[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
THE ROLE OF PHARMACY BENEFIT MANAGERS
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HEARING
BEFORE THE
SUBCOMMITTEE ON THE ADMINISTRATIVE STATE, REGULATORY REFORM, AND
ANTITRUST
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
WEDNESDAY, SEPTEMBER 11, 2024
__________
Serial No. 118-98
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-838 WASHINGTON : 2024
COMMITTEE ON THE JUDICIARY
JIM JORDAN, Ohio, Chair
DARRELL ISSA, California JERROLD NADLER, New York, Ranking
MATT GAETZ, Florida Member
ANDY BIGGS, Arizona ZOE LOFGREN, California
TOM McCLINTOCK, California STEVE COHEN, Tennessee
TOM TIFFANY, Wisconsin HENRY C. ``HANK'' JOHNSON, Jr.,
THOMAS MASSIE, Kentucky Georgia
CHIP ROY, Texas ADAM SCHIFF, California
DAN BISHOP, North Carolina ERIC SWALWELL, California
VICTORIA SPARTZ, Indiana TED LIEU, California
SCOTT FITZGERALD, Wisconsin PRAMILA JAYAPAL, Washington
CLIFF BENTZ, Oregon J. LUIS CORREA, California
BEN CLINE, Virginia MARY GAY SCANLON, Pennsylvania
KELLY ARMSTRONG, North Dakota JOE NEGUSE, Colorado
LANCE GOODEN, Texas LUCY McBATH, Georgia
JEFF VAN DREW, New Jersey MADELEINE DEAN, Pennsylvania
TROY NEHLS, Texas VERONICA ESCOBAR, Texas
BARRY MOORE, Alabama DEBORAH ROSS, North Carolina
KEVIN KILEY, California CORI BUSH, Missouri
HARRIET HAGEMAN, Wyoming GLENN IVEY, Maryland
NATHANIEL MORAN, Texas BECCA BALINT, Vermont
LAUREL LEE, Florida Vacancy
WESLEY HUNT, Texas
RUSSELL FRY, South Carolina
MICHAEL RULLI, Ohio
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SUBCOMMITTEE ON THE ADMINISTRATIVE STATE,
REGULATORY REFORM, AND ANTITRUST
THOMAS MASSIE, Kentucky, Chair
DARRELL ISSA, California J. LUIS CORREA, California,
MATT GAETZ, Florida Ranking Member
DAN BISHOP, North Carolina HENRY C. ``HANK'' JOHNSON, Jr.,
VICTORIA SPARTZ, