Could Pharmacy Benefit Managers Be Trump's Next Target?

Shares of CVS Health Corp CVS and Express Scripts Holding Company ESRX spiked down Wednesday on fears that President Donald Trump may target pharmacy benefit managers (PBMs) for their role in inflating drug prices.

Responding to numerous inbound calls, a note from Height Securities detailed certain scenarios out of D.C. and speculated two motives for federal action.

One possibility is that Trump suspects collusion between PBMs and drug manufacturers surrounding pricing; another is that the president, on this suspicion, is attempting to prompt direct negotiation of prices.

Height put the activity in the context of industry criticism.

Pharmaceutical players will recall a recent Congressional hearing on EpiPens during which Mylan N.V. MYL CEO Heather Bresch triggered federal scrutiny of PBMs. At the time, Bresch raised red flags among lawmakers through her presentation on the industry’s rebate structure.

To compound the issue, the Centers for Medicare and Medicaid Services recently reported that drug price increases and related rebate increases have expanded federal expenditures for the Part D program while bolstering PBMs and insurers.

As the largest competitors in the expansive market, CVS and Express Scripts would take the brunt of any government heat, and it’s possible their stock action will alone attest to regulatory activity.

UnitedHealth Group Inc UNH also has some PBM assets, but its stock did not move as sharply on Wednesday's news.

As of publication, Express Scripts was trading down 2 percent, while CVS was down 1.85 percent.