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| DATE | 2017-04-09 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout of NYLXS] Why you suck.... Obamacare
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http://prospect.org/article/hidden-monopolies-raise-drug-prices-0
The Hidden Monopolies That Raise Drug Prices
How pharmacy benefit managers morphed from processors to predators
David Dayen
March 28, 2017
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Rob Frankil of Sellersville, Pennsylvania, followed his father into the
family business after college. “My entire life,” he said, “I’ve been
involved with managing and owning independent pharmacies.” He now owns
two stores, a traditional community pharmacy and another that caters to
long-term care facilities.
Like any retail outlet, Frankil purchases inventory from a wholesale
distributor and sells it to customers at a small markup. But unlike
butchers or hardware store owners, pharmacists have no idea how much
money they’ll make on a sale until the moment they sell it. That’s
because the customer’s co-pay doesn’t cover the cost of the drug.
Instead, a byzantine reimbursement process determines Frankil’s fee.
“I get a prescription, type in the data, click send, and I’m told I’m
getting a dollar or two,” Frankil says. The system resembles the pull of
a slot machine: Sometimes you win and sometimes you lose. “Pharmacies
sell prescriptions at significant losses,” he adds. “So what do I do?
Fill the prescription and lose money, or don’t fill it and lose
customers? These decisions happen every single day.”
Frankil’s troubles cannot be traced back to insurers or drug companies,
the usual suspects that most people deem responsible for raising costs
in the health-care system. He blames a collection of powerful
corporations known as pharmacy benefit managers, or PBMs. If you have
drug coverage as part of your health plan, you are likely to carry a
card with the name of a PBM on it. These middlemen manage prescription
drug benefits for health plans, contracting with drug manufacturers and
pharmacies in a multi-sided market. Over the past 30 years, PBMs have
evolved from paper-pushers to significant controllers of the drug
pricing system, a black box understood by almost no one. Lack of
transparency, unjustifiable fees, and massive market consolidations have
made PBMs among the most profitable corporations you’ve never heard about.
Americans pay the highest health-care prices in the world, including the
highest for drugs, medical devices, and other health-care services and
products. Our fragmented system produces many opportunities for
excessive charges. But one lesser-known reason for those high prices is
the stranglehold that a few giant intermediaries have secured over
distribution. The antitrust laws are supposed to provide protection
against just this kind of concentrated economic power. But in one area
after another in today’s economy, federal antitrust authorities and the
courts have failed to intervene. In this case, PBMs are sucking money
out of the health-care system—and our wallets—with hardly any public
awareness of what they are doing.
Even some Republicans criticize PBMs for pursuing profit at the public’s
expense. “They show no interest in playing fair, no interest in the end
user,” says Representative Doug Collins of Georgia, one of the
industry’s loudest critics. “They act as monopolistic terrorists on this
market.” Collins and a bipartisan group in Congress want to rein in the
PBM industry, setting up a titanic battle between competing corporate
interests. The question is whether President Donald Trump will join that
effort to fulfill his frequent promises to bring down drug prices.
How the PBMs Take Your Money
PBMs were formed in the late 1960s, initially to help with claims
processing. As insurance plans started to offer prescription drug
benefits, PBMs filled out paperwork, making sure reimbursements were
passed along to pharmacies. And for a while, they really did provide a
service, as one of the first health-care players to fully computerize
claims-processing. This made the system more efficient and enhanced the
fledgling industry’s credibility.
Over time, PBMs presented themselves as a cost-reducer. By aggregating
customers of health-plan sponsors—insurance companies, big employers
that self-insure, unions, state and federal employee plans, even
Medicare and Medicaid—PBMs could form large patient networks, and
negotiate discounts from both drug companies and pharmacies, which would
have no choice but to contract with them to access the network. The
savings would consequently pass through to plans and their patients. It
sounded great.
Ildar Sagdejev/Creative Commons
On Speed: The CVS Caremark merger creates overwheming market power.
