[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                      STATE OF COMPETITION IN THE
                         PHARMACY MARKETPLACES



                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                           NOVEMBER 17, 2015


                           Serial No. 114-52


         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov

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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
    Wisconsin                        JERROLD NADLER, New York
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
MIMI WALTERS, California
KEN BUCK, Colorado
DAVE TROTT, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   TOM MARINO, Pennsylvania, Chairman

                 BLAKE FARENTHOLD, Texas, Vice-Chairman

DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia                  Georgia
MIMI WALTERS, California             SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas                HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan                 DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan                SCOTT PETERS, California

                      Daniel Flores, Chief Counsel
                            C O N T E N T S


                           NOVEMBER 17, 2015


                           OPENING STATEMENTS

The Honorable Tom Marino, a Representative in Congress from the 
  State of Pennsylvania, and Chairman, Subcommittee on Regulatory 
  Reform, Commercial and Antitrust Law...........................     1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law     3
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................    14
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary    64


Amy Bricker, R.Ph., Vice President, Retail Contracting and 
  Strategy, Express Scripts
  Oral Testimony.................................................    16
  Prepared Statement.............................................    19
David A. Balto, Esq., Law Offices of David A. Balto, PLLC
  Oral Testimony.................................................    22
  Prepared Statement.............................................    24
Natalie Pons, Senior Vice President, Assistant General Counsel, 
  Health Care Services, CVS Caremark Corportation
  Oral Testimony.................................................    46
  Prepared Statement.............................................    48
Bradley J. Arthur, R.Ph., Owner, Black Rock Pharmacy
  Oral Testimony.................................................    56
  Prepared Statement.............................................    58


Material submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in Congress from the State of Georgia, 
  and Ranking Member, Subcommittee on Regulatory Reform, 
  Commercial and Antitrust Law...................................     5
Material submitted by the Honorable David N. Cicilline, a 
  Representative in Congress from the State of Rhode Island, and 
  Member, Subcommittee on Regulatory Reform, Commercial and 
  Antitrust Law..................................................    74

               Material Submitted for the Hearing Record

Material submitted by the Honorable Tom Marino, a Representative 
  in Congress from the State of Pennsylvania, and Chairman, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law    90
Material submitted by the Honorable Doug Collins, a 
  Representative in Congress from the State of Georgia, and 
  Member, Subcommittee on Regulatory Reform, Commercial and 
  Antitrust Law..................................................   103
Response to Questions for the Record from Amy Bricker, R.Ph., 
  Vice President, Retail Contracting and Strategy, Express 
  Scripts........................................................   108
Response to Questions for the Record from Natalie Pons, Senior 
  Vice President, Assistant General Counsel, Health Care 
  Services, CVS Caremark Corportation............................   115
Response to Questions for the Record from Bradley J. Arthur, 
  R.Ph., Owner, Black Rock Pharmacy........................122
                       deg.OFFICIAL HEARING RECORD
          Unprinted Material Submitted for the Hearing Record

Material submitted by the Honorable Tom Marino, a Representative in 
    Congress from the State of Pennsylvania, and Chairman, Subcommittee 
    on Regulatory Reform, Commercial and Antitrust Law. These 
    submissions are available at the Subcommittee and can also be 
    accessed at:


Material submitted by the Honorable David N. Cicilline, a 
    Representative in Congress from the State of Rhode Island, and 
    Member, Subcommittee on Regulatory Reform, Commercial and Antitrust 
    Law. This submission is available at the Subcommittee and can also 
    be accessed at:


Material submitted by the Honorable Doug Collins, a Representative in 
    Congress from the State of Georgia, and Member, Subcommittee on 
    Regulatory Reform, Commercial and Antitrust Law. This submission is 
    available at the Subcommittee and can also be accessed at:




                       TUESDAY, NOVEMBER 17, 2015

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 3:33 p.m., in 
Room 2124, Rayburn House Office Building, the Honorable Tom 
Marino (Chairman of the Subcommittee) presiding.
    Present: Representatives Marino, Goodlatte, Issa, Collins, 
Ratcliffe, Bishop, Johnson, Conyers, DelBene, Cicilline, and 
    Staff Present: (Majority) Anthony Grossi, Counsel; Andrea 
Lindsey, Clerk; (Minority) Slade Bond, Counsel; and James Park, 
    Mr. Marino. Good afternoon. The Subcommittee on Regulatory 
Reform, Commercial and Antitrust Law will come to order. 
Without objection, the Chair is authorized to declare recesses 
of the Committee at any time. I don't foresee any because that 
was the last vote for the day.
    We welcome everyone to today's hearing on the State of 
Competition in the Pharmacy Benefits Manager and Pharmacy 
Marketplace. And I now recognize myself for my opening 
    When a patient visits a doctor who recommends and 
prescribes medication, the patient rarely receives the 
prescription drug directly from the doctor. Instead, the 
patient submits his prescription to a pharmacy which then 
dispenses that ordered medicine. While this may appear to the 
patient as a relatively simple exchange, behind the scene 
exists a complex system. Within this system is a variety of 
different players who engage in millions of interactions that 
influence the types of drugs that are available and the prices 
that patients pay for them.
    Two of the key players in this process are pharmacy benefit 
managers and pharmacies. Today's hearing will examine the state 
of competition in these two important markets. Pharmacy benefit 
managers or known as PBMs, play an important role in the 
healthcare system. PBMs oversee and administer the prescription 
drug benefits for more than 247 million Americans, or 
approximately 95 percent of Americans who receive drug 
    Through the management of these benefits, PBMs perform a 
number of varied services. They negotiate the prices of 
prescription drugs with manufacturers and wholesalers. PBMs 
design drug formularities that dictate the drugs that will be 
covered under a benefit plan and the cost-sharing portion the 
patient will bear for each drug. PBMs also negotiate with 
pharmacies to determine which pharmacies will participate in 
their networks, the fees that each pharmacy will receive for 
dispensing drugs, and the amount the pharmacy will be 
reimbursed for each drug.
    By virtue of their central position in the administration 
of prescription drug benefits, some would argue that PBMs have 
the ability to place downward pressure on the prices of drugs. 
PBMs also can achieve efficiencies that result in savings both 
to the ultimate patient and the payer of health benefits. 
Pharmacies also play a critical role in the delivery of 
medicine to Americans. In addition to purchasing prescription 
drugs, they typically are the entities that directly engage 
with the patients. As someone who represents a district with 
many rural communities, I know firsthand how important 
pharmacies, particularly independent pharmacies, are to their 
customers. Many times these independent pharmacies develop 
meaningful relationships with their customers and provide 
essential assistance when dispensing the prescription drugs.
    Together with doctors, pharmacies are part of an integral 
team that ensures patients are receiving the proper drugs in 
the correct amounts and administered in the appropriate 
fashion. I have been an ardent supporter of independent 
pharmacies throughout my time in Congress. In both the 112th 
and the 113th Congress, I introduced legislation that would 
grant independent pharmacies a specific exemption to the 
antitrust laws when negotiating contract terms for provisions 
of healthcare items or services. This would have potentially 
given the vast network of isolated independent pharmacies a 
stronger competitive footing relative to larger national 
    Whether this exemption is needed is another item to 
consider today. Many PBMs also provide pharmacy services, 
either through their own brick-and-mortar locations or through 
mail-order services. As a result, PBMs may negotiate services 
with competitors to their own pharmacies. Over the years, this 
has resulted in tensions between certain pharmacies and PBMs. 
The antitrust enforcement agencies have periodically reviewed 
PBM activities, finding in some instances that these activities 
are appropriate and stepping in when they are not.
    Today's hearing with allow us to become better educated 
about the services that PBMs and pharmacies provide. The 
hearing also will allow us to review whether the proper 
economic incentives are in place to ensure that customers are 
receiving affordable prescription drugs and to explore some of 
the historic tensions between certain PBMs and pharmacies.
    The public record generated today will also assist the 
Committee with its oversight authority of the antitrust 
enforcement agencies. We have before us Express Scripts and CVS 
Caremark, two of largest PBMs and pharmacy companies. They will 
provide an inside and first-hand perspective of PBM and 
pharmacy operations, as well as an invaluable viewpoint into 
the prescription and pharmacy industry at large. Additionally, 
we will hear from a representative of independent pharmacies 
and one of the experts covering both of these markets. I look 
forward to today's discussion from this excellent panel of 
    The Chair now recognizes the Ranking Member of the 
Subcommittee on Regulatory Reform, Commercial and Antitrust 
Law, Mr. Johnson of Georgia, for his opening statement.
    Mr. Johnson. Thank you, Mr. Chairman. Today's hearing is a 
welcome opportunity to continue this Subcommittee's examination 
of competition in the healthcare marketplace. The topic of 
today's hearing, competition in the pharmacy marketplace, will 
explore the role of pharmacy benefit managers, or PBMs, in 
ensuring competitive and affordable drug prices for American 
consumers. In the pharmacy marketplace, PBMs serve as the 
intermediary between the manufacturers and wholesalers of 
prescription drugs and the payers of health insurance benefits. 
In their role as the intermediary in this market, PBMs 
administer prescription drug benefits to approximately 95 
percent of Americans who receive prescription drug benefits. 
Furthermore, through their contracts with health payers such as 
health insurance companies, PBMs are responsible for 
negotiating the cost and availability of prescription drugs 
with manufacturers and wholesalers.
    In short, PBMs are a critical gatekeeper in the 
prescription drug benefit system. It is, therefore, imperative 
that we fully understand the functioning of this market from 
both a competition and regulatory perspective to determine 
whether consumers are receiving the most affordable prices for 
prescription drugs. From a competition perspective, some have 
suggested that there is significant horizontal consolidation in 
the PBM market.
    And, furthermore, that this horizontal consolidation is 
compounded by the vertical integration of certain PBMs into the 
mail order and retail pharmacy market. While the Federal Trade 
Commission has studied this issue on several occasions and 
reached the conclusion that the PBM market is adequately 
competitive, as Commissioner Julie Brill has noted, the FTC has 
not conducted a further study of the PBM industry since 2005, 
other than to review the ESI Medco merger in 2012, which did 
not examine issues surrounding PBM, plan designs such as PBM 
fee and compensation transparency.
    It is therefore incumbent upon this Subcommittee to conduct 
a thorough inquiry on this matter which I hope that today's 
hearing provides. From a regulatory perspective, it has also 
been suggested that PBMs pricing techniques, rebate schemes and 
formulary designs have resulted in higher costs to consumers. I 
hope that today's hearing also serves as a fruitful discussion 
of this topic particularly with regard to the Department of 
Labor's inquiry into this matter last year.
    As Consumers Union has noted, effective regulation and 
effective competition work hand in hand. And the less we can 
rely on effective competition, the more important it is that 
regulation ensures effective transparency to reduce the 
potential for abuse. I strongly agree. While the PBM 
marketplace is undoubtedly convoluted, today's hearing will 
serve as an important basis for determining whether consumers 
are receiving the best prices for prescription drugs or whether 
we should do more to ensure affordable and transparent markets 
for prescription drugs.
    I thank the Chair for continuing this series. And before 
closing I ask unanimous consent that the written statement of 
Lynn Quincy and George Slover of Consumer's Union be made a 
part of the record.
    Mr. Marino. Without objection, so ordered.
    [The information referred to follows:]
    Mr. Johnson. I yield back.
    Mr. Marino. The Chair now recognizes the full Judiciary 
Committee Ranking Member, Mr. Conyers of Michigan for his 
opening statement.
    Mr. Conyers. Thank you, Mr. Chairman. I join you in 
welcoming the witnesses and look forward to a very frank and 
analytical discussion of the subject matter.
    Once when I was Chairman of the House Judiciary Committee, 
the Committee reported legislation that would have granted a 
limited antitrust exemption for independent pharmacies to allow 
them to collectively bargain as to the terms and conditions of 
reimbursements from pharmacy benefit managers. This legislation 
arose from the recognition that small independent pharmacies 
struggle to compete against large pharmacy chains, particularly 
with respect to their ability to negotiate reimbursements from 
pharmacy benefit managers.
    Pharmacy benefit managers administer the prescription drug 
benefit portion of health insurance plans for private 
companies, unions, and governments. They're responsible for 
processing and paying prescription drug claims, contracting 
with pharmacies, and negotiating discounts and rebates with 
drug manufacturers, all for the ostensible purpose of keeping 
drug prices low for health plans.
    The hearing today gives us an opportunity to delve more 
deeply into the state of competition in the marketplace for 
pharmacy benefit managers and to consider its possible effects 
on consumers. To that end, we should keep the following in 
    As an initial matter, we should assess whether the market 
for pharmacy benefit managers is too concentrated and 
structurally problematic to maximize consumer benefits. 
Although estimates vary, most studies indicate that just three 
companies may control up to almost 80 percent of the pharmacy 
benefit manager market. Such concentration in any industry 
necessarily raises questions about whether the dominant firms 
can use their power to the detriment of their competitors and 
    The largest pharmacy benefit managers also own retail 
pharmacy businesses which can be in the form of a large 
national retail chain, specialty pharmacy business, or online 
mail-order pharmacies. According to some experts, these 
ownership arrangements create an inherent conflict of interest 
because a large pharmacy benefit manager can leverage its 
market power to benefit its retail pharmacy business by using 
exclusivity arrangements, providing more generous 
reimbursements to the detriment of small independent retail 
pharmacy competitors. Moreover, such concerns may be further 
exacerbated when the industry is relatively unregulated, as may 
be the case with pharmacy benefit managers.
    In addition, we should consider whether a lack of 
transparency with respect to operations of pharmacy benefit 
managers helps or hurts competition. Some critics of pharmacy 
benefit managers assert that the lack of transparency makes it 
difficult to assess whether they are fully passing on whatever 
savings they may have obtain from drug manufacturers. These 
critics contend that the substantial rise in profits for 
pharmacy benefit managers in recent years suggest that such 
savings are not in fact being passed on to consumers.
    Critics further assert that it is hard to know whether 
pharmacy benefit managers are providing fair reimbursements for 
generic drugs to small independent retail pharmacies given the 
lack of publicly available information about how pharmacy 
benefit managers determine such reimbursements. If these 
allegations are true, the lack of transparency may well make it 
difficult for health insurance plans to secure the lowest costs 
or the best quality service for consumers.
    Now, while some criticize what they see as lax antitrust 
enforcement in the pharmacy benefit manager marketplace, there 
is a broader question of whether more direct regulatory 
measures are needed beyond stronger antitrust enforcement. And 
that's what makes what the witnesses have to say here today 
very important as we on this Committee decide what direction we 
should pursue.
    And I thank the Chairman for the time.
    Mr. Marino. Without objection, other Members' opening 
statements will be made part of the record and I ask unanimous 
consent to enter in some statements and documents for the 
record. Representative Carter, Republican from Georgia; 
Representative Blum, Republican from Iowa; America's Health 
Insurance Plans; American Pharmacist Association; and 
Pharmaceutical Care Management Association.*
    *Note: The material submitted by Mr. Marino is not printed in this 
hearing record but is on file with the Committee. See also ``For the 
Record Submission--Rep. Marino'' at:

