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Feds take aim at pharmacy benefit managers as prescription drug prices skyrocket


Federal Trade Commission says PBMs use “highly complicated” contracts to wield “enormous influence."

Feds take aim at pharmacy benefit managers as prescription drug prices skyrocket

Pharmacy benefit managers (PBMs) and high prescription drug prices are in the sights of the U.S. Federal Trade Commission (FTC).

The Commission has announced a new inquiry into the business practices of the six largest vertically integrated PBMs – CVS Caremark, Express Scripts Inc., OptumRx Inc., Humana Inc., Prime Therapeutics LLC, and MedImpact Healthcare Systems Inc.

“Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the U.S. prescription drug system,” FTC Chair Lina M. Khan said in a news release. “This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients.”

The inquiry will examine PBMs’ role at the center of the U.S. pharmaceutical system “as middlemen hired to negotiate rebates and fees with drug manufacturers, create drug formularies and surrounding policies, and reimburse pharmacies for patients’ prescriptions.”

“The largest pharmacy benefits managers are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies,” said the FTC news release about the inquiry. “In these roles, pharmacy benefit managers often have enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter. Many of these functions depend on highly complicated, opaque contractual relationships that are difficult or impossible to understand for patients and independent businesses across the prescription drug system.”

Examining PBMs

The FTC commissioners said the inquiry aims to shed light on several practices such as:

  • Fees and clawbacks charged to unaffiliated pharmacies
  • Methods to steer patients towards pharmacy benefit manager-owned pharmacies
  • Potentially unfair audits of independent pharmacies
  • Complicated and opaque methods to determine pharmacy reimbursement
  • The prevalence of prior authorizations and other administrative restrictions
  • The use of specialty drug lists and surrounding specialty drug policies
  • The impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients

The PBMs have 90 days to respond to the FTC orders to turn over information and records regarding their business practices. FTC is allowed to report the information to the public and the commission should do so, Commissioner Rebecca Kelly Slaughter said in her published statement.

PBMs respond

The PBM trade group Pharmaceutical Care Management Association (PCMA) has argued in recent years that public outrage over high drug prices has grown, so “brand pharmaceutical manufacturers have undertaken a massive campaign to deflect blame for their pricing decisions.”

While it appears FTC leaders are not buying it, PCMA in May issued a statement supporting legislation proposed by Iowa Republican Sen. Chuck Grassley to direct the FTC to examine the prescription drug pricing system.

“We believe that policymakers need information that provides a guide to lower prescription drug costs for consumers, not an increase in revenue for drug manufacturers or pharmacies. An examination of prescription drug pricing that includes the entire prescription drug supply and payment chain will provide the information necessary to determine the factors increasing drug costs for consumers,” PCMA President and CEO J.C. Scott said in a news release.

PCMA cited a 2017 from the University of Southern California that found for every $100 spent in the prescription drug supply and payment chain on branded drugs, PBMs retain about $5 dollars for their services, compared with $15 captured by pharmacies and $58 by drug manufacturers. A study by pharmacy consultant Visante, commissioned by PCMA, reported that for every dollar spent on PBM services, PBMs save consumers and payers $10.

Getting attention

Although Khan said many people have never heard of PBMs, thousands have. In February, the FTC opened a two-month request for information on PBMs and received more than 24,000 public comments.

The current business and health care environment with PBMs, prescription drug prices, patients and physicians, is in a critical state, the FTC commissioners said in their published statements.

For diabetes patients, the cost of insulin has grown “cripplingly high” with “grave consequences,” especially because diabetes disproportionately affects lower income communities and communities of color, Slaughter said.

Commissioner Alvaro M. Bedoya described a PBM initially denying a pharmacist the authority to dispense a needed cancer drug for a child in West Virginia, potentially creating a two-week wait for the medicine. The PBM business practices have led to closures of independent pharmacies in rural areas around the country, along with “eye-opening conduct, as well as overt fraud,” in Delaware and Ohio, Bedoya said.

In February, Commissioners Noah Joshua Phillips and Christine S. Wilson voted against an FTC study of PBMs. That proposal was not comprehensive and it failed to examine the competitive impact of PBM contracting prices, but the latest one “is a study we can support,” they said.

Grassley issued a statement praising the FTC vote and has pressed for federal action to examine PBMs and their role in drug pricing, specifically for insulin.

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