said Trump, who made cheaper medications a key campaign promise.

“Part of our job is to stand up to the drug company lobby and defend the right of insurers, government programs, patients …  to get access to affordable drugs,” Merritt said in an interview in his D.C. office last week.

Merritt says he took over PCMA at a time when few people outside of Washington knew what a PBM was, and the group was disorganized and deep in debt. He was a 38-year-old first-time CEO fresh off a job as the head of communications for PhRMA, the drug industry trade group.

“This trade association was pretty broken down when I came here,” Merritt said. “It was completely ineffective, it didn’t have a clear strategy or set of objectives. We’ve quadrupled or quintupled our budget since then.”

Merritt said he sees no problem in leaving the drug industry to run a group that’s become their prime target of opposition.

“I don’t know if I’m their public enemy No. 1,” Merritt said, noting that there’s “an inherent conflict” between PBMs and drugmakers.

“Sellers want to charge as much as they can, and we represent the buyers,” he added.

The drug price wars currently feature a lot of intraindustry finger-pointing. Pharmaceuticals blame PBMs and insurers, and insurers and PBMs both blame drugmakers.

“Are drug prices too high? Yes, and that’s something only drug companies can control,” Merritt said. “If we can get big discounts and make the actual net costs lower for patients, that’s a big success, [but] obviously we have no control over how drug companies set their prices.”

Essentially, drug companies pay the PBMs to include their drugs in an insurance benefit in order to make a profit. The PBMs negotiate a discount for those drugs, usually in the form of lower co-pays, and they make a profit by keeping a portion of that rebate for themselves. 

“Our plan will end the dishonest double-dealing that allows the middleman to pocket rebates and discounts that should be passed on to consumers and patients,” Trump said Friday.

Health and Human Services Secretary Alex Azar and Centers for Medicare & Medicaid Services Administrator Seema Verma have also both decried the rebate system, portraying the PBM industry as unscrupulous middlemen. In a recent speech, Verma noted PBMs serve both drugmakers and the insurance plan.

“It’s not clear who they’re aligned with,” Verma said.

Merritt said the criticism comes with the territory.

“The administration has made a concerted effort to put everybody in health care on defense,” he said. “I think what frustrates people is the noise level. When you have a competing industry dumping $100 million of negative ads on you, nobody likes that.”

But according to sources familiar with the discussions, PCMA members are worried the group hasn’t been aggressive enough in the drug-pricing debate. Its board is tired of being demonized by the administration and felt that a change at the top was necessary.

“The industry, at the end of the day, was ready for a change,” a source familiar with the board’s negotiations said. The decision “was a long time brewing.”

Merritt said his decision to leave was personal and dismissed the notion that members were unhappy, noting that it’s hard for trade groups with large memberships to be of one mind.

“I think there are always members who want certain things, but if you look at the large picture, we’ve been through a lot of very, very tumultuous political environments, including the current one, and have fared pretty well on the bottom line,” Merritt said.

Merritt is 53 and said he never expected to spend his entire career working for PBMs, but he’s proud of his accomplishments.

He lobbied Congress as they passed the Medicare Part D program, which subsidizes the cost of prescription drugs, to make sure the PBM industry emerged unscathed. He later did the same for ObamaCare.

“We weathered those storms really well,” Merritt said. “It’s gratifying not to have any significant legislative or regulatory losses throughout this whole tumultuous period.”

Merritt refers to his open-heart surgery to replace a valve as a recent “clarifying moment.”

He said he’s not sure what his next career will be, but he’s worked across the health industry as a strategist for insurers as well as in public relations for the drug industry. 

Merritt said he’s not worried about the future of the industry.

“The reality is, if you want to save money, we’re the guys who do that, and that’s what every politician wants to do,” Merritt said. “That’s why the noise, as troublesome as it is, is not indicative of what the policy solutions will be, because if the policy solutions are going to save money, they’ll use more of our PBM tools.”