    Hearing no objection, so ordered.
    I will begin by swearing in our witnesses before 
introducing them. So would you please stand and raise your 
right hand.
    Do you swear that the testimony you are about to give 
before this Committee is the truth, the whole truth and nothing 
but the truth, so help you God?
    Let the record reflect that all of the witness have 
responded in the positive.
    Please take your seat.
    We have four distinguished witnesses today. And starting at 
my left is Ms. Bricker. She is the Vice President of retail 
channel management, contracting and strategy at Express 
Scripts, Incorporated. Prior to joining Express Scripts, Ms. 
Bricker was the Regional Vice President of account management 
at Walgreen's Health Services as well as the Director of 
community retail pharmacy at BJC Healthcare. Ms. Bricker is a 
graduate of St. Louis College of Pharmacy, and is a registered 
pharmacist in Missouri. Welcome.
    Mr. Balto, who has been with us before on other occasions 
is an antitrust attorney with over 15 years of government 
antitrust experience. Mr. Balto worked as a trial attorney in 
the antitrust division of the Department of Justice and in 
several senior level positions at the Federal Trade Commission 
during the Clinton administration. He received his B.A. From 
the University of Minnesota and his J.D. From the Northeastern 
University School of Law. Welcome, sir.
    Ms. Pons is the Senior Vice President and assistant general 
counsel at CVS Health. Prior to joining CVS in 2011, Ms. Pons 
was the chief compliance officer at AdvancedPCS and a senior 
legal counsel at PCS Health Systems. Ms. Pons earned her 
bachelor's degree in business administration from the 
University of Iowa College of Business, and her J.D. From the 
University of Iowa College of Law. Welcome.
    Mr. Arthur is the president of the National Community 
Pharmacist Association and the owner of two independent 
pharmacies in Buffalo, New York, which have been serving their 
community since 1957. Mr. Arthur is active in the pharmacist 
community and has served on various business and pharmacy 
boards during his career. Mr. Arthur earned his bachelor's of 
science degree from the University of Florida College of 
Pharmacy, and his micro MBA certificate from the State 
University of New York at Buffalo.
    Each of the witnesses' written statements will be entered 
into the record in its entirety. I ask that each witness 
summarize his or her testimony in 5 minutes or less. And to 
help you stay within the time, there is a light in front of 
you. Now, as I'm intent on making my statements--I'm not 
looking at any lights and I'm not looking at any clocks. I have 
people up here that nudge me. What I will politely and 
diplomatically do when we're getting close, when you hit that 
5-minute mark, I will again diplomatically raise the gavel and 
try to get your attention and ask you by doing that to wrap up 
your statement if you would do that, please.
    Ms. Bricker, would you like to make your statement, please.
    Turn on the microphone, please. Thank you.


    Ms. Bricker. Chairman Marino, Ranking Member Johnson, and 
other Members of the Subcommittee, my name is Amy Bricker. I'm 
a licensed pharmacist and serve as vice president retail 
contracting and strategy for Express Scripts. Thank you for the 
opportunity to be here today and share our perspective on 
competition in the pharmacy benefits manager and pharmacy 
    Express Scripts is the Nation's largest pharmacy benefit 
manager or PBM. We provide pharmacy services to roughly 86 
million Americans covered by our clients which are large 
employers, health insurers, labor unions, TRICARE, Medicare, 
Medicaid, and marketplace plans. Express Scripts employs more 
than 25,000 hard working dedicated employees nationally. We 
have more than 2,000 employees in Pennsylvania, and more than 
700 in the State of Georgia. Our number one goal is to make 
prescription drugs safe and more affordable for our patients 
and clients. Everything we do at the company is aimed at that 
goal. In a changing system, the demand for pharmacy services 
and prescription drugs has never been stronger. When used 
properly, prescription drugs keep patients healthy and costs 
lower for everyone. As the Subcommittee examines PBM and 
pharmacy competition, we want to emphasize three takeaways.
    First, the PBM marketplace is extremely competitive. Dozens 
of national and regional PBMs offer payers competing services 
and products. PBMs compete on price, data analytics, customer 
service, pharmacy access, clinical support services, and many 
other factors. Payers have a wide choice of PBMs and use that 
power to demand favorable pricing and contract terms. Express 
Scripts is an independently operated PBM. Some PBMs are owned 
by chain drug stores while others are owned by health insurers. 
We believe our independent business model provides our clients 
with a clear choice when choosing a PBM. By operating 
separately from both the supply chain and the distribution 
channels, we stand alongside our clients as an independent 
counterweight in the marketplace.
    Second, scale matters. Express Scripts scale allows it to 
negotiate discounts from drug manufacturers and pharmacies that 
lower costs for our clients and patients. Express Scripts 
creates competition by forcing drug makers to compete against 
one another for placement on planned formularies and to gain 
market share. In a similar way, Express Scripts creates 
competition among more than 68,000 retail pharmacies 
nationwide. We contract either individually with retail 
pharmacies or through group purchasing organizations called 
PSAOs which represent networks of pharmacies. Like large chain 
pharmacies, PSAOs combine the bargaining power of thousands of 
independent pharmacies when negotiating with PBMs. In fact, the 
largest PSAOs are as sizable as chain pharmacies.
    Under Medicare part D, the TRICARE program and some private 
plans, we must ensure patients have access to a minimum number 
of pharmacies within a region. In rural areas, independent 
pharmacies know that Express Scripts needs them in our network 
to meet Medicare access rules and thus command a premium. In a 
changing system, our scale helps drive savings. Brand drug 
makers may have short term pricing power when bringing a 
breakthrough drug to market. However, our scale helps level the 
playing field when a brand or generic competitor merges. Scale 
also allows us to drive a hard bargain and lower costs for 
patients, clients, and taxpayers.
    In 2014, prescription drug spending grew more than recent 
years. Much of this grown was driven by an increase in the unit 
cost of prescriptions, the prices manufacturers charge. But 
across our clients, closely managed plans spent nearly one-
third less per member on traditional medications when compared 
to unmanaged plans. The tools we use help lower costs for 
clients and patients. Any effort to undermine our tools will 
mean higher costs for patients and payers.
    The third takeaway relates to independent pharmacies. In a 
changing system, independent pharmacies are more than holding 
their own. This is great news. The National Community 
Pharmacist Association recently published its annual digest, 
and it contains important data. One, the number of independent 
pharmacies has held steady over the past 4 years, even with the 
increasing rate of acquisition of independents by retail 
chains. Two, over the past decade gross profits have held 
steady at around 23 percent. And, third, over the past decade, 
annual sales per store have hovered between $3.6 and $4 million 
per year.
    In conclusion, Express Scripts values our relationships 
with our pharmacy partners, including independent pharmacies. 
Without independent pharmacies we could not offer clients and 
patients a high quality pharmacy benefit. The key lesson of the 
past 5 years is that effecting change requires stakeholders to 
work together. Rather than pit one part of the pharmacy against 
another, we can and must work together to lower costs for 
payers and improve patient outcomes.
    Thank you again for the opportunity to be here today. 
Chairman Marino and Ranking Member Johnson and other Members of 
the Subcommittee, I am happy to answer any questions that you 
might have.
    Mr. Marino. Thank you.
    [The prepared statement of Ms. Bricker follows:]
    Mr. Marino. Mr. Balto.


