In July, PBMs Found Themselves in the Federal Government Hot Seat

Created with the mission of reining in costs, pharmacy benefit managers (PBMs) appear to have had the opposite effect for the American consumer—driving up drug costs, pushing independent pharmacies into oblivion, and creating incentives that crush low-cost options such as generics and biosimilars, according to a scathing report issued by the Federal Trade Commission (FTC).¹

If Congress takes action against PBMs later this year, July 2024 will mark the month when things got serious. This follows a multiyear effort to highlight how PBMs are undermining pharmacists, physicians, and patients alike. In a few weeks’ time, years of work at the agency, legislative, and federal court levels bore fruit as follows:

An interim report from the Federal Trace Commission highlighted the ways in which PBMs have driven up costs and pushed independent pharmacies out of business. | Image credit: Andrii Zastrozhnov - stock.adobe.com

JULY 9: The FTC released its 71-page interim report on an investigation launched in 2022, presenting a case that the “Big 3” PBMs in particular—CVS Caremark, Optum Rx, and Express Scripts—operate in a manner that hurts the sickest patients and squeezes out small competitors, including independent pharmacies that serve rural areas.1 Although critics of the FTC report said it lacked evidence of patient harms, the FTC said this was due to foot-dragging by the PBMs on producing documents. Within days came reports that the FTC is preparing a lawsuit against the Big 3 PBMs over their use of rebates for insulin and other drugs.²

JULY 15: The US Southern District of New York ordered CVS Caremark and its associated insurer, Aetna, to pay New York Cancer & Blood Specialists $22 million, plus a return of Direct and Indirect Remuneration—known as DIR fees—and attorney costs. The ruling confirmed the practice’s arbitration win against Caremark, which had penalized doctors with fees if they did not require patients to continue to take drugs that were causing toxic adverse effects.³

JULY 23: The House Oversight and Accountability Committee brought chief executives of the Big 3 PBMs in front of the panel, where they faced tough questioning from both Republican and Democratic lawmakers on rising prescription drug costs, anticompetitive practices, and prior authorization requirements that undermine doctors’ preferences.⁴ The committee also released its own report, which reached conclusions similar to the FTC interim report findings.⁵

The Pharmaceutical Care Management Association (PCMA), the trade organization representing PBMs, has decried the FTC investigation as one-sided and too reliant on anonymous sources. On July 9, PCMA President and CEO J.C. Scott said in a statement, “Throughout this process, FTC leadership has shown that they have predetermined conclusions that they want to advance irrespective of the facts or the data, and this report demonstrates an intention to follow through on their agenda regardless of the evidence.”⁶

However, based on its statement after the July 23 hearing, the House Oversight Committee is unpersuaded: “Lawmakers concluded Congress must continue working in a bipartisan fashion to address harmful PBM practices and advance legislative solutions to protect patients and reduce drug costs.”⁴

The FTC Report

The report outlines how the rise of vertical integration and concentration allowed the 6 largest PBMs to gain control of nearly 95% of all prescriptions filled in the United States. The result has been devastating for patients and fragile pieces of the health care delivery system, the agency found.¹

“The FTC’s interim report lays out how dominant [PBMs] can hike the cost of drugs—including overcharging patients for cancer drugs,” said Chair Lina M. Khan, JD.7 The commission released the report following a 4-1 vote. This action reverses the agency’s longstanding policy to stay out of the mammoth business that generated 6.6 billion prescriptions in 2023.^1,7

Khan issued a statement with the report: “Given the stakes, there is enormous urgency in understanding PBMs’ practices.”⁷

READ MORE: FTC Issues Statement Withdrawing Previous Support of PBM Advocacy

The interim staff report, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies, “discusses how increased concentration and vertical integration have given PBMs significant power over prescription drug access and prices and explains that these trends may be enabling PBMs to disadvantage rivals and inflate drug costs.”¹

“The FTC remains committed to providing timely updates as the Commission receives and reviews additional information,” the FTC said in a statement. Besides Khan, commissioners Rebecca Kelly Slaughter, Alvaro Bedoya, and Andrew N. Ferguson supported the report’s release; Commissioner Melissa Holyoak voted against it.

Khan said the report shows how PBM practices cause harm when pricing strategies are combined with policies that steer patients to preferred pharmacies. The FTC found that PBMs can set prices above competitors but feel no consequence by forcing patients to use the pharmacy that offers the PBM—not the patient—the best deal. In the case of Medicare patients, the result is higher out-of-pocket costs because cost-sharing is based on a percentage of the drug’s price.

“This overcharging represents billions of dollars in drug spending and reveals the incentives PBMs can have to preference their own affiliated pharmacies regardless of what is best for patients,” Khan said in the statement.⁷ It highlighted 2 specific cases involving common cancer drugs, imatinib and abiraterone acetate.