This approach can work, when it truly represents what John Kenneth
Galbraith termed countervailing power—when one large economic force
counteracts another and prevents excessive advantage. But when one
source of private power becomes the new monopolist, the idea backfires.
A monopolist armed with state power and committed to serving the public
interest—such as the VA’s power to negotiate drug prices—is a very
different story.
In the case of PBMs, their desire for larger patient networks created
incentives for their own consolidation, promoting their market dominance
as a means to attract customers. Today’s “big three” PBMs—Express
Scripts, CVS Caremark, and OptumRx, a division of large insurer
UnitedHealth Group—control between 75 percent and 80 percent of the
market, which translates into 180 million prescription drug customers.
All three companies are listed in the top 22 of the Fortune 500, and as
of 2013, a JPMorgan analyst estimated total PBM revenues at more than
$250 billion.
The Pharmaceutical Care Management Association, the industry’s lobbying
group, claims that PBMs will save health plans $654 billion over the
next decade. But we do know that PBMs haven’t exactly arrested
skyrocketing drug prices. According to data from the Centers for
Medicare and Medicaid Services, between 1987 and 2014, expenditures on
prescription drugs have jumped 1,100 percent. Numerous factors can
explain that—increased volume of medications, more usage of brand-name
drugs, price-gouging by drug companies. But PBM profit margins have been
growing as well. For example, according to one report, Express Scripts’
adjusted profit per prescription has increased 500 percent since 2003,
and earnings per adjusted claim for the nation’s largest PBM went from
$3.87 in 2012 to $5.16 in 2016. That translates into billions of dollars
skimmed into Express Scripts’ coffers, coming not out of the pockets of
big drug companies or insurers, but of the remaining independent retail
druggists—and consumers.
Why haven’t PBMs fulfilled their promise as a cost inhibitor? The
biggest reason experts cite is an information advantage in the complex
pharmaceutical supply chain. At a hearing last year about the EpiPen, a
simple shot to relieve symptoms of food allergies, Heather Bresch, CEO
of EpiPen manufacturer Mylan, released a chart claiming that more than
half of the list price for the product ($334 out of the $608 for a
two-pack) goes to other participants—insurers, wholesalers, retailers,
or the PBM. But when asked by Republican Representative Buddy Carter of
Georgia, the only pharmacist in Congress, how much the PBM receives,
Bresch replied, “I don’t specifically know the breakdown.” Carter nodded
his head and said, “Nor do I and I’m the pharmacist. … That’s the
problem, nobody knows.”
This lack of transparency enables PBMs to enjoy multiple hidden revenue
streams from every other player. “It’s OK to have intermediaries, we
have Visa,” says David Balto, an antitrust litigator and former top
official with the Federal Trade Commission. “But these companies make a
fabulous amount of money, even though they’re not buying the drug, not
producing the drug, not putting themselves at risk.”
The PBM industry is rife with conflicts of interest and kickbacks. For
example, PBMs secure rebates from drug companies as a condition of
putting their products on the formulary, the list of reimbursable drugs
for their network. However, they are under no obligation to disclose
those rebates to health plans, or pass them along. Sometimes PBMs call
them something other than rebates, using semantics to hold onto the
cash. Health plans have no way to obtain drug-by-drug cost information
to know if they’re getting the full discount.
Controlling the formulary gives PBMs a crucial point of leverage over
the system. Express Scripts and CVS Caremark have used it to exclude
hundreds of drugs, while preferring other therapeutic treatments. (This
can result in patients getting locked out of their medications without
an emergency exemption.) And there are indications that PBMs place drugs
on their formularies based on how high a rebate they obtain, rather than
the lowest cost or what is most effective for the patient.
“Let’s say there are two drugs in the same therapeutic category—one for
$500 and one for $350,” says Linda Cahn, an attorney and founder of
Pharmacy Benefit Consultants, which helps health plans negotiate
contracts with PBMs. “Which manufacturer can promise more rebates?