    Mr. Balto. Thank you, Mr. Chairman, Ranking Member, for 
inviting me to testify today. This is a very important subject. 
My testimony today is based on my years as a government 
enforcer and in representing consumers, public interests 
groups, PBMs, payors, and pharmacies, and PBM matters. And I've 
testified on several occasions for consumer groups. I have a 
simple message. By any measure the PBM market is severely 
    If you look at my testimony on pages 7 and 8 you see that 
profits are increasing rapidly. Margins are increasing rapidly. 
By any measure this market is not behaving competitively. Why 
is that? Normally for a market to function effectively, you 
need threes things: choice, transparency, and a lack of 
conflicts of interest. On all three of these measures, the PBM 
market receives a failing grade. Think about just the issue 
of--my testimony documents how as drug prices are increasing 
PBMs are increasing their profits too. They're profiting from 
increased prices through increased rebates. You don't have to 
guess about this. If you look at page 7 of the Consumer Union 
testimony, they document instances where there have been 
government enforcement actions where PBMs have forced consumers 
to higher priced, less efficacious drugs in order the maximize 
their rebates. Now, normally a payor faced with this situation 
would go and ask for information on rebates. But the PBMs won't 
provide that. They won't provide that kind of transparency.
    Now, in the Department of Labor proceeding that the Ranking 
Member mentioned, the Department of Labor is considering 
careful regulation to require transparency. And on one side of 
the table, you have Fortune 50 corporations, Consumers Union, 
and the AFL-CIO all saying: We want that greater transparency. 
And who pops into the room but the FTC. And the FTC says: No. 
Transparency regulation would be a bad idea. We know what 
marketplace realties are, but economic theory teaches us that 
transparency would be bad.
    I don't know what counts as regulatory chutzpah to this 
Committee, but to me that's really regulatory chutzpah. 
Obviously the Department of Labor and other entities should go 
and regulate and require the kind of transparency that these 
PBMs fight tooth and nail to try to avoid.
    Why do these problems occur? Because the FTC has 
effectively made this a regulatory free zone. They have stopped 
investigating mergers. The last two big PBM mergers they didn't 
even require a document or conduct a deposition. Including CVS' 
acquisition of Omnicare which major consumer groups cried out 
do an investigation, but the FTC says, no.
    What does this mean for consumers? First it means these 
folks can go and merge at will. If these two companies wanted 
to merge tomorrow, if they wanted to go to the FTC's marriage 
chuppah, and ask it be merged, we don't know what would keep 
the FTC from saying no by the standards they are applying 
today. But there are worse effects. When you wonder about why 
Walgreens would acquire Rite Aid, it is so that they can battle 
against the dominance of these PBMs so they can have a fair 
seat at the table. Now that may or may not be a good merger, 
but the need for that merger is on the FTC's doorstep.
    But, when you create an enforcement free zone, everybody 
listens. It is not just the PBMs who will engage in 
increasingly abusive conduct, increasingly abusive conduct. 
It's everybody else. So a pharmaceutical manufacturer who says 
what keeps me from increasing prices 6,000 percent? The FTC is 
asleep at the switch, let me do that.
    What does this Committee need to do? First, pass 
legislation to provide for a fair MAC transparency. The 
consumers care about whether or not community pharmacists know 
what they are buying a drug for, because that pharmacist is the 
consumer's agent. And when they are forced to dispense drugs 
below cost, everybody suffers except PBMs which are increasing 
their profit.
    Second, go and investigate in restricted networks, 
restricted part D networks but especially restricted networks 
for vulnerable consumers who have critical disabilities and 
specialty drugs. Specialty drug spending is increasing 
dramatically. That's the major mover to drug spending. And 
having a market where the PBMs increasingly force consumers 
into their own specialty pharmacies is sort of like putting the 
fox in charge of the hen house.
    Third, the PBMs have a new--there's a new approach in going 
and attacking patient assistance programs. Patient assistance 
programs are programs by pharmaceutical manufacturers to enable 
patients to afford drugs they might otherwise not be able to 
afford. Those also should be investigated.
    The most important thing I say in my testimony, and I 
really urge the Committee to spend time looking at this is what 
I say on page 6, it is really heartfelt and it is based on 
years of representing consumers. Who represents the consumer 
when in getting drugs it's the pharmacist who represents the 
consumer. The pharmacist, as the Chairman has indicated, will 
go to battle with the PBMs to make sure the consumer receives 
the right drug at the right price and they need to be 
protected. I welcome any questions you have.
    Mr. Marino. Thank you, sir.
    [The prepared statement of Mr. Balto follows:]
    Mr. Marino. Ms. Pons.


    Ms. Pons. Thank you. Good morning, Chairman Marino, Ranking 
Member Johnson and Members of the Subcommittee. My name is 
Natalie Pons and I'm senior vice president and assistant 
general counsel with CVS Health. We appreciate the opportunity 
to testify on the critical role that pharmacists and pharmacies 
play in local community all across America in providing 
convenient access to affordable high quality prescription drugs 
within the vibrant marketplace in which we compete.
    From our company's earliest days CVS Health has been 
singularly focused on helping people on their path to better 
health. Our values are the same as those of our consumers, 
businesses and communities we serve. We want to make health 
care more accessible and help improve health outcomes in more 
affordable effective ways.
    Our goal is to work with health plans, employer plans and 
government plans who contract with us to ensure that their 
enrollees have access to a well coordinated, safe and 
affordable prescription drug benefit.
    Our patient centered model is organized around how 
consumers access and use medication. It provides multiple 
points of care and extends across all of our business units. 
Our pharmacy benefit management program, our retail mail 
specialty and long-term care pharmacies, our Medicare part D 
plan and our MinuteClinics.
    In addition to our active medication adherence and care 
coordination for chronically ill patients, we also provide 
access to key preventative care such as vaccinations, smoking 
cessation and weight loss programs.
    Our overriding commitment to improving American's health is 
the main reason we decided to end tobacco sales last year and 
forego $2 billion in annual revenue. CVS Health is proud of its 
commitment to and success in constraining prescription drug 
costs through the discounts in savings we share with our 
consumers business, labor, health plan and government partners 
while helping to improve outcomes.
    Using our clinical tools we're able to help keep premiums 
low and save tens of billions of dollars for patients, 
employers and taxpayers. Our success is driven by on how 
effectively we help our partners and patients achieve the best 
return on their health care dollars. We manage prescription 
drug benefits on behalf of a diverse set of purchasing partners 
that include health plans, as well as employer and government 
plans including Medicare part D and State managed Medicaid 
    Health care purchasers rely on pharmacy benefit managers to 
negotiate the lowest possible prices from drug manufacturers, 
put together networks that provide convenient access to 
pharmacists and pharmacy services and provide a portfolio of 
clinical programs and services that help ensure positive 
outcomes and secure overall value for both the patients and 
clients alike.
    To help us achieve this outcome, we encourage the use of 
cost effective generics over more expensive branded products 
which helps consumers and plans save money on prescription 
drugs, without compromising clinical efficacy. To be clear 
though, our role in the design of these plans is advisory, the 
plans always have the final say when creating their drug 
benefit and how it is implemented.
    Competition in the PBM industry has aptly described as 
vigorous by the Federal Trade Commission. In fact there are 30 
different large and mid sized PBMs that offer businesses, 
Labor, consumers and government a variety of choices when 
considering options for best managing of pharmacy benefit.
    In addition, the pharmacy marketplace is a very competitive 
one, with over 60,000 pharmacies in the United States, 
consumers in all parts of the country have many outlets to fill 
their prescriptions. To ensure broad based access our PBM 
contracts with every category of pharmacy, including drugstore 
chains, grocery stores and over 20,000 independent pharmacies. 
We welcome competition indeed our success is predicated on it. 
Healthy competition drives innovation and allows us to 
effectively help the consumer business labor health plan and 
government partners that we serve achieve the best returns on 
their health care investments.
    We look forward to working with the Members of this 
Committee and others to continue promoting a competitive health 
care landscape. Thank you for this opportunity to testify and 
I'll be happy to take your questions.
    [The prepared statement of Ms. Pons follows:]
    Mr. Marino. Thank you. Mr. Arthur.

                   OWNER, BLACK ROCK PHARMACY

    Mr. Arthur. Thank you, Chairman Marino, Ranking Member 
Johnson and Members of the Subcommittee. Thank you for 
conducting this hearing today and providing me the opportunity 
to share my views and personal experiences regarding the state 
of competition in the pharmacy benefit manager and pharmacy 
    My name is Brad Arthur and I'm a pharmacist owner of the 
two independent pharmacies in the Black Rock community of 
Buffalo, New York, a very historic, ethnically diverse and 
predominantly blue color community. My pharmacies have been 
serving these communities since 1957 when my dad opened his 
first pharmacy. I'm also the President of the National 
Community Pharmacists Association which represents the 
pharmacists owners, managers and employees of nearly 23,000 
independent community pharmacies across the United States.
    I'm here today as a healthcare provider, a small-business 
owner and hopefully to present some of my experiences and those 
of my fellow independent pharmacists in dealing with the PBM 
    Community pharmacies represent the most accessible point in 
patient centered health care, where typically consumers do not 
need an appointment to talk with a pharmacist about 
prescription medications, over-the-counter products or really 
any health related concern.
    In this way community pharmacies also serve as the safety 
net health care provider on the front lines. Not only in 
natural disasters which occur often in Buffalo, tornados, 
hurricanes, flooding, whatever it may be, everyday when 
patients need help, their independent pharmacies are there to 
    According to the Pharmaceutical Care Management 
Association, PBM has managed pharmacy benefits for over 253 
million Americans. Three large companies lead the PBM market. 
Express Scripts, CVS Health, and OptumRx. In total the cover 
more than 180 million lives in the United States or roughly 78 
percent of Americans whose pharmacy benefits are managed by a 
PBM. In addition, the annual revenues for these three entities 
are staggering. In 2014, annual revenues for Express Scripts 
were approximately $100.9 billion. Annual revenues for CVS 
Health were 139.4 billion, and for OptumRx $31.97 billion. In 
2015, OptumRx acquired Catamaran and other PBM which reported 
annual revenues to combine into that number of $21.67 billion.
    Why should the Federal Government be concerned about this 
dynamic for large plans? Including the Federal Medicare part D 
program which was mentioned today, TRICARE the FEHBP. There are 
only three PBMs to choose from. Because although there are 
other PBMs, none of them in spite of what we've heard are large 
enough to administer the prescription drug benefits for these 
programs. The big three PBMs control almost 80 percent of the 
entire market and these PBMs have the upper hand, both in 
negotiating the contract of the payer, as well as strongly 
influencing the actual plan design itself. The PBM industry 
typically states that they can use their economic power to 
harness enhance market efficiencies, but for whom? However, the 
staggering annual revenue that continue to grow each year of 
the big three suggest that these efficiencies are going 
directly to their corporation's bottom lines.
    Small community pharmacies like mine are faced on a daily 
by basis with the impact of the PBM's disproportionate market 
power. Community pharmacies routinely must agree to take it or 
leave it contracts from the PBMs just to continue to serve our 
long-standing patients.
    As if that weren't, enough, the PBMs also directly set the 
reimbursement rates for pharmacies, the very same pharmacies 
that stand in direct competition of some of these PBM owned 
mail order and specialty pharmacies. Therefore it comes as no 
surprise when the PBMs present employer and government payers 
with carefully tailored suggested plan designs that steer 
beneficiaries to these PBM owned entities.
    As the owner of two pharmacies, I have limited ability to 
negotiate network participation or reimbursement terms with 
these entities. However, from a business standpoint, community 
pharmacies can't just walk away from these contracts. If we 
did, I would lose a significant amount of the prescription 
revenue given the large share of these covered lives that these 
PBMs represent.
    Although many independent community pharmacies rely on 
pharmacy services organizations to contract on their behalf, 
these PSAOs are no match for the PBMs. In 2013, the GAO 
conducted a study on the role and the ownership of the PSAOs 
and stated that over half we spoke with reported having little 
success in modifying certain contract terms as a result of the 
negotiations. This may be due to the PBMs use of standard 
contract terms in the dominant market share of the largest 
PBMs. Many PBM contracts contain standard terms and conditions 
that are largely nonnegotiable.
    Mr. Chairman, that's the conclusion of my testimony. I 
welcome any questions.
    Mr. Marino. Thank you.
    [The prepared statement of Mr. Arthur follows:]
        Prepared Statement of Bradley J. Arthur, R.Ph., Owner, 
                          Black Rock Pharmacy


