The role of pharmacy benefit managers (PBMs) in the drug supply chain and whether “anti-competitive” practices are driving up healthcare costs was scrutinized by the Senate on Thursday.
PBMs are just one player in a “broken supply chain” explained Richard Blumenthal (D-Conn.), during a Thursday hearing of the Senate Subcommittee for the Committee on Commerce, Science, and Transportation.
As middlemen, PBMs are hired by health plans to manage prescription drug benefits and, in theory, to keep costs to the health plan low by negotiating rebates with drug companies, he said.
“The problem is that patients rarely see or feel the benefits,” said Blumenthal, chair of the subcommittee. “Drug prices continue to rise. Insurance costs continue to eat into incomes, and more and more often, drugs patients need are not covered by their healthcare plan at all.”
One reason patients may not be reaping the benefits of PBM negotiations is that PBMs are incentivized to keep “list prices” — the initial price of a drug set by the manufacturer — high. PBMs receive their rebates based on the list price and get to keep a portion of those rebates; therefore the higher a drug’s initial price, the more PBMs profit, Blumenthal said.
Robin Feldman, JD, professor and researcher at UC Hastings College of the Law in San Francisco and a witness at the hearing, likened PBM practices to a store that raises the price of a jacket before later putting it back on sale at the original price. A customer walking into the store may see the markdown as a bargain, but it isn’t.
But that’s not the worst part, she said. “Imagine if the price jump is higher than the sale discount. That’s what’s happening with medicine. Prices are rising faster than the rebates,” she said, noting that Medicare prices for pharmaceuticals after rebates rose 313% on average from 2010 to 2017.
“We are buying the same jacket, but it’s costing us more and more,” Feldman said, “and a significant portion of that increase is going to the PBMs.”
Another reason these high list prices matter, even though most consumers do not pay them, is that most commercial insurers and the Medicare program base patients’ out-of pocket payments on the list price itself, not the price after rebates, Blumenthal said.
PBMs may argue that those rebates are funnelled through to insurers and ultimately lower patients’ healthcare costs, but “we have no idea whether this is accurate, because PBMs shroud this information in secrecy,” he added.
PBMs are “probably one of the least regulated areas of the drug supply chain,” said David Balto, JD, an antitrust attorney for David A. Balto Law Offices and a witness at the hearing, citing a lack of enforcement, particularly from the Federal Trade Commission (FTC).
This lack of enforcement has allowed PBMs to form a “tight oligopoly” in which three firms “dominate the market” giving them the opportunity to act anti-competitively, he said. For instance, by forcing pharmacies to “reimburse below cost” or denying a generic drug access to a health plan’s formulary because the manufacturer isn’t offering the kinds of rebates that brand name drugs provide. He compared the PBMs’ process of determining a formulary to “an auction for shelf space in which … the highest-cost products to the consumer is going to win the auction.”
Blumenthal noted that “hundreds of drugs” have been excluded by the largest PBMs every year — ranging from certain types of insulin, to cancer drugs, to medications for other chronic conditions.
“The PBM industry is the only stakeholder in the chain dedicated to seeking lower costs, and we are proud to play that role,” said J.C. Scott, president and CEO of the Pharmaceutical Care Management Association. “PBMs do that work for the employer, union health plan, and government clients who hire them and most importantly, the patients for whom those plans provide coverage.”
He argued that PBMs return $10 in savings for every $1 dollar spent on their services and “will lower the cost of health care by $1 trillion this year alone.”
One witness, Craig Garthwaite, professor and director of the Program on Healthcare for the Kellogg School of Management at Northwestern University in Chicago, also defended PBMs by arguing that in the past they offered contracts to health plans that would pass rebates to consumers at the point-of-sale. But such contracts were “routinely ignored,” he said, “in favor of capturing high rebates.”
He acknowledged that PBMs “do appear to be exploiting a lack of transparency” in the market. However, he stressed that there are ways to improve transparency and that “if we are worried about high list prices leading to high cost-sharing, we should attack that directly through congressional action.”
Ranking Member Marsha Blackburn (R-Tenn.) introduced a bill, the Pharmacy Benefit Managers Accountability Study Act alongside Sen. Mike Braun (R-Ind.) that would require the Government Accountability Office to produce a report for both HHS and Congress focused on PBMs’ role in the drug supply chain and encouraged her colleagues to support the bill.
Blackburn, Blumenthal, and the full Senate Commerce Committee Chair Maria Cantwell (D-Wash.) also sponsored a bill last year directing the FTC to report to Congress on anti-competitive practices in the supply chain.
In response to questions from Blumenthal regarding the bill, Scott said on behalf of his group representing PBMs that if the FTC were required to examine the drug supply chain, “we would not be opposed to that study.”
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