Obviously the one with the $500 drug.” And because drug companies
establish their own prices, they can use a higher ceiling to give more
in rebates to get on PBM formularies. This practice creates incentives
for drug manufacturers to raise prices, and if the PBMs keep the
rebates, the health plan pays more. Even if the rebates offset the list
price, they are used to determine patient co-pays, so the consumer feels
the burden from an increase in price that might otherwise never have
taken place.
Indeed, the very existence of consultants such as Cahn suggests another
cost driver. PBMs themselves are intended to save costs. But now, PBM
abuses require additional layers of consultants to limit mischief.
The Justice Department has fined Medco and Express Scripts for receiving
kickbacks from manufacturers to steer patients to higher-cost products,
a process known as drug switching. “Look at a drug like [acid reflux
medication] Nexium,” says Susan Hayes, an industry consultant with
Pharmacy Outcomes Specialists, a firm that audits PBMs and negotiates
for health plans. “[PBMs] allowed it to stay as a covered drug, even
though there was an over-the-counter pill available. They preferred a
brand name over an OTC that was 1/100th the cost.” AstraZeneca admitted
in 2015 to giving kickbacks to PBMs to keep Nexium in their formularies,
paying the government $7.9 million.
Additionally, The Columbus Dispatch explained last October how, in some
cases, a consumer’s co-pay costs more than the price of the drug outside
the health plan. But the pharmacy is barred from informing the patients
because of clauses in their PBM contracts; they can only provide the
information when asked. The excess co-pay goes back to the PBM.
Game-playing with brand-name drugs pales in comparison to more
profitable schemes for generics, which represent the vast majority of
filled prescriptions (though they account for only about half of the
revenues, since brand-name drugs are so much more expensive). PBMs
reimburse pharmacies for generics based on a schedule called the maximum
allowable cost (MAC). But the actual number is hidden until the point of
sale. “The contracts are written in the form of algorithms,” says Lynn
Quincy, director of the Healthcare Value Hub for Consumers Union. “It’s
not a list of drugs with a price next to it. Nobody knows what they’re
up to.”
AP Photo/Toby Talbot, File
Pushers: Makers of OxyContin paid PBMs to keep prescriptions flowing.
The MAC list that goes to the pharmacy does not necessarily match the
one for the health plan. By charging the plan sponsor more than they pay
the pharmacy in a reimbursement, PBMs can make anywhere from $5 to $200
per prescription, without either player in the chain knowing. While some
spread pricing can be expected, the opacity of the profit stream masks
the allegedly low costs PBMs tout to health plans to get them to sign up.
Marketplace conditions frequently change, which can result in large
spikes in the prices of generic drugs. But in what can only be described
as deliberate laziness, the PBM often does not respond by altering the
price on their MAC list, pocketing an even bigger spread. Pharmacies can
lose hundreds of dollars on a generic prescription overnight. They can
appeal to the PBM for paying a below-cost reimbursement, but pharmacists
say those are routinely denied, and almost never retroactively
reimbursed. “One of my colleagues said if you went on Shark Tank and
proposed this idea they’d laugh at you,” says pharmacist Frankil. “They
underpay you and you can’t do anything about it? It’s insane.”
PBMs can also charge pharmacies additional fees months after a sale.
Direct and indirect remuneration (DIR) fees were originally conceived as
a way for Medicare to discover the true net cost of the drugs Medicare
beneficiaries purchased through Part D, by forcing disclosure of all
rebates from drug manufacturers. But PBMs secured a key loophole keeping
their disclosures to the federal government confidential, while arguing
that DIRs also legally apply to pharmacies.
In theory, DIR fees deliver higher reimbursement rates to pharmacies
that display better performance. But, as Frankil explains, druggists
have little control over the outcomes that affect reimbursement.