    Mr. Marino. The Chair now recognizes the Chairman of the 
full Judiciary Committee, Mr. Bob Goodlatte of Virginia for his 
opening statement.
    Mr. Goodlatte. Thank you, Mr. Chairman. In late July, 
Chairman Marino, Ranking Member Conyers, Ranking Member 
Johnson, and I announced a series of Committee hearings focused 
on competition in the health care marketplace. Today's hearing 
is the third in this series and will examine the competitive 
dynamics within the pharmacy benefit manager or PBM and 
pharmacy markets. PBMs oversee the administration and 
management of prescription drug benefits. In that capacity PBMs 
interact with nearly every step of the prescription drug supply 
chain. Consequently, they have the ability to extract lower 
prices for prescription drugs and have had some success in 
doing so.
    However, notwithstanding pressure from PBMs drug prices 
continue to rise. A recent Wall Street Journal investigation 
found that increases in drug prices routinely outpaced 
inflation and often by a significant amount. These increases 
were found despite reduced demand drug studied and even in the 
face of new competing drugs.
    If true, this represents a troubling trend as Americans 
face a progressively aging population and an ever growing 
amount of taxpayer money used to fund the purchase of 
prescription drugs. Through today's examination of competition 
within the PBM and pharmacy markets, we should explore whether 
the proper economic incentives exist for PBMs and pharmacies to 
place a genuine check on rising drug prices.
    Another challenge facing the country and my constituents is 
affordable and accessible health care in rural communities. 
Independent pharmacies play a critical role in the delivery of 
personal prescription drug care, especially in rural areas.
    During my tenure in Congress, I've seen many community 
pharmacies in my district shudder their doors. While we should 
allow the free market to operate, we should also ensure that 
there is a level playing field for both large and small 
pharmacies. Today's discussion will help shed some light on the 
nature of the competitive playing field in the pharmacy market.
    Since the enactment of the Affordable Care Act, I 
consistently have expressed concern that the law would compel 
consolidation across a number of health care industries. My 
fears appear to be coming true. Both the PBM and the pharmacy 
markets have experienced consolidation in recent years. Indeed 
Walgreens and Rite Aid recently announced their intent to merge 
and CVS's purchase of Target's retail pharmacies is currently 
under review at the Federal Trade Commission.
    This Committee has held hearings on past PBM consolidation, 
including the merger between Express Scripts and Medco. While 
this hearing is not intended to review the details of any 
particular transaction, we should examine how these trends have 
impacted competition in both the PBM and pharmacy markets. 
Specifically, it will be helpful to learn what affects these 
transactions have had on prices paid by Americans for 
prescription drugs. Most importantly, we should explore whether 
market courses compel these transactions or the Affordable Care 
Act and its regulatory progeny are prompting increased 
    We have an excellent panel of witnesses before us today who 
can provide us with firsthand perspectives on the competitive 
issues facing the PBMs and pharmacies and I look forward to 
hearing their testimony.
    Thank you, Mr. Chairman.
    Mr. Marino. We are going to go into our 5 minutes of 
questioning. And as is once in a while customary, I'm going to 
wait and ask my questions last today because I really want to 
hear what the panel has to say. And so I'm going to recognize 
the Chairman of the full Committee, Mr. Goodlatte for his 5 
minutes of questioning.
    Mr. Goodlatte. Thank you, Mr. Chairman and I thank all the 
witnesses for their testimony today.
    I want to direct this question to both Ms. Bricker and Ms. 
Pons. We've all heard about the dramatic spikes in the price of 
certain prescription drugs, that were previously in the market 
for a significant period of time at stable prices. In fact, I 
was speaking about this particular issue just yesterday with 
pharmacists in my district. On a number of these drugs 
pharmacies end up taking a loss if they dispense them. I 
understand that you're not the drug manufacturer. However, you 
do have a role to play in negotiating the price and 
reimbursement of these drugs. Can you comment on this current 
    I'm familiar with one Ritalin generic drug that has gone 
from about $125 for a 30-day supply to about $600 for a 30-day 
supply just this year. I'm familiar with a tube of a medical 
cream that's gone from about $100 for the tube to $2,000 for 
one small tube. This very much concerns me and I would like to 
know what your perspective is on how this pricing is taking 
place and what you as the insurer are doing to try to hold down 
these prices and hold these companies accountable.
    Ms. Bricker. Thank you, Congressman, for the question. High 
drug prices are not a new phenomenon. We have seen this in, you 
know, over decades of managing prescription benefits. At 
Express Scripts, we encourage competition, we believe that 
competition results in a decrease in drug pricing. Oftentimes 
when drug prices increase, it's due to a shortage or it's due 
to a number of manufacturers coming out of the market. And so 
with competition you see a decrease in price.
    We're advocates for biosimilars in technology and in 
negotiating inflation protection from our brand manufacturers 
to pass on to our clients, as well as their members. So with 
that, I understand the need we hear from our plan sponsors 
regularly about the concerns that they have around increased 
drug prices and through our tools from a clinical perspective 
it is our hope to continue to manage that drug benefit in 
partnership with our plan sponsors.
    Mr. Goodlatte. Ms. Pons----
    Ms. Pons. Thank you----
    Mr. Goodlatte. Do you put pressure on these manufacturers 
to offer more reasonable prices since you're a large purchaser 
or you are a large insurer of--and CVS in your case a large 
purchaser of them as well.
    Ms. Pons. Yes, yes. Every day our company gets up and what 
we do is try to get the best prices on behalf of our clients to 
help keep their premiums down for their members and help keep 
costs affordable.
    And, you know, we'll agree, there have been some very 
egregious examples in the marketplace that I think we all find 
shocking. Beyond that, as Ms. Bricker testified, we do think 
that a combination of the clinical tools that we have available 
as well as our ability to negotiate with pharmaceutical 
manufacturers, together with some of the important policies 
that she talked about in terms of getting more competitive 
products into the marketplace, whether that's, more generics, 
more biologics, lower cost of site of care, those things in 
combination can go a long way to helping curb these issues.
    Mr. Goodlatte. Let me ask Mr. Arthur if he'd like to 
    Mr. Arthur. Yes. Thank you, Mr. Chairman. I would like to 
add that while prescription drug prices have historically gone 
up at a rate greater than the normal cost of inflation, 
throughout most of my career, the trend was just the opposite 
on the generic side. As more generic manufacturers enter the 
marketplace, the trend has been for the price to come down as 
the market responds.
    What's interesting to note is that these extremely large 
business entities have the sophistication and the examples that 
you alluded to mete this out, they have the sophistication to 
respond to these market fluctuations very quickly. The 
pharmacists that you heard from are expressing frustrations 
because when the price of the drugs goes down, the PBMs have no 
problem implementing those as the basis for reimbursement 
sometimes overnight. But there is a significant lag that is 
seriously to the detriment of the independent community 
pharmacist, because they are often times saddled with 
dispensing these much needed medications at a loss.
    Mr. Goodlatte. Let me ask both Ms. Bricker and Ms. Pons, 
another question as well. Both Express Scripts and CVS operate 
PBMs as well as pharmacies. Some have raised concerns that PBMs 
in your position have a conflict of interest due to the fact 
that your PBMs negotiate contracts with pharmacies that 
directly compete with pharmacies owned by your corporate 
parent. What is the risk of your leveraging your role as a PBM 
to gain a competitive advantage against of pharmacies that are 
outside your corporate family?
    And let me give you an example too as well. Pharmacist 
yesterday showed me a drug, I can't remember what it was, but 
the reimbursement rate from the PBM was 300 and some dollars 
less than the prescription of the prescription drug. Now they 
cannot because of their contract with the PBM, they can't turn 
around and tell the purchaser, well, I'm sorry I can't sell you 
that drug for that price. They can't turn around sell it to 
you, but you'll have to make up the difference. If they want to 
sell that prescription drug to that regular customer, they have 
to eat that 300 and some dollar cost. How is it that the 
insurance company can justify that, knowing the cost and 
knowing that you're in a competitive environment, but with a 
bigger company and therefore able to manage these costs in ways 
that a small pharmacy can't?
    How can that policy be justified of having to say, sorry, 
this is all we're going to pay you and you can't do anything 
but eat the rest of that cost. How can a small pharmacy stay in 
business in that environment?
    Ms. Pons. That's an excellent question. And a fair question 
to ask. You know, we put together our MAC list so that we can 
encourage pharmacies to try to buy generic products at the 
lowest possible cost. Having said that----
    Mr. Goodlatte. Some of these were generic products, as Mr. 
Arthur noted. In fact, the Ritalin was a generic product that 
had quadrupled in price over a very short period of time.
    Ms. Pons. Yeah. And so we want them to buy at lowest 
possible cost, but we also want them to get a fair margin. In 
order for us as a PBM to meet our commitments to our clients, 
we need to have our network have a very high dispensing of 
generic rates within the network. If we are paying pharmacies 
prices that are lower than their acquisition costs, pharmacies 
aren't going to go do that. So we try very, very hard to make 
sure that they get a fair margin.
    Are there going to be times when a particular drug they 
dispersed are under water? Absolutely. But what we do look at 
the pharmacies overall reimbursement across all of their 
generic claims to try to ensure that they are getting a fair 
margin so that they are incented to dispense as many generic as 
    Mr. Goodlatte. They showed me their records for a 
particular day. On that day they sold--their two stores in 
their operation, they sold $15,000 worth of drugs and the total 
across that entire was a net loss of a few hundred dollars. 
Again, I understand some are going to be high and you can't 
always get it right--but if the average is a net loss on a 
daily basis, how do pharmacies stay in business?
    Ms. Pons. Yeah. The other thing I would say and I think it 
is typical for other companies in the industry, there is an 
appeals process so if that's happening, you know, we're making 
certain assumptions because we don't know what every pharmacy 
in the network is buying their product at. We are trying to do 
our best to estimate what their cost is.
    And if there are situations where they are losing more than 
they are winning on, there is an appeals process where we can 
address that. Again, it is not in our interest to have 
pharmacies not want to dispense generics because it is going to 
cost our clients more money.
    Mr. Goodlatte. Thank you, Mr. Chairman. My time is long 
    Mr. Marino. The Chair now recognizes the Ranking Member, 
Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. Mr. Balto, please 
explain how a lack of transparency in the PBM marketplace may 
be undermining competition and consumer choice, and limit your 
answer to 1 minute, please.
    Mr. Balto. Oh, it is very simple, I mean, when you look at 
the problem of escalating drug prices one thing people would 
want to know is what's happening to the rebates. And since the 
merger of Express Scripts and Medco occurred it is even harder 
for plans, plans I represented to get that kind of rebate 
information. If they got the rebate information, they could 
make sure the right decisions are being made and they could get 
more of the rebates and that would result in lower costs to 
    Mr. Johnson. Thank you. Mr. Arthur, some of your fellow 
witnesses contend that PBMs benefit consumers because their 
scale allows them to negotiate effectively with drug companies 
to keep patient premiums and cost sharing manageable. What's 
your response to that?
    Mr. Arthur. Well, that's a noble go. I don't believe that 
to be the case. I think the scale that is employed is often for 
the betterment of the parent corporation. We see numerous 
examples with the implementation of Medicare part D and the 
doughnut hole. It wasn't uncommon for us to see patients due to 
the pricing methodologies at the large PBMs to be thrown in the 
doughnut hole prematurely.
    So we have all discussed about the need to use scale to 
drive down costs to consumers the reality in the marketplace. 
We haven't necessarily seen that to be the case.
    Mr. Johnson. All right. Thank you. Mr. Balto, why do you 
believe the Federal Trade Commission has not been vigorous 
enough in it's enforcement efforts with respect to PBMs, give 
me this in 30 seconds?
    Mr. Balto. I think they allowed economic theory to replace 
marketplace realities and they are failing to see the real harm 
to consumers and plans and the limitation of their choices.
    Mr. Johnson. Thank you. Ms. Bricker. Mr. Balto suggestions 
that rapidly rising profits in recent years suggest that PBMs 
are not fully passing on savings from drug manufacturer rebates 
and discounts on to health plans and consumers. What's your 
response to that?
    Ms. Bricker. Our clients demand transparency. I can't speak 
to, you know, clients that Mr. Balto represents, but the 
clients that Express Scripts represents, you know, demand 
transparency. We feel that the additional transparency that is 
being suggested could be harmful actually to competition, 
resulting in price fixing and potentially collusion.
    Mr. Johnson. Your response, Mr. Balto, in 30 seconds?
    Mr. Balto. In a competitive market, profit per script would 
not be increasing by 75 percent in 3 year period. That is a 
clear sign that the Express Script, Medco merger has been anti 
competitive and consumers are being harmed.
    Mr. Johnson. Okay. Ms. Pons, CVS recently completed the 
acquisition of Omnicare, a very large provider of long-term 
pharmacy services. From a consumer and patients perspective 
this could be concerning as now your company is both a retail 
pharmacy, PBM and LTC provider with a sizable market share. 
Although the acquisition is very new and you are still working 
on the integration, what assurances can you provide today that 
this will not negatively impact the level of service and care 
to some of the Nation's most vulnerable and fragile patients 
residing in nursing homes?
    Ms. Pons. Thank you for that question, Ranking Member 
Johnson. It is a new acquisition, we are I think already 4 
months into this after, you know, spending an extensive process 
with the FTC going through this. This is a completely new line 
of business for CVS Health, but one that we thought was very 
important to continue our various touch points that we have 
with patients. And as you point out, a very vulnerable patient 
set. And we think that with our other assets that we have, for 
those patients that leave those facilities, that we can better 
integrate them and coordinate their care better.
    So we feel like it's a great addition to what we do best, 
which is trying to coordinate care at the lowest possible cost 
and improve outcomes and we are anxious to move forward with 
    Mr. Johnson. All right. Thank you. Last, Mr. Arthur, some 
of you fellow witnesses--Well I see I'm out of time so I will--
Okay. All right.
    In response to concerns about unfair terms between 
independent pharmacies and PBMs, some have argued that 
pharmacies could simply refuse to accept the PBMs proposed 
terms and conditions or come together to negotiate more 
acceptable contract terms. Why is this not a sufficient answer 
in your view?
    Mr. Arthur. Sir to answer the first part of your question, 
98 percent of my business' is revenue comes from third party 
agreements, be they private from the private side, the 
commercial side, or from the government payer side in the form 
of Medicare--or Medicaid, excuse me. Turning away from that 
business is not a realistic option that I have. I would have no 
recourse but to close my doors. So we are in an extremely 
anticompetitive position from that point of view.
    The second part of your question we have turned to these 
entities as an attempt to negotiate, but they have also faced 
some of the same barriers that we have to truly negotiate 
contracts. When given the opportunity I as a small independent 
business have tried to strike certain terms from agreements 
only to have them push back a take it or leave it answer. So we 
haven't been successful in negotiating these either 
independently. We certainly cannot get together as a bunch of 
independents, that would be collusion. We have tried to 
circumvent that--not circumvent it--we have tried to meet that 
challenge by using the contracted entities, but they have also 
shared with us that they are a have you small fish in a big 
pond and successful at truly negotiating terms.
    Mr. Johnson. All right. Thank you Mr. Arthur. And thank 
you, Mr. Chairman.
    Mr. Marino. The Chair recognizes Mr. Ratcliffe from Texas.
    Mr. Ratcliffe. Thank you Chairman Marino. Of all the issues 
that we examine here in Congress perhaps none is more personal 
than that of health care. Americans literally trust our health 
care professionals with our lives. And pharmacists are an 
essential part of that health care, particularly in the 
communities in northern and east Texas that I represent. 
Because in many of those towns there are big chain drugstores, 
but most of the towns in the district that I represent depend 
on local community pharmacies that have been there for decades. 
And as the health care landscape evolves and becomes frankly 
increasingly complicated I want to make sure that we protect 
the pillars of the community in those types of towns in my 
    So Ms. Bricker, let me ask you a question. It is my 
understanding that your company may not update their 
reimbursement rate often enough to keep up with fluctuations in 
the marketplace. That concerns me because if a certain generic 
drug price drops rapidly and if that drop isn't updated quickly 
it would seem to me that Medicare could be paying more for a 
generic drug than it should. Is that a legitimate concern?
    Ms. Bricker. Thank you for the question, Mr. Congressman, 
in Express Scripts we have teams of people dedicated to this 
very subject ensuring that we are responsive to the 
marketplace, surveying the marketplace to ensure that our 
pricing is appropriate for our community and all retail 
pharmacies. We are updating no less frequently than every 7 
days. There are laws on the books and over 20 States across the 
country that also enforce this very thing. And so Express 
Scripts is compliant and takes seriously those laws.
    Mr. Ratcliffe. Well, I get that it is compliant. And every 
7 days is good but is it a legitimate concern in the 7 day 
period that that type of price fluctuation can occur so that 
Medicare is paying more for a drug than it should?
    Ms. Bricker. So the least frequently that it would occur is 
every 7 days. We're reviewing it daily. And if there is a 
dramatic price change that occurs within, you know, prior to 
that 7 day change, we'll make the change earlier as well.
    Mr. Ratcliffe. Okay. So I understand the cost of generic 
drugs has really skyrocketed in the last couple of years now. 
How often do you update your MAC list, those reimbursement 
    Ms. Bricker. No less frequently than every 7 days----
    Mr. Ratcliffe. Seven days okay.
    Ms. Bricker. But we are looking at it every single day. And 
so if there is change that needs to be made the following day 
we will do that.
    Mr. Ratcliffe. Okay. So, are pharmacists able to see in 
real-time what they are disbursing on a generic drug is, or are 
there fees being charged to pharmacies after the point of sale?
    Ms. Bricker. Directly at the point of sale? As you're 
standing at the counter the pharmacist is processing the 
prescription, submitting vital information to the PBM and in 
exchange roughly 3, 5, seconds they are receiving a response on 
what copay to collect if any, and what reimbursement they will 
    Mr. Ratcliffe. Okay thank you. Ms. Pons, the same question 
about the MAC list, how often are you updating them?
    Ms. Pons. We have a team of people that are constantly 
monitoring various market sources, to see what's happening with 
drug acquisition costs and are compliant with State laws that 
if there are market forces that suggest we need to make updates 
sooner than that, we do.
    Mr. Ratcliffe. Okay. Thank you. So Mr. Arthur, we are 
frequently told that PBM contracting terms are unfavorable to 
many of the independent pharmacy owners out there, however the 
PBM industry claims that those issues really shouldn't be 
resolved by legislative bodies, but instead should be left to 
the contracting parties. I guess my question to you is if the 
terms contained in PBM contracts are egregious, why don't 
pharmacies simply refuse to accept the proposed terms and 
conditions or come together to negotiate more acceptable 
contract terms?
    Mr. Arthur. I don't think it is really practical for us as 
small business owners to just refuse those contracts because as 
we learned earlier today, it impacts a significant portion of 
our business, that to walk away from those contracts would be a 
death note to our businesses. And I think it is very telling to 
your question that the reason that there is timely update to 
MAC in 20 States is because the independent community 
marketplace push for that. That didn't come voluntarily. So we 
had to push for that timely--in 20 States, and we continued to 
push for that across the entire country.
    So that has been our approach to try to create fairness 
some in the marketplace. We continue to try everyday to 
negotiate some of the egregious terms so that we can be more 
competitive. But the fact remains today that we're at such a 
disadvantage because a significant portion of our customer 
base, our patient base is impacted.
    Mr. Ratcliffe. Thank you.
    I see my time has expired. I yield back.
    Mr. Marino. Thank you. The Chair now recognizes the 
Congressman from Rhode Island, Mr. Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman. And thank you to 
our witnesses. I want to welcome you, and certainly thank you 
for your testimony and I particularly want to acknowledge the 
extraordinary corporate citizenship of CVS, a company that I 
have admired for a long time, particularly when it made its 
very courageous and impactful decision to forego selling 
tobacco products at the loss of $2 billion in revenue. But I 
think you have really set an example for health care companies 
and I just want to publicly applaud you for that.
    I want to go first in response to you, Mr. Balto has said 
in his testimony, well it was in his written testimony here 
today that plan sponsors need more transparency in order to 
make sure they are receiving the full benefits of PBM 
bargaining power and to make sure that PBMs effectively rein in 
drug costs. It sounds like a reasonable proposition would you 
respond to that claim?
    Ms. Pons. Yeah, no. We are fully supportive of transparency 
with our clients. What we are not supportive of is transparency 
of our proprietary information with our competitors and in fact 
I think the FTC has said on a number of occasions that that 
transparency can actually have the opposite affect in terms of 
reducing cost.
    And so our clients have very extensive audit rights which 
they exercise regularly, and to ensure they are getting the 
benefit of the bargain that they struck with us, so we are 
completely supportive of transparency with our clients. And if 
we did not make that available to them, they would look for 
another vendor that did.
    Mr. Cicilline. And so is it fair to conclude that your 
assessment is that the transparency related to your 
relationship with the pharmaceutical company, that it could 
produce higher costs for the consumer?
    Ms. Pons. We believe that if our competitive pricing that 
we have with our clients was made more publicly available and 
our competitors were aware of that, whether that's rebates or 
network rates or other proprietary terms, we believe that, that 
could actually result in higher prices, because there isn't an 
incentive to make your prices lower. Because then everybody's 
cannibalizing the market.
    Mr. Cicilline. And Mr. Balto also argued that PBMs 
exclusivity arrangements with some drug manufacturers can keep 
drug prices artificially high by keeping lower-price drugs off 
the market and by incentivizing PBMs through manufacturer 
rebates to switch patients from prescribed drugs to more 
expensive alternatives. Would you respond to that argument.
    Ms. Pons. Yeah. I guess I would just say that's a little 
foreign to my experience in working with the PBM day in, day 
out. We make formularies available to clients. Typically 
generics are on the first tier, preferred brands, and then 
nonpreferred brands, and the client can either elect to have 
that formulary or choose one for themselves--or make one up for 
themselves, and that's what is the foundation of their plan 
    You know, my experience is clients are very smart. They're 
very demanding. They're sophisticated. If they don't have that 
sophistication themselves, they'll higher consultants that do. 
And they're going to look for the best possible deal for 
themselves as well as offering an attractive benefit to their 
plan members.
    Mr. Cicilline. So some consumer groups have argued that 
PBMs keep the proceeds of rebates and discounts and keep a 
disproportionate share of that for themselves, and so that one 
could conclude from the rise in profits of PBMs that they're 
not fully passing on savings to health and to consumers.
    But despite that, there is a report from the FTC, August 
2005, that shows that PBM-administered prescription drug 
coverage pay between 15 and 50 percent less for drugs than non-
insured consumers by an exact same drug. And so I first ask 
unanimous consent, Mr. Chairman, that this be made part of the 
    **Note: The material submitted by Mr. Cicilline is not printed in 
this hearing record but is on file with the Committee. See also ``For 
the Record Submission--Rep. Cicilline'' at:

    Mr. Cicilline. And I'd ask Ms. Pons if you could respond to 
that claim and the findings, because my interest is what will 
get my constituents the lowest cost. And we talk a lot about 
another effort to permit the Federal Government to negotiate 
discounted prices directly with pharmaceutical companies to the 
Medicare program, which they're prohibited from doing. It seems 
like PBMs are at least achieving that through their scale. It 
seems as if that's what the report concludes, and I would just 
like you to respond to that.
    Ms. Pons. Yeah, and I think there have been a couple of 
different reports. The one I think you're referring to is the 
one in 2005 where they investigated whether there was, in fact, 
a conflict of interest between PBMs and owning mail service 
pharmacies. And the findings of that report was that they did 
not believe there was; and that, they saw that there were more 
savings with the PBM-owned mail versus a non-PBM-owned mail 
pharmacy as well as over retail pharmacies; and that mail 
service pharmacies were very good at generic dispensing and 
were very closely aligned with client incentives.
    Mr. Cicilline. And, Mr. Chairman, if I may just ask one 
final question. Mr. Balto argues in his written testimony that 
there is an ``increasing disregard of the antitrust laws in the 
pharmaceutical area'' and argues as a result that ``consumers 
suffer from a lack of choice in the marketplace.''
    And in 2009, your company was actually investigated by the 
FTC based on allegations of anticompetitive behavior. I'd 
wonder if you would just briefly state what the conclusions of 
that were, and I would ask unanimous consent that a letter from 
the Federal Trade Commission dated January 3, 2012, be 
introduced into the record.
    Mr. Marino. Without objection, so ordered.
    [The information referred to follows:]


    Ms. Pons. Yes, we did go through an investigation after the 
CVS Caremark merger that started in 2009 and I believe ended in 
2012 that looked at a number of activities but primarily trying 
to assess whether or not there was anything that was 
anticompetitive. And they looked at our firewall and a number 
of our programs.
    And at the end of the review, they determined that there 
were no anticompetitive findings, and that's in the closing 
letter. There was, however, a legacy issue around one of--a 
company that we had acquired and some information that they had 
inaccurately placed on Plan Finder, and so we had a consent 
order around that. But there was nothing related to any 
anticompetitive activity.
    Mr. Cicilline. And finally, Ms. Pons, are you familiar with 
a 2011 Visante study that found PBMs will save plan sponsors 
and consumers almost $2 trillion or nearly 35 percent between 
2012 and 2021 when compared with the prescription drug 
expenditures made without pharmacy benefit management? Can you 
speak a little bit about that.
    Ms. Pons. Yeah. And I've seen that study as well, and, you 
know, I would even say more practically day in, day out, you 
know, with the thousands of clients that we negotiate with, 
they've got very specific targets for us in terms of what we're 
going to do for savings for them in terms of, you know, 
generics and preferred brands. And so we have to live up to 
those commitments every day.
    Mr. Cicilline. Thank you.
    And I Thank you, Mr. Chairman, for the indulgence.
    I would just finally say that, you know, one issue, which 
is obviously not before this Committee, is the power and, you 
know, ability of pharmaceutical companies to really skew the 
marketplace with very little controls on their ability to 
increase drug prices. And, you know, that's an issue which I 
think is very much part of this conversation and hard to 
disaggregate, but it seems to me that the ability to at least 
have some bargaining power against these pharmaceutical 
companies in the marketplace is something that we should 
attempt to preserve as much as we can.
    And with that, I yield back.
    Mr. Marino. Agreed.
    Chair recognizes Mr. Collins from Georgia.
    Mr. Collins. Thank you, Mr. Chairman.
    You know, sometimes I think when I fly in here--I fly--and 
I've made this statement to my district before that we fly into 
a wonderland of where reality doesn't matter anymore. Case in 
point, many of the things that I've heard this afternoon give 
me cause to believe, yes, we're there again. And this is an 
issue with community and independent pharmacists that, you 
know, play a critical role in my district, in rural northeast 
    Mr. Chairman, with the unanimous consent to enter into the 
record a report from the association representing senior care 
pharmacies on MAC pricing data, a letter from BlueCross 
BlueShield on compounding pharmacies, and several statements 
and examples of PBM interactions from community pharmacies.
    Mr. Marino. Without objection, so ordered.
    Mr. Collins. Look, I appreciate our witnesses being here. I 
appreciate the chance to have a discussion, but to be truthful, 
I'm very discouraged about what I see in the pharmacy 
    Ms. Bricker, you state in your testimony PBM marketplace is 
extremely competitive. That's an interesting statement since 
three companies Express Scripts, CVS Health, and OptumRx 
control about 80 percent of the PBM market, which translates 
into 180 million lives. Not a great deal of competitiveness 
    Mr. Arthur knows too well community pharmacies routinely 
incur losses of approximately $100 or more on many 
prescriptions, because PBMs or insurance middlemen reimburse 
pharmacies well below their cost to acquire and dispense, 
generic prescription drugs that have skyrocketed in price. This 
is one of the most pressing areas that I believe demands 
congressional action.
    PBMs can wait weeks and months to update reimbursement 
benchmarks they use to compensate pharmacies while drug prices 
increase virtually overnight. That's why I introduced H.R. 244 
dealing with this issue of transparency and would encourage 
folks to be a part of that.
    Now, one of the things that has been interesting to me 
today is discussing mail order. Since PBMs own their own mail 
order pharmacies, I've seen information leading me to believe 
that a real incentive exists for them to steer patients toward 
mail order delivery.
    In fact, I've seen firsthand that a fax received by a 
community pharmacist from OptumRx indicating that he could not 
mail patients their prescriptions. Less than a month later, a 
patient gave that pharmacist a letter mailed to them from 
OptumRx touting savings they could see if they got their 
prescriptions mailed from the PBM mail order pharmacy.
    While the letter states the patient is free to continue 
using a retail pharmacy house elite, it requires notification 
to an insurance company, and it is likely that many patients 
won't have time or knowledge to know that the mail order is not 
mandatory. This is extremely concerning from an anticompetitive 
standpoint and a patient care perspective.
    Mr. Chairman, I ask unanimous consent that both of these 
documents be made part of the record. Mr. Chairman, unanimous 
consent to make these part of the record.***
    ***Note: The material submitted by Mr. Collins is not printed in 
this hearing record but is on file with the Committee. See also ``For 
the Record Submission--Rep. Collins'' at:

