FTC and House Reports on the Big Pharmacy Benefit Managers

By Cheryl Johnson

After the FTC’s issuance of fairly laudatory guidance about pharmacy benefit managers (PBMs) role in our drug supply chain, the?PBM industry rapidly expanded their roles and consolidated as well as vertically integrated with insurers, health plans, and?pharmacies. Concerns about the power of the three largest PBMs, increasing drug prices, and pharmacy closings have prompted several recent?government reports.

FTC, PBMs: Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies (July 9, 2024)

On July 9, 2024, the FTC issued its 70-page interim report aptly summed in its title: “PBMs:The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies.” The report was “interim” because some of the 6 largest PBM targets had not finished document productions, but the FTC did not want their “delay tactics”?to delay?its?“insights” underscoring the “importance and urgency of scrutinizing the role and influence of PBMs in the nation’s health care system.” (pp. 2,4)

The report focused on the biggest 3 PBMs which control 80% of the 6.6 billion U.S. prescriptions (p.2) and who often “exercise significant control over which drugs are available, at what price and which pharmacy patients can use to access their prescribed medications.” (p.3) The FTC found these PBMs were steering patients to affiliated pharmacies who received higher reimbursements and profits than nonaffiliated pharmacies. (p.3) Steering was accomplished through a variety of contracting, network design, utilization management and specialty lists and designations. (pp.?11-12, 17-18, 31-37).?

The big PBMs had used their “vast bargaining leverage” (p. 49) to enter non-negotiable and incredibly “opaque and unpredictable”?(p. 55) contracts with pharmacies, allowing these PBMs to unilaterally change prices with little or no notice and pay pharmacies below their drug acquisition costs. (pp. 3-4, 49-65). Pharmacies were also subjected to unknown and unknowable post sale “adjustments” based on “inexplicable” criteria. (pp.59-65).

According to the report, the big PBMs were negotiating and pocketing rebates from drug companies?that required that they exclude patients from using lower cost medications, thereby increasing consumers’ health costs and discouraging lower cost drugs from being developed. (pp. 4, 44-45, 66-70). It also questioned why the big PBMs were creating offshore entities in Switzerland, Cayman Islands, and Ireland, suggesting it might be to make discovery harder and to avoid US taxes and regulation. (pp. 21-24).

House Committee Oversight and Accountability, The Role of Pharmacy Benefit Managers in Prescription Drug Markets (July 23, 2024)

On July 23, 2024, the House Committee on Oversight and Accountability Staff issued a 51 page report on PBMs, which in some respects, was more explicit and critical of the big PBMs than the FTC’s Report.?Instead of arresting or checking price increases, the House Report concluded the opposite had occurred: “patients are seeing significantly higher costs with fewer choices” and that?“PBMs inflate prescription drug costs and interfere with patient care for their own financial benefit.”?(p.3). The Report’s key findings included that the big PBMs:?1) were sharing patient information and data across their affiliates to steer patients to their own affiliates?and then to reduce reimbursement to nonaffiliates (pp. 4,11-15); 2) were targeting patients with maintenance and higher cost medications?and steering them to their mail order pharmacies where drugs could cost 35 times more than if filled in independent pharmacies (p.18); 3) were imposing below cost reimbursements to independent pharmacies who lose money filling some prescriptions, contributing?to the closure of 6% of them in an 8 year period (p.23); 4) were using rebates and formulary manipulations to promote high costs drugs to increase their?own profits while precluding access to lower priced drugs by the insureds (pp. 27-31); and 5) were creating foreign business entities to hide rebates and fees and avoid regulation and taxes (pp. 33-35, 38).

The impact of these PBM practices were attributed with a historically low adoption of new lower cost drugs, costing the government and taxpayers billions per year. (pp.35-40). The Report discounted Medicare?price negotiations or the anti-kickback rebate rule to make a difference but discussed prospects of numerous bills pending in Congress and the states to effect any change. (pp.46-49).