Pharmacies get rated partly on whether their customers stay on their
medications. “I can’t stop by your house and say take your pill every
day,” Frankil says. “We have strategies, but we’re at the mercy of the
customers.” Another rating involves ensuring diabetics take medications
to modulate their blood pressure, meaning Frankil has to call doctors to
get them to prescribe the drugs. “Can you imagine how that call goes?
The doctor says, ‘Are you the doctor?’”
Wikimedia Commons
In 2015, AstraZeneca to giving kickbacks to PBMs to keep Nexium in their
formularies, despite an over-the-counter version being available.
Lower performance ratings result in higher DIR fees, which the PBM takes
out of pharmacies’ reimbursement checks every quarter. A recent report
from the Community Oncology Alliance estimates that DIR fees can amount
to as high as a 9 percent tax on gross revenues, which cuts pharmacy
profits by up to 50 percent on a single prescription. Uncertainty over
the size of DIR fees means pharmacies cannot assess their profit
margins. “It’s impossible to operate a business when you don’t know when
the other shoe is going to drop,” says John Norton of the National
Community Pharmacists Association (NCPA), which represents 22,000
independent pharmacies.
The PBMs’ use of these fees also harms patients and taxpayers. Consumers
pay co-pays or deductibles for drugs based on the list price, without
DIR fees or rebates that would lower them. And retroactive DIR fees are
routinely not reported to Medicare, as PBMs call them “network variable
rates” or “pharmacy performance payments” and keep them for themselves.
Obscuring DIR fees makes the net costs of drugs look higher to Medicare
than they actually are. As a result, patients hit the “donut hole”
coverage gap in Medicare Part D faster, forcing them to pay the full
cost of their drugs. And it accelerates high-usage patients into
catastrophic coverage faster as well, where Medicare pays 80 percent of
all costs. All of this leaves subscribers and Medicare, i.e. the
taxpayers, to pay more out of pocket, as the Center for Medicare and
Medicaid Services noted in a January report.
The question begging to be asked is why all the players in the
market—plan sponsors, drug companies, and pharmacies—put up with a
middleman that extracts profits from all of them? And the answer is the
failure of federal antitrust policy.
The Abuses that Antitrust Missed
The first time PBMs tried to integrate with another part of the drug
supply chain, the government took notice. A series of mergers in the
1990s put drug manufacturers Merck, Eli Lilly, and SmithKline Beecham in
control of the most powerful PBMs. The drug companies could then view
competitors’ pricing information and place their own drugs over their
rivals’ on PBM formularies. “That raised eyebrows,” says attorney Linda
Cahn. “It’s such a conflict of interest. Obviously, the PBMs were
unlikely to negotiate aggressive terms with their manufacturer parent
companies.”
In 1997, Cahn filed class-action lawsuits against the two largest PBMs
in America, Medco (then in the hands of Merck) and PCS Health Systems
(part of Eli Lilly), for breaching their fiduciary duty to employee
health plans and increasing drug costs. The high-profile cases motivated
the Federal Trade Commission (FTC) to crack down on the PBM/drug company
alliance. After a series of settlements that removed the benefits of the
vertical integration by requiring decisions on drug formularies to be
delegated to an independent third party, Lilly, SmithKline, and Merck
all sold their PBMs.
But although the antitrust laws initially worked, PBMs kept
consolidating, insisting that gaining market share would produce
benefits for consumers. And this time, the FTC kept their hands off.
SmithKline sold their PBM, Diversified Pharmaceutical Services, to
Express Scripts in 1999. PCS got bought by Advance Paradigm in 2000, and
the new company became part of Caremark in 2003. And then, Caremark
found a buyer in 2007—CVS, one of the nation’s largest pharmacy chains.
The Bush-era FTC barely blinked at this vertical combination of PBM and
pharmacy.
“That was the first unholy union,” says consultant Susan Hayes. Caremark
steered its giant patient network toward CVS stores, through lower
co-pays or out-of-network bans. They also got to see all the information
in CVS’s other PBM deals, using the data to underprice rivals. CVS
prescription revenue from Caremark plans nearly tripled in the seven
years after the merger.
Other PBMs got the message. They started their own specialty and
mail-order pharmacies, mirroring the CVS Caremark model. And they
consolidated as well. In 2012, Express Scripts and Medco, two of the
three largest PBMs, announced a $29 billion merger. Julie Brill was one
of five FTC commissioners at the time. “I said, ‘I need to understand
the competitive justification,’” Brill says. “‘My understanding from
your papers is you don’t need to get any bigger.’ And they said, ‘That’s
right. We’re not making the argument that this merger is necessary to
allow us to gain efficiencies of scale.’”
But despite the lack of justification for the consolidation, the danger
of higher prices, and the unusually large congressional opposition, the
FTC approved the merger. Brill was the only dissenting vote. “I thought
it was wishful thinking and not smart economic analysis,” she says.
Three years later, Optum gobbled up Catamaran, creating the current
situation where three firms control 80 percent of the market. Brill adds
that the Big Three carve up the market geographically, effectively not
competing in certain regions of the country. Amid such concentration,
plan sponsors have little ability to select the best PBM on price or
quality. “I just sat down with [one of the Big Three PBMs], I had half a
billion dollars on the table,” says Susan Hayes. “They said, ‘Where are
you going to compromise?’ Really? Where else do I bring half a billion
and they say where will you compromise?”
With such monopolized control, PBMs offer pharmacies take-it-or-leave-it
contracts, with no opportunity to negotiate. These contracts employ
punitive terms, including allowing the PBM to audit pharmacies,
allegedly to ferret out waste, fraud, and abuse. “Minor technicalities
are used to extract money,” says Susan Pilch, vice president of policy
and regulatory affairs for the NCPA. “There are examples where you were
supposed to initial on the bottom right of prescription, not the bottom
left. The PBM recouped all claims on that.”
Besides being a business partner, the PBM is also a competitor that can
use all the pharmacy’s data against it. PBMs set up “preferred pharmacy
networks” that give patients lower co-pays for using particular
locations. Last year, 85 percent of all Medicare Part D plans used
preferred networks, which often benefit large pharmacy chains that can
afford to make deals for network access, like CVS Caremark. Specialty
pharmacies report being frozen out by Express Scripts and other PBMs,
with customers granted access only to its in-house specialty provider,
Accredo. This practice has led to seven specialty pharmacy lawsuits
against PBMs in the last year.
PBMs also aggressively steer patients to their mail-order pharmacies.
Customers get constant solicitations by phone or mail, enticing them to
use “Amazon-style home delivery,” offering lower co-pays or larger
supplies per order. “They take a customer list and solicit the customers
while they’re purchasing a prescription,” says Representative Doug
Collins. This persistent poaching has worked; a 2017 report from Drug
Channels Institute found that PBM-owned pharmacies represented 46
percent of the industry’s revenue growth last year.
Though PBMs challenge pharmacies to maintain customer compliance with
prescription drugs, steering customers to mail-order pharmacies where
they get no direction or personal contact can produce the opposite
result. A 2013 study on patient adherence found that “personal
connection with a pharmacy or pharmacy staff” was one of the most
important variables for taking medications.
AP Photo/Mel Evans, File
A series of mergers in the 1990s put drug manufacturers Merck, Eli
Lilly, and SmithKline Beecham in control of the most powerful PBMs.
In addition, mail-order pharmacies often auto-ship drug shipments before
patients run out, and on a chronic prescription, the drugs pile up. The
NCPA has documented dozens of examples of pill waste, disposed after a
patients’ death or when their doctor discontinues the treatment. People
have brought in tens of thousands of dollars in unused meds, which often
must be thrown away. That unnecessarily jacks up health-care costs, but
the PBM profits on each pill shipped through its pharmacies.
Other pharmacies have little recourse to fight back. PBM contracts
frequently contain gag orders, preventing them from talking to local
elected officials or disclosing the terms of the contract. Pharmacists
complain of being threatened for mailing or delivering drugs to local
patients, which would compete with PBM mail-order operations. The
combined toll makes it difficult for independent pharmacies to stay in
business. “This takes away a medical provider patients have used for
years,” said Representative Buddy Carter. “I’ve had grandparents come to
my store in tears and say ‘I can’t come here anymore.’”
Mergers Beget More Mergers
Chain stores have turned to defensive consolidation to stay in the game.
In October 2015, Walgreens and Rite Aid, two of the three largest
drugstore chains (CVS is the other), announced plans to merge. Walgreens
has explicitly said that acquiring a handful of PBMs bundled inside Rite
Aid will enable them to better compete with CVS Caremark. “It’s the same
story we’ve seen in so many industries, companies justifying their
marriage on the basis of another company in the market with lots of
power. It’s an arms race,” says Stacy Mitchell of the Institute for
Local Self-Reliance. In the wake of the announcement, Walgreens inked
lucrative new partnerships with Express Scripts and Optum, CVS
Caremark’s biggest rivals. The merger deal remains under review by the FTC.
Independent pharmacies don’t have the luxury of using mergers to offset
the PBM power imbalance. In fact, when states proposed letting
independents form their own pharmacy networks, the FTC argued against
it, warning that it would “impair the ability of prescription drug plans
to negotiate the best prices with pharmacies.”
Fewer independent pharmacies, especially in rural areas without
alternatives, not only weakens local economies and prevents skilled
professionals from using their talents. It also significantly degrades
the health-care safety net. Rural pharmacies are places to consult
face-to-face with a health-care professional, to check blood pressure,
to get advice. If someone’s only option to get prescriptions filled is
50 miles up the road or by mail, they might not bother to seek the advice.
Worst of all, PBMs don’t stop at legal money-making schemes. At his site
PBM Watch, attorney David Balto compiled 56 pages’ worth of state and
federal litigation against PBMs. Just a handful of these cases yielded
$370 million in damages for undisclosed rebates, artificial price
inflations, kickbacks, steering, and other deceptive practices.
Last year, Anthem sued Express Scripts for $15 billion, claiming the PBM
violated their agreement by charging excessive rates for drugs. Federal
agents from two states issued subpoenas for Express Scripts last fall,
seeking information on the company’s business practices. In January,
diabetes patients sued three drug manufacturers for conspiring with PBMs
to triple the price of insulin.
PBMs may even have contributed to the worst public health crisis in
America—the opioid epidemic. An investigation by Stat News found that
Purdue Pharma, makers of OxyContin, paid off PBMs to keep prescriptions
flowing for their product, over the howls of a state employee health
plan in West Virginia. In exchange for rebates, PBMs kept OxyContin on
their formulary with low co-pays, and without requiring prior
authorization from the health plan to dispense the drug. Overprescribing
of OxyContin laid the groundwork for a crisis that killed more than
20,000 Americans in 2015.
“They were making a profit on people’s addiction, which is fricking
criminal,” says consultant Susan Hayes. “Rubbing their hands with glee
that people are becoming addicted to opioids. I can’t believe it.”
An Rx for Drug Pricing?
Amid frustration on all sides of the market, some private-sector actors
are attempting to break the PBM stranglehold. A group of 20 large
employers representing four million patients, including Coca-Cola,
Marriott, and Verizon, have formed the Health Transformation Alliance,
seeking to break away from the “patchwork of complicated, expensive, and
wasteful systems” in modern health care, including the pharmaceutical
supply chain.
The alliance has expressed interest in a “transparent PBM” model, which
takes a flat administrative fee on each prescription, with all rebates
and discounts fully disclosed and no hidden spreads. Transparent PBMs
only have a sliver of the market, but they can get results: A hospital
nonprofit network named Meridian Health Systems claimed to Fortune
magazine that a transparent PBM saved it $2 million in the first year,
about one-sixth of its total drug costs.