    Mr. Marino. They're admitted.
    Mr. Collins. All right. And given that CMS has also 
recently finalized Medicare Pard D requirement that allows PBMs 
to automatically auto ship new prescriptions without express 
beneficiary consent, this is of particular concern, and 
especially to one certain gentleman that happens to be very 
close to me, and that is my father.
    Mr. Arthur, can you share your experiences regarding PBMs 
urging mail order delivery of medications over filling them in 
the store. Has this affected your pharmacies and other 
pharmacies? And regardless of your views about PBM and their 
prices, why should we be concerned? And if you could narrow 
that down.
    Mr. Arthur. I'll take your last question first, if I may. 
And I think Chairman Conyers mentioned it was back in the early 
2000's, Campbell-Conyers, which attempted to provide limited 
antitrust exemption for independent community pharmacy. I can 
assure you that circumstances in the marketplace have 
deteriorated dramatically since that time.
    So this is a very pressing issue, and I think, you know, 
it's interesting we spend a lot of time this morning--this 
afternoon talking about one of the primary goals being to drive 
generic utilization. It's interesting to note that the generic 
utilization rate and independent community pharmacy far exceeds 
that in mail order or any other sector.
    Mr. Collins. Thank you, Mr. Arthur. I appreciate that.
    Mr. Arthur. Thank you, sir.
    Mr. Collins. I want to turn to Ms. Bricker. And you have 
talked about--and Ms. Pons as well, you have talked about teams 
of people that looked a your MAC list, your transparency list, 
teams of people that do this. I want to give you a couple of 
examples of how you actually look at this and you said within 
your 7 days.
    This is a recent example released from Avera. It says, if a 
pharmacy filled a prescription of a Omeprazole, a common 
antipsychotic, on April 16, 2014, Express Scripts reimbursed 
that pharmacy $1.20. If the pharmacy filled the same 
prescription the next day, the 17th, it reimbursed only $0.20. 
On the 18th, you paid another amount, this time $0.80. Another 
one was potassium chloride, $0.45 on the 22nd of April; 26th of 
April, $0.33; and on April 28, $0.52.
    One, I just have a direct question. Ms. Bricker, do you all 
have two sets of MAC lists? Is there two sets of lists out 
there? Do you have two lists for MAC pricing?
    Ms. Bricker. We have multiple MAC lists, yes.
    Mr. Collins. Okay. What about you, Ms. Pons?
    Ms. Pons. Yes.
    Mr. Collins. Okay. Is that just to keep the ball from being 
hidden from community pharmacies?
    Ms. Pons. No, we have multiple clients. We have thousands 
of clients, so----
    Mr. Collins. You have multiple clients. So you prefer one's 
over the others?
    Ms. Pons. We make----
    Mr. Collins. Never mind.
    Ms. Pons [continuing]. Our client list match what our----
    Mr. Collins. The issue that I have--and I appreciate that. 
And the question is answered.
    I hear from pharmacies in my community that reimbursement 
or MAC appears to be arbitrary and has little connection to 
actual price. These examples seem to indicate that. Can you 
please explain the disparities in MAC pricing you pay to these 
long-term care pharmacies? Ms. Bricker.
    Ms. Bricker. So I don't actually know the acquisition cost 
of any given pharmacy. Our policy is to survey the market based 
on a number of price points that are available, both 
confidentially to Express Scripts as well as publicly, and in 
an attempt to respond in kind to the market. And so it is--we 
make every effort to ensure that we are reimbursing a fair 
amount for prescription drugs from a generic perspective.
    We have an appeals process, that if we get it wrong a, 
pharmacy can file an appeal and provide us additional evidence.
    Mr. Collins. Ms. Bricker, have you ever told a pharmacy 
that if they appeal any more that they would be cut off from 
their plan?
    Ms. Bricker. No, I have not.
    Mr. Collins. Not you personally, your company.
    Ms. Bricker. I am not aware of ever making that statement, 
    Mr. Collins. Ms. Pons.
    Ms. Pons. I'm not aware either.
    Mr. Collins. Will you answer the question long term, that I 
asked Ms. Bricker as well on MAC pricing disparities?
    Ms. Pons. Yeah. I actually have a very similar answer to 
hers in the sense that we do our best to try to estimate what 
we think people are buying at and put a reasonable margin on 
that because we want them to dispense generics.
    Mr. Collins. Okay. So if I told you that I know pharmacies 
who have been told if you appeal and--if you appeal, we will 
deal with it in your contract, you cannot appeal this, would 
you all both find that egregiously appalling?
    Ms. Bricker. I am not aware of Express Scripts ever making 
a statement like that.
    Mr. Collins. That's not what I asked. I said, but if they 
were told that a pharmacy was told that, would you find that 
appalling that your companies would say that?
    Ms. Bricker. Yes, I actually would agree with you. You 
know, the appeals process is there to ensure that we are 
responsive to the market.
    Mr. Collins. Well, I think there's a concern because 
there's a disconnect because this is what's being told.
    I think the concern that I have here is all in all, in this 
playing field, there needs to be a level playing field. There 
needs to be a playing field for community pharmacies and 
independent pharmacies as well asker companies involved in this 
market. Right now there's not.
    And you can talk about it all you want. We can go into 
different pricing. We've already talked about multiple lists, 
and we talked about the appeals process. And we also know from 
pharmacists who have been told, if you appeal more, we will cut 
you off.
    What is even more appalling to me is when my local 
pharmacists across this country try to speak out about this, 
they received letters and discussions from PBM saying, if you 
make too much noise about this, your contract could be in 
jeopardy. That is not right. I will continue to fight this, and 
if you don't believe that it's true, it is true.
    And when we understand this--here's my concern. That in the 
coming future, because I hear from my pharmacists all across 
this country and in northeast Georgia, if it continues the way 
it is, they will be closing. And all those wonderful savings 
that are being donated from PBMs are going to be lost and close 
businesses and close lives.
    And I just have a question, who will my folks in the Ninth 
District of Georgia call when they need someone at night and 
their local pharmacist is the one they trust? Ms. Bricker, 
they're not going to call you. They're not going to find you in 
St. Louis. They're not going to find you, Ms. Pons. They're 
going to try and find their local pharmacist who is being 
closed because of the anticompetitive nature of this field. 
This needs to be addressed.
    With that, Mr. Chairman, I yield back.
    Mr. Marino. The Chair recognizes the gentleman from 
California, Mr. Issa.
    Mr. Issa. Okay. Well, I'm going to start off, Mr. Balto, in 
your statement, it's already been read a couple times, but I'll 
grab a couple of the key words you used. This is the PBMs are 
the least regulated sector of healthcare. I guess without the 
FDA they might be. Essential elements of competition are not 
there. The following are transparency, choice, and lack of 
conflict of interest. Right?
    Mr. Balto. Correct.
    Mr. Issa. And by the way, I'm not trying to make anybody a 
good guy or a bad guy. I just like to put this portion of the 
market in perspective. And I think, sort of as the witness 
against the PBM sitting between these two fine women from the 
industry, you're the one to ask.
    If I told you that from the 2010 case published, for the 
two public companies on each side of you, that, for example, 
Express--and of course they've got mergers. There's other 
factors. But they're annual reports. Express Scripts went from 
about $42 billion in 2010 to $100 billion in gross revenues. 
Their profit, gross profit went from $2 billion to $3 billion 
during that period. After tax revenue went from $1.2 billion to 
$2 billion during that period of time.
    On the other side, CVS, a bigger company, getting bigger, 
and in the retail space, so it's a little more complex to 
follow them, went from $97 billion to $139 billion. They went 
from $6 billion in profit to $9 billion in profit. And they 
both went up slightly in their per share.
    Let me ask you a question. If somebody sells, for example, 
$100 billion worth of product and makes $2 billion after 
expenses and taxes, just one question: Where do you think those 
excess profits are that you say are there?
    Mr. Balto. Well, first of all, Congressman, what we're 
looking at are entities that are moving information and are 
    Mr. Issa. No, no. But I'm asking a question to you that is 
narrow, and I want to make sure that I don't get a--I don't 
know. You had an opening statement, so please stick to the 
question because I'm going to ask the others questions.
    Mr. Balto. I wanted to explain it----
    Mr. Issa. If a company makes--if you're qualified to answer 
on the financial part, if you sell $100 billion and you make $2 
billion--and I checked, and they have had this same chairman 
for a long time and he gets decent compensation, but it's in 
the millions not the billions. So from a material standpoint, 
they don't have but 2 percent of gross sales in profit.
    Now, unless there's money hidden under a mattress, my 
question for you--and I'll use Express Scripts. I could use 
either but Express Scripts is a much simpler company--they're 
basically a wholesaler middleman. They drive down their cost of 
distribution, particularly their mail order process; they 
negotiate the lowest prices they can; they squeeze, if you 
will, the retailer on one end as much as they can, Pfizer and 
the other pharmaceuticals on the other, and they end up with, 
you know, a buck and-a-half a share for their stockholders or 
about $2 billion, and it hasn't gone up or down in a major 
    So my question to you is, is it the lack of, as you said, 
the lack of transparency in competition, is that really at any 
of these pharmaceutical companies--and I realize there's a 
difference in, if Ms. Bricker's company makes $2 billion, it 
might drive Mr. Arthur's company out of business because of 
their ability to buy and so on.
    There's no question--we could have a discussion between 
retail and wholesale and their tactics, and of course, with 
CVS, an integrated company that has both. And I'd like to give 
you a chance to answer that if you'd like to throughout the 
    But the real question is, where are these excess profits 
that you're alleging? If I go to Pfizer or any other number of 
large successful pharmaceutical companies, I will find after-
tax revenues in as much as double digit of their gross sales.
    So my question to you is, where is the evidence of that? 
Quickly. And then I'd like to others to answer. Because I'd 
like to understand that part, which I think for this Committee, 
looking at competition, and whether they need to be regulated, 
this is a big question.
    Mr. Balto. Sure. And I'd like to respond to you in writing 
because it's a complicated question.
    Mr. Issa. Okay.
    Mr. Balto. But in my testimony, looking at just their 
margins, their margins have increased substantially. But let me 
answer you more carefully in writing about what the answer is.
    Mr. Issa. Okay. And for the two wholesale pharmacies, and 
I'd like to also include the retail quickly, if there were more 
transparency and a more level pricing for what a particular 
pill or two cost, and instead of a complex set of rebates and 
negotiations, if we look to these monopolies, particularly, 
people who have an exclusive and said, look, we don't care what 
you sell it for and how much, but you can't be all over the 
place on prices such that these MACs are so different. Would 
that really affect your business model in an adverse way?
    I know, quickly, for Mr. Arthur, he would love to see a 
price where the price is the price to a certain extent, and 
only discounts are truly based on volume, you know, the truck 
delivery versus the UPS delivery. Because that certainly would 
change these disparities that are driving retail out.
    Quickly, I apologize, Mr. Chairman, if they could answer.
    Ms. Bricker. So scale matters. And, you know, in a free 
market where you're able to buy in a larger quantity, we've 
seen this not just in pharmacy but in other aspects in other 
industries. And, so yes, it would be absolutely detrimental to 
our plan sponsors to have fixed pricing, if you will. But with 
that said----
    Mr. Issa. Actually, it was cost bases from a monopoly, more 
like a public utility. You can buy your electricity cheaper 
from an exclusive source that has to sell it to you if you're a 
volume user, but the difference is based on actual earned 
discounts. But go ahead, please.
    Ms. Bricker. But our MAC is responsive to that very thing. 
I understand, you know, when I'm establishing MAC that I'm not 
going to establish MAC for an independent pharmacy the same as 
that of a large retailer that can purchase the product at, you 
know, a much more deeply discounted rate. And so it's our 
attempt to do that.
    Our plan sponsors, you know, count on us to keep costs 
down, and we have guarantees in our contracts. We are obligated 
to ensure that we're lowering costs year over year for our plan 
    Mr. Issa. Right. In your case, your MAC price is always 
higher than your cost, I assume?
    Ms. Bricker. I'm sorry?
    Mr. Issa. The pricing you're willing to pay the retailer is 
always higher than your actual cost?
    Ms. Bricker. Well, I couldn't say that with 100 percent 
certainty. That's definitely my intent. My intent is to----
    Mr. Issa. Well, you know your cost, don't you?
    Ms. Bricker. You're saying my cost at mail?
    Mr. Issa. Well, you buy. You're a large buyer. He's a small 
    Ms. Bricker. Yes, sir.
    Mr. Issa. You set his price based on an assumption of what 
he paid for the product. I just want to understand, can you say 
here today under oath, both of you, that you always provide the 
retailer a ``price'' that is at least above what the two 
largest people in the pond pay?
    Ms. Bricker. Absolutely, 100 percent.
    Mr. Issa. Okay. So you can certify that. You can too?
    Ms. Pons. Yes, that we make every effort to do that, yes.
    Mr. Issa. Well, every effort. You've got great computers.
    Ms. Pons. No----
    Mr. Issa. Would you say with the certainty of somebody gets 
fired, if that's not the case, if you actually expect the small 
retailer to take less than, in fact, you're already paying?
    Ms. Pons. Yeah. What I can tell you is that our independent 
pharmacy community gets paid a higher rate of reimbursement on 
generic products than our own pharmacies do.
    And the other thing I would just add to the mix as well, 
because we haven't talked about this, is the fact that there 
are a number of very large what are called PSAOs, pharmacy 
service administrative organizations, that independents belong 
to. I believe over 80 percent of the independent pharmacies 
joined one of these big, three Fortune 50 companies, and 
there's some large independent PSAOs as well. Those are the 
actual entities that we're negotiating with.
    We're not negotiating with, you know, typically, you know, 
a small, single, independent pharmacy. And so there is a lot of 
back and forth. And to the extent that we can't make changes 
sometimes, it's because we've got a contract that's 100 pages 
long with our client that says everything under the sun that 
they want in their network. So we're not truly trying to make 
people's lives difficult for the sake of----
    Mr. Issa. No, I know you're not.
    Mr. Chairman, I know that I'm actually stealing from your 
time every minute that this goes on, but I would ask that Mr. 
Arthur give his opinion on this. Because I do think that--and I 
said this to two of the witnesses when I met with them in 
advance. You know, the hotel industry and the airplane industry 
used to suffer from the fact that two people on an airplane 
sitting next to each other, one could pay four times more than 
the one next to them, and it was always very hard to 
    At least now, if you go to an online Web site, you can at 
least get some transparency on what the best deal is. And I 
think for the retail industry, this is part of what's not 
existing in healthcare. And I'd just like Mr. Arthur to give 
his insight on not knowing what something gets bought for by 
anybody except what you get told on reimbursement.
    Mr. Marino. Go ahead, Mr. Arthur----
    Mr. Issa. I will owe you, Mr. Chairman.
    Mr. Arthur. Very briefly, Mr. Congressman. One important 
distinction. You mentioned the role of the PBMs as a wholesale. 
The PBM stocks no product in inventory. It doesn't handle any 
product in inventory----
    Mr. Issa. I apologize. I called him a middleman, but you're 