PBMs have become integrated with health plans and other entities into conglomerates that specialize in self-dealing, using a patient’s membership in a health plan to steer that person to a preferred specialty pharmacy or requiring them to bypass a lower-cost drug for one that will net a higher rebate from a manufacturer. This has come at the expense of the independent pharmacy, a crucial part of the nation’s health delivery infrastructure, leaving thousands of patients with no human face to serve their community.

“The report also details how PBMs can squeeze independent pharmacies that many Americans—especially those in rural communities—depend on for essential care,” Khan said. “The FTC will continue to use all our tools and authorities to scrutinize dominant players across health care markets and ensure that Americans can access affordable health care.”

The FTC began its work with special orders to CVS Caremark, Express Scripts, Optum Rx, Humana Pharmacy Solutions, Prime Therapeutics, and MedImpact; in 2023, it issued additional orders to Zinc Health Services, Ascent Health Services, and Emisar Pharma Services, which are rebating entities, or group purchasing organizations that the FTC determined negotiate drug rebates on behalf of PBMs.

READ MORE: Q&A What NCPA is Doing to Fight Back Against PBMs

The report’s findings included the following¹:

• PBM services have become so concentrated that the “Big 3”— CVS Caremark, Express Scripts, and Optum Rx—account for about 80% of the market for 270 million people, with the top 6 PBMs accounting for 95%.
• The largest PBMs are also integrated with the largest insurers and retail pharmacies to the point that it is difficult in most markets to avoid dealing with these entities.
• Pharmacies affiliated with the 3 largest PBMs now account for nearly 70% of all specialty drug revenue.
• Nearly 30% of Americans surveyed skip doses or ration drugs due to high out-of-pocket costs.
• PBMs frequently impose harmful contract terms on independent pharmacies that impede their ability to stay in business; often, these pharmacies are the only source in a community for health items such as flu shots or epinephrine pens. At the same time, PBMs may steer patients in affiliated health plans away from independent pharmacies, putting the pharmacies at a competitive disadvantage.
• Between 2013 and 2022, approximately 10% of independent retail pharmacies in rural America closed.

PBMs employ contracting practices to keep lower-cost competitors from dispensing certain drugs. Pharmacies tied to the Big 3 PBMs have retained nearly $1.6 billion in excess revenue on just 2 cancer drugs in under 3 years. In addition, the FTC found that consolidation and vertical integration has allowed these large entities to operate “without transparency or accountability to the public.”

Congress has held multiple hearings about PBM practices and at times has seemed close to taking action, but the most recent efforts this spring stalled. The chief reforms sought by advocates are to require that PBM profits not be tied to drug prices and to require that any rebates be passed directly to consumers.⁹

The Response From Congress

Senate Finance Committee Chairman Ron Wyden (D, Oregon) responded to the FTC report on the day it was issued: “Middlemen are right at the heart of Americans’ frustration with the health care system: high prices and red tape preventing them from getting the care they need,” he said. “The FTC’s comprehensive findings show how PBMs use their market power to drive up costs for families and restrict access for preferred pharmacies at the expense of independent pharmacies.”¹¹

Wyden continued, “The Finance Committee overwhelmingly passed legislation to hold PBMs accountable, and I am going to the mat to deliver that bill to the president’s desk this year.”¹¹

READ MORE: Democrats, Republicans Come Together to Condemn PBMs

At the July 23 House Oversight Committee hearing, members took turns asking PBM executives about specific issues outlined in the FTC report and in the recent federal court case.⁴

DIR Fees

Chairman James Comer (R, Kentucky) questioned David Joyner, executive vice president, CVS Health, and president, CVS Caremark, about additional cases in arbitration that are similar to that of the NYCBS matter. Comer tried to get a direct answer on whether CVS Caremark planned to pay other practices in light of the federal ruling.

“In specific response to these cases, we do actually comply with all Medicare Part D rules,” Joyner said. “Part of this is actually creating network adequacy and also making sure we’re managing the network according to terms and conditions. In this case, our goal is to apply these consistently across all 65,000 pharmacies and [make] sure we get the right drug to the right patient at the right cost.”

Comer responded: “So are you going to fight the other rulings or are you just going to pay? Out of curiosity, have you decided yet?”4

Steering Patients

Comer then turned to the issue of PBMs directing patients to specialty pharmacies under their control as well as explanations for drug prices. “We found evidence that each of your companies steer patients with long-term maintenance and other high-cost medications to the mail order pharmacies you own, even though it often results in more difficulty for a patient to get their medication.”