But many employers don’t know enough about the system to go outside the
Big Three, says Susan Hayes. “They’re trying to manage something they
don’t understand. If you put blinders on, and hire one of the Big Three,
you won’t get in trouble with the boss.”
Another model would empower pharmacies. A 2016 report from the Institute
for Local Self-Reliance highlights a quirk of law in North Dakota, which
only allows drugstores to operate if owned by pharmacists (similar laws
exist in Europe). The law prohibits chain pharmacies from entering the
state. Not surprisingly, North Dakota’s independents deliver among the
lowest prescription drug prices in the country, along with better health
outcomes and more drugstores per capita than any other state. This flies
in the face of industry claims that big chains and giant conglomerates
save consumers money or improve services.
Why can’t this successful model be replicated elsewhere? “The answer is
PBMs,” says Stacy Mitchell, the report’s author. “Because in North
Dakota, independents are the only game in town, PBMs have to negotiate
with them. In other states, they have no leverage.” Unsurprisingly, PBMs
and chains want the North Dakota law overturned rather than adopted in
other states.
For a more immediate impact, we must turn to Washington. And there,
solutions often emerge when one large industry starts pointing the
finger at another. Under fire for their many drug-pricing scandals, from
Martin Shkreli to Valeant, the pharmaceutical industry has tried to
deflect blame by citing PBMs. GlaxoSmithKline CEO Andrew Witty said in a
February conference call that so much of the list price on the company’s
drugs went to “non-innovators in a system which thinks it’s paying high
prices for innovation,” a veiled reference to PBMs. An industry-funded
report in January asserted that manufacturers took only 63 percent of
gross drug revenues, attributing the decline to discounts and rebates
paid to PBMs. (Of course, this hasn’t stopped pharmaceutical companies
from earning higher profit margins than any other industry.)
For their part, PBMs insist that drug prices would be even higher
without them, arguing that they deliver broad access to medications and
90 percent customer satisfaction rates. But in an industry-on-industry
arms race, the millions of dollars that leading PBMs and their trade
groups spend each year on lobbying would be no match for the
pharmaceutical industry. That creates opportunities for longtime PBM
opponents in Washington, which include several Republicans representing
rural districts, where independent pharmacies are getting crushed.
Doug Collins, a third-term House member, experienced the PBM issue
personally, when his mother couldn’t get her regular medications and her
plan had no substitute on the formulary. “I am a free-market person, as
conservative as they come,” Collins says. “When dealing with this, it’s
not a free market.” Buddy Carter, his colleague, has worked in
independent pharmacies since 1980, and sees himself as their voice in
Congress. I asked him if he had difficulty explaining the PBM market and
its problems to his colleagues. “Heck, it’s difficult for me to
understand and I’ve worked in the industry over 35 years!” Carter says.
Watch some hearing soundbites from these two and you’d think you’re
seeing the second coming of William Jennings Bryan. “Who will my folks
in my district of Georgia call, when they need someone at night and
their local pharmacist is the one they trust?” Collins asked two PBM
representatives in 2015. “They’re going to try and find their local
pharmacist, who has been closed because of the anti-competitive nature
of this field.” Carter grilled top PBM lobbyist Mark Merritt in 2016: “I
notice that the profits of the PBMs have increased enormously over the
past few years. In fact, almost doubled. And I find that very
disturbing.” These are conservative Republicans!
gemphoto/Shutterstock
What can Congress do to reform PBMs? More than 20 states have passed
laws to require more frequent MAC list updates, so PBMs can’t drag their
feet and generate large pricing spreads. But PBMs started to circumvent
the laws, in one case by eliminating the term “maximum allowable cost”
from contracts. Collins’s bill, the MAC Transparency Act, would take
care of this at a federal level, to stop the game-playing.
