Do PBM Administrative Fees Have an Impact on Drug Prices?

March 11, 2019
John Moose, Principal
Samantha Sutherland, Engagement Manager
Key Highlights

The rising cost of prescription drugs is a hot-button topic for both healthcare executives and lawmakers alike. A legal action (United States of America et al. vs. Large Pharmaceutical Companies and PBMs, 2018) filed in court earlier last year illustrates how and why pharmaceutical manufacturers need detailed and compliance-centric price reporting, documenting interactions and transactions with pharmacy benefit managers (PBMs).

The lawsuit claims that PBMs effectively collude with manufacturers to subvert competition and maintain artificially high prices. It argues that the PBMs’ administrative fees, which are based on pharmaceutical product revenue, act as a kickback, encouraging the PBMs to not subject pharmaceutical manufacturers to specific cost-saving strategies such as aggressive rebate negotiations, brand drug “therapeutic substitution” and formulary restriction programs.

Manufacturers pay PBMs “administrative fees” ostensibly for their role in providing utilization data, and administering rebates, among other activities in support of the commercial or medical initiatives such as health economic outcomes research or key account planning. In theory, a portion of these administrative fees should be Bona Fide Service Fees based on the application of a Bona Fide Service Fee Test (81 Fed. Reg. 5170 - Feb. 1, 2016), and a detailed Fair Market Value analysis, as outlined in the regulations for Medicare Part D. In reality, the lawsuit contends, all or a significant portion of these administrative fees were treated as Bona Fide Service Fees with a substantial amount representing little more than kickbacks that have little bearing on the actual costs of the services provided.

This high-profile lawsuit and the growing awareness of rising drug prices among elected officials means that the burden of proof is on drug makers to show that the bona fide service fees they pay to PBMs are for specific and quantifiable services rendered. This includes a comprehensive list of the activities performed by the PBMs on behalf of the drug makers, the application of the non-quantitative prongs of the bona fide service fee test and a valuation of the activities.

Companies must consider having a valuation analysis performed contemporaneously with the reporting of the administrative fees. IQVIA Commercial Compliance has the expertise to thoroughly analyze Life Sciences companies’ treatment of PBM administrative fees to ensure it is supported by a thorough analysis that adequately supports the Bona Fide Service Fees paid to the PBMs. IQVIA can help you evaluate the FMV of these PBM service, ensuring they are well supported for compliance and auditing purposes.

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