Comer asked for a commitment to end this practice and for patients to pay “the same price for the same prescription, regardless of where they pick up the prescription.”⁴

Replied Patrick Conway, MD, MSc, CEO of Optum Rx, and a former HHS official: “We do provide patient options, including home delivery, and we will continue to provide those options to patients.” Separately, Conway said that “manufacturers set the high list prices.”

Added Adam Kautzner, PharmD, president of Express Scripts: “We focus on our clients—employers, labor unions, government entities—to make those decisions on their plan benefit designs. They make the decision on what types of pharmacists they want to provide.”

“So, your testimony today is, it’s not the PBMs, it’s the drug manufacturers?” Comer asked. “Because that’s not what our report has concluded, that’s not what we hear from doctors all across America. That’s not what we hear from pharmacists all across America.”⁴

Prior Authorization

Later, Conway had a tough exchange with Ro Khanna (D, California), over the issue of prior authorization, which has consistently been cited as a top source of frustration among doctors.12 Khanna asked if Conway could commit that the PBM would “privilege the doctor’s recommendation over costs.”⁴

Conway replied that he had “taken care of many children…it is critically important to follow the evidence.”

Khanna wasn’t buying it. “It is like lawyers are writing your statements. You are not committing to following a patient’s doctor’s recommendations.”⁴

In sum, the House Oversight panel warned in its questioning and its report that PBM reform legislation is coming. Its report stated that since the rise of PBM clout and consolidation, “Patients are seeing significantly higher costs with fewer choices and worse care.”⁵

References

1. Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies. Federal Trade Commission. July 9, 2024. Accessed July 9, 2024. https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf

2. Whyte LE, Mathews AW. FTC to sue drug managers over insulin prices. The Wall Street Journal. July 10, 2024. Accessed July 23, 2024. https://www.wsj.com/health/pharma/ftc-to-sue-drug-managers-over-insulin-prices-b46af71f

3. Frier Levitt secures landmark $22M+ trial victory against Caremark, recovering 100% of DIR fees, interest, and attorney fees. News release. Frier Levitt. July 18, 2024. Accessed July 23, 2024. https://www.frierlevitt.com/news/frier-levitt-secures-landmark-22m-trial-victory-against-caremark-recovering-100-of-dir-fees-interest-and-attorney-fees/

4. Hearing wrap up: Oversight Committee exposes how PBMs undermine patient health and increase drug costs. News release. House Committee on Oversight and Accountability. July 23, 2024. Accessed July 24, 2024. https://oversight.house.gov/release/hearing-wrap-up-oversight-committee-exposes-how-pbms-undermine-patient-health-and-increase-drug-costs/

1. The Role of Pharmacy Benefit Managers in Prescription Drug Markets. House Oversight and Accountability Committee. July 23, 2024. Accessed July 24, 2024. https://oversight.house.gov/wp-content/uploads/2024/07/PBM-Report-FINAL-with-Redactions.pdf

2. PCMA statement on FTC interim PBM report. News release. PCMA. July 9, 2024. Accessed July 23, 2024. https://www.pcmanet.org/press-releases/pcma-statement-on-ftc-interim-pbm-report/07/09/2024/

3. Statement of Chair Lina M. Khan Joined by Commissioners Alvaro M. Bedoya & Rebecca Kelly Slaughter regarding the Pharmacy Benefit Managers Interim Staff Report. Federal Trade Commission. July 9, 2024. Accessed July 24, 2024. https://bit.ly/3SopjwC

4. Caffrey M. How the IRA has unraveled the “biotech social contract.” Am J Account Care. 2024;12(2):57-60. doi:10.37765/ajac.2024.89575

5. Strongin R. Patients can’t afford Congress delaying PBM reform another year. National Consumer League. June 21, 2024. Accessed July 25, 2024. https://nclnet.org/patients-cant-afford-congress-delaying-pbm-reform-another-year

6. Community Oncology Alliance. PBM horror stories. Updated June 8, 2023. Accessed July 24, 2024. https://communityoncology.org/category/research-publications/pbm-horror-stories/

7. Wyden renews call for PBM reforms needed to lower drug prices and increase access following new FTC report. News release. US Senate Committee on Finance. July 9, 2024. Accessed July 24, 2024. https://www.finance.senate.gov/chairmans-news/wyden-renews-call-for-pbm-reforms-needed-to-lower-drug-prices-and-increase-access-following-new-ftc-report

8. Heine M. How prior authorization harms patients and drives physician burnout with Marilyn Heine, MD. American Medical Association. December 4, 2023. Accessed July 24, 2024. https://www.ama-assn.org/practice-management/prior-authorization/how-prior-authorization-harms-patients-and-drives-physician