Other bills in the House and Senate would prohibit retroactive DIR fees
on Medicare Part D plans, stopping the after-the-fact clawbacks on
pharmacy reimbursements. A separate bill would allow any willing
pharmacy to participate in a PBM’s preferred pharmacy networks if they
agree to the terms, increasing access in communities without chains. All
of these bills would add transparency to the system, and reduce the
incentives to constantly jack up prices. And they all have bipartisan
cosponsors.
Outside of the legislative arena, the FTC also has tremendous power to
fix the prescription drug market by applying the antitrust laws. “I
think it’s up to the regulators looking at the competition issues around
PBMs to put their money where their mouth was,” says former FTC
Commissioner Brill. “You said everything was going to be fine. Show us
if you were right.”
If the FTC determined that the PBM market was anti-competitive, they
could sever the relationship between PBMs and pharmacies through
sanctions or divestiture demands. They could even break up the entire
industry to generate competition. And the FTC has the power to demand
the very transparency members of Congress and state legislatures believe
is the key to ending profiteering. But this would require a radical
shift at the FTC, which has often opposed state legislation to regulate
PBMs or increase transparency. “The FTC had argued now for over ten
years that lack of transparency is necessary because it can drive prices
down,” says Brill, citing recent FTC statements. “Prices have not been
driven down, and we need to take a different route.”
The wild card in all this is Donald Trump. At his one and only
pre-inauguration press conference, Trump singled out drug companies for
“getting away with murder,” vowing to create “new bidding procedures”
for Medicare and earning praise from the likes of Bernie Sanders. But
when Trump met with pharmaceutical executives two weeks into his
presidency, he focused more on speeding up new drug approvals from the
FDA and cutting regulations than on reducing industry profits. This
lines up with the perspective of a key aide, Silicon Valley billionaire
Peter Thiel, who wants to overhaul the FDA process. (In fact, the
Republican Congress just overhauled the FDA process in one of the last
bills signed by Barack Obama.) Trump doesn’t appear to understand the
cost excesses in the supply chain.
Trump did say in his address to a joint session of Congress that he
would “bring down the artificially high price of drugs.” And in his
confirmation hearing, Health and Human Services Secretary Tom Price,
discussing Trump’s idea for competitive bidding in Medicare, said that
“right now the PBMs are doing that negotiation. … I think it is
important to have a conversation and look at whether there is a better
way to do that.”
But where Trump’s team will ultimately land is unknown. “We need to get
to a point of clarity about whether the administration is serious,” says
the NCPA’s John Norton. Furthermore, any attempt to move forward
legislatively on any part of health-care policy will run headlong into
the deeply polarized debate over the Affordable Care Act. While a
bipartisan alliance appears possible on the PBM issue in isolation, it
will be difficult to separate anything health-related from the Obamacare
vortex.
The PBM industry’s leading trade group isn’t sleeping on the possibility
of an attack. Days after Trump met with pharma execs, the Pharmaceutical
Care Management Association issued an internal memo leaked by Buzzfeed,
stressing the need for “building a political firewall” in Congress to
stop any legislative action.
Frightened about drug manufacturers highlighting a “bloated supply
chain,” PCMA CEO Merritt laid out a six-point strategy that included
meetings with White House staff and key members of Congress, a digital
ad campaign targeting congressional leaders, partnerships with
right-wing think tanks like the American Action Forum, and working
groups to shape regulatory changes that make PBMs the savior instead of
a villain. “We will continue to show how competition—not government
intervention—is the way to manage high drug costs,” Merritt wrote,
apparently without irony. Merritt even scheduled a meeting with the main
health insurance lobby, AHIP, “to make sure the payer community is
aligned and coordinated.”
With drug companies on one side and PBMs and insurers on the other, both
camps will have plenty of resources. In that environment, is bipartisan
action possible to break up a powerful monopoly? “My answer would be
absolutely,” says Representative Carter. “Everyone is impacted by
prescription drug prices.”
Correction: An earlier verison of this article included a photo of
German pharmaceutical The Merck Group, rather than the American
pharmaceutical Merck & Co., Inc.
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