right, except for their own mail order, they're working with 
you based on your inventory.
    Mr. Arthur. Yes, sir. And the reason I mention that is when 
you give the numbers, the genesis of the PBM industry was due 
to their technical expertise in moving from a paper environment 
to an electronic environment for the processing of claims. We 
could have a discussion today, a very vibrant discussion about 
the other services that they do provide in that space. But 
essentially, they are negotiating those prices for purely an 
administrative function, in my view.
    Mr. Issa. Thank you very much, Mr. Chairman. And I will owe 
you that large poker chip.
    Mr. Marino. Thank you. I have about 30, 40 minutes of 
questions, but I know I'm limited to several minutes.
    Mr. Balto, aren't we talking about--and I liked Mr. Issa's 
line of questioning concerning excess profits, but I'm a 
capitalist--are we really talking about excess profits or 
market shares?
    Mr. Balto. Well, look, I think the PBMs--there is a service 
that the PBMs perform, and the question is, is the market 
acting competitively? Is their ability to lower prices being 
fully translated in lower prices to consumers?
    And we see these trends which the Ranking Member 
identified, which the Consumers Union statement identified that 
shows that with higher drug prices that their profits seem--
their profits are going up.
    Mr. Marino. Okay. Let's set aside antitrust issues for a 
moment though. But isn't it just customary usually those that 
have a larger share in the market generate more profits?
    Mr. Balto. If the market is behaving competitively, you 
would expect price to be competed down to marginal costs. You 
wouldn't expect to see their profits per script increasing in 
this fashion or their profits increasing overall in this 
    Mr. Marino. Okay. Let's move to--and I know what Mr. 
Arthur's answer is going to be on this. So I would like Mr. 
Athur to answer it, and then I ask Ms. Bricker and Ms. Pons to 
give me their opinion of this.
    What is the downside of independents coming together and 
buying prescription drugs in bulk? What's the downside of that? 
You know, if there is an exemption to the antitrust law for 
pharmaceuticals, what is the downside of independents getting 
together and purchasing drugs?
    Mr. Balto. There's no downside. And somehow, in 19 pages of 
testimony, I did not deal with the collective negotiation 
point. I apologize.
    Mr. Marino. Well, no, let's not talk about the antitrust 
part of it. That's another hurdle.
    Mr. Balto. There is clearly a significant advantage to 
pharmacies coming together. There is antitrust uncertainty, and 
antitrust exemption would be appropriate. My colleagues on the 
panel tell you about PSAOs. Those PSAOs are ineffective. In 
fact, PSAOs are often prohibited by the PBMs of even turning 
over the contracts to individual pharmacies.
    There needs to be greater ability of people like Mr. Arthur 
to collectively negotiate to protect their interests.
    Mr. Marino. Ms. Bricker.
    Ms. Bricker. A couple of things come to mind. So pharmacies 
absolutely can join group purchasing organizations and 
collectively buy drugs, or they can also join PSAOs to have 
them represent them in negotiations with PBMs. In our contracts 
at Express Scripts, it's explicitly written, you know, to Mr. 
Balto's statement, that we prohibit member pharmacy from seeing 
contract. It's required that the PSAO pass the contract that 
they have executed on behalf of a member pharmacy to that 
    So it's important to us to have independent pharmacies in 
network. We have 25,000 independent pharmacies in network. Just 
to give context, less than 5 percent of independent pharmacies 
service a rural area in the United States. These are still very 
vital. It's very important that those pharmacies stay in 
business, but they command a premium, as they should, because 
they're serving a population that no one else is.
    Mr. Marino. Ms. Pons, would you care----
    Ms. Pons. Yeah. My comments will be similar to Amy's in the 
sense that we welcome pharmacies to join PSAOs. It helps us, 
obviously, to negotiate with, you know, five PSAOs as opposed 
to 20,000 individual pharmacies, and those PSAOs are able to 
negotiate very effectively on behalf of their clients. And 
similarly, we require that the PSAOs share that contract back 
with the pharmacy, and the pharmacy actually has to tell us in 
writing that they've designated a PSAO to be their agent for 
the negotiations.
    Mr. Marino. Why the disparity then in pricing? Because of 
volume? Is there a disparity in pricing with independents with 
some entity representing them, negotiating prices with 
pharmaceuticals compared to your companies?
    Ms. Pons. We don't know, you know, the price that others 
pay. I would just say that----
    Mr. Marino. Well, we do know that independents pay 
significantly more across the board than examples of your 
companies. Why?
    Ms. Pons. I was going to say, they're, you know, taking 
their volume through their PSAO to try to get the best deal 
that they can that is not going to be the same as a Walgreens 
who has a much greater footprint.
    But, you know, as stated earlier in the testimony, we do 
factor that into the reimbursement that we provide to our 
independents, and, you know, again, they receive a richer 
reimbursement for their generics to take that into account.
    Mr. Marino. Mr. Arthur, I live in a rural area. We have 
independents and we have CVS and other pharmaceuticals--excuse 
me, pharmacies. What do you offer to your customers that you do 
not see the big chains offering, particularly if it's through 
the mail?
    Mr. Arthur. Well, there's a whole host of services that 
we're offering on a very personalized way, you know, from 
comprehensive pharmacists, clinical services, immunizations, 
consultations, medication reconciliation. There's a whole host 
of services that are being provided. And the reason why the 
independents, in my view, are more successful is based on the 
relationships that we've developed in our communities over a 
great period of time.
    Mr. Marino. Again, this is for Ms. Pons and--excuse me, no, 
this is for Mr. Balto.
    Mr. Balto, where do you see the transparency line 
concerning what companies, larger companies or any company for 
that matter, have to divulge? Who draws that line? Where is 
that line?
    Mr. Balto. By the way, just to supplement Mr. Arthur's 
comment about the services, one critical issue----
    Mr. Marino. You aren't dodging my question though, are you?
    Mr. Balto. I was trying not to.
    Mr. Marino. Okay. I was a prosecutor so that's not going to 
    Mr. Balto. It didn't work.
    In terms of the transparency line, I think we should listen 
to what, you know, what's going on in the market. The 
Department of Labor proceeding that the Ranking Member 
mentioned before the ERISA subcommittee, unions and major 
employers and consumer groups all talked about the kind of 
transparency was necessary for a plan sponsor to fulfill his 
fiduciary duty, to make sure he was receiving--that the plan 
was receiving the benefit of the bargain.
    And that requires very robust disclosure of the rebates 
that the PBMs are receiving from the pharmaceutical 
manufacturers. And then the plan sponsor armed with that 
information can make sure that they're receiving the best deal 
in their arrangement with PBM.
    Mr. Marino. Okay. If I'm buying something from--somebody's 
selling antique cars and I buy antique cars. Why would I 
divulge? Why would I think of divulging what the person selling 
the antique car is going to sell it to me for compared to 
someone else who wants that same car?
    Mr. Balto. So for me as a plan, an employer or union, what 
I'm purchasing in part is their ability to negotiate rebates. 
And so I want to know how they're doing at that specifically, 
for those, you know, for the manufacturers. And then look drug 
by drug, over time and see how effective they're being at that. 
And then that way, I can figure out whether or not I'm getting 
the benefit of the bargain, whether those rebates are helping 
to lower my pharmaceutical costs.
    Mr. Marino. Ms. Pons and Ms. Bricker, I don't think I gave 
you the opportunity, although you probably thought I passed you 
on it, on the issue of the downside of independents, 
collectively purchasing. Now, there was some discussion about 
they're able to join groups to do that. But the numbers don't 
seem to be indicating that there is fairness or a level playing 
field there.
    Could you expand on your answers there a little bit, Ms. 
Pons. Do you know--do you get my question?
    Ms. Pons. I guess, what I would say is that we welcome 
anybody that's part of this value chain in helping reduce 
costs, provide access, and improve health outcomes. To the 
extent that they can be more efficient, just like we're trying 
to be more efficient in our PBM and in our pharmacies, we would 
welcome them to be able to do that because that's going to 
ultimately help our clients and help our patients that we're 
all trying to serve.
    Mr. Marino. Ms. Bricker, I'm assuming you would agree with 
that, or do you want to add something to it?
    Ms. Bricker. At Express Scripts, our mission is to make 
drugs safer and more affordable. And we welcome in working with 
you to have a robust dialogue about the entire supply chain 
from manufacturer to patient. And today, we're focused on, you 
know, a couple of areas of the supply chain, but we think 
there's actually an opportunity for us to work with 
wholesalers, with manufacturers, with PSAOs, with all of the 
constituents within the supply chain to continue to lower costs 
for plan sponsors and patients.
    Mr. Marino. Well, do you see--and I'll get back to you on 
that. Do you see independents eventually going out of business 
because of the volume that your companies are able to sell and 
able to keep the price lower than what a pharmacy can? Give me 
your opinion on what you see 5 years from now or 10 years from 
now for independent pharmacies.
    Ms. Bricker. We believe that independent pharmacy is 
viable. We believe that--and we're seeing it in the data. If 
history is, you know, any indicator of the future, then, no, 
this industry is quite robust. There are 68,000 pharmacies. 
That's up from the prior year. NCPA's own data suggest that 
independent pharmacies are remaining steady and constant.
    And so, no, I believe that it's a viable business and one 
that students coming out of pharmacy schools are entering the 
business of opening retail pharmacies today because it actually 
will pay the bills and it's a wonderful career.
    Mr. Marino. Ms. Pons.
    Ms. Pons. Yeah, no, I agree with that. And independents are 
a cornerstone of our networks. We don't have any networks that 
don't include independents. They're important to our clients to 
have that access. And as Ms. Bricker pointed out, the number 
that held steady. There were well over 20,000 in the country.
    Mr. Marino. You know, I have a dog in this hunt, and I've 
experienced this several times. My daughter has cystic fibrosis 
so there are dozens of drugs that she takes. Sometimes the 
prices go up; sometimes the prices go down. But what I find 
very, very important is the one-to-one, face-to-face 
communication with a pharmacist.
    And believe me, on more than one occasion, our pharmacist 
here and even when we were traveling in England where we ran 
into a problem, they were able to communicate. What can you 
offer that the--can you offer that same thing that--that same 
service that the independents offer?
    Ms. Pons. I would say we certainly do our best within our 
own pharmacy channels, whether it's our retail pharmacies or 
our specialty pharmacies, and particularly our specialty 
pharmacies that work with patients that have chronic, serious 
conditions, where they have expertise in particular disease 
states that a lot of normal pharmacists don't. And they do 
develop very close relationships with those patients and their 
    Mr. Marino. I'm going to wrap up here quickly, but I just 
want to give each of you 15, 20 seconds to make--give a closing 
statement. So Mr. Balto, you had your hand up, please.
    Mr. Balto. Sure. First of all, these firms own their own 
mail order and specialty pharmacies. It's in their incentive to 
drive consumers away from these community pharmacies that they 
want into their own pharmacies where they can maximize their 
profits. And especially for people who need specialty drugs 
like your daughter, that's a real critical concern, especially 
when specialty drug spend is increasing so dramatically. And 
that's why this Committee needs to look at the restricted 
networks these PBMs use.
    Mr. Marino. Ms. Bricker.
    Ms. Bricker. At Express Scripts we're committed to making 
prescriptions safer and more affordable. We stand ready to 
assist our plan sponsors and their patients in looking into the 
future to understand where drug pricing is going and attempt to 
partner with them in innovative ways to make prescription drugs 
safe, affordable, and accessible. Thank you for the 
    Mr. Marino. Ms. Pons.
    Ms. Pons. Yes. And I would just, you know, continue to 
reiterate the importance of independent pharmacies to our 
company, and would note that in our preferred Medicare pharmacy 
networks, over 40 percent of the participants are independent 
pharmacies. They're just--they're critical to helping us 
deliver a service to our Medicare population. Thank you for 
having us.
    Mr. Marino. You're welcome.
    Mr. Arthur.
    Mr. Arthur. Mr. Chairman. Thank you.
    As I sit here, if memory serves me correctly, I look up at 
the wall and I think that's former Congressman Jack Brooks on 
the left there. And going back for over 25 years, we have been 
fighting for equality in the marketplace using the antitrust 
law to examine the antitrust law to seek fairness. We have 
survived by evolving. My independent pharmacy is half the size; 
I employee half the people I did 20 years ago.
    I think it's really telling that in this environment, and 
the reason I mention that, as you asked the question, what's 
the harm in allowing the pharmacies to do that, pharmacy has 
attempted to meet every challenge. We have attempted to get 
together to be able to purchase effectively.
    But when we are successful in doing that, if we run into 
challenges with the MAC, with the timely updates of MAC, it's 
interesting to note that, you know, we've heard today about 
compliance with timely updates, and I'm sure there are very 
robust departments within these large corporations. Why is it 
that in two States they have fought vigorously to repeal 
efforts to timely implement MAC updates?
    We in pharmacy will continue--and independent community 
pharmacy--continue to find ways to survive and be able to 
provide the types of services that you alluded to, to the 
people that depend on us in our communities.
    Mr. Marino. Thank you.
    Mr. Johnson and I were having a discussion really before 
the hearing began. And the two of us, most of the time we see 
eye to eye because we are looking for information. Right, Hank?
    Mr. Johnson. That's right.
    Mr. Marino. We're looking to be educated. And we in 
Congress, we don't have all the answers. You know, when we get 
elected we think we're taller, smarter, and better looking 
right away. But we look to you people, experts in your area, 
how to improve the quality of life for all Americans. And I 
think each of you have a role to plan that.
    So my friend, Mr. Johnson and I, we're looking forward to 
hearing from you on how we can improve the quality of life for 
all Americans. So that is my request--our request of you. So 
please participate in this with us, send us information, give 
us your ideas so we can accomplish that.
    And I want to thank everyone. This concludes today's 
hearing. Thanks to all the witnesses for attending.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses or 
additional materials for the record.
    Mr. Marino. The hearing is adjourned.
    [Whereupon, at 5:24 p.m. The Subcommittee was adjourned.]

                            A P P E N D I X


               Material Submitted for the Hearing Record

  Material submitted by the Honorable Tom Marino, a Representative in 
Congress from the State of Pennsylvania, and Chairman, Subcommittee on 
            Regulatory Reform, Commercial and Antitrust Law


 Material submitted by the Honorable Doug Collins, a Representative in 
    Congress from the State of Georgia, and Member, Subcommittee on 
            Regulatory Reform, Commercial and Antitrust Law


  Response to Questions for the Record from Amy Bricker, R.Ph., Vice 
      President, Retail Contracting and Strategy, Express Scripts


  Response to Questions for the Record from Natalie Pons, Senior Vice 
    President, Assistant General Counsel, Health Care Services, CVS 
                         Caremark Corportation

  Response to Questions for the Record from Bradley J. Arthur, R.Ph., 
                       Owner, Black Rock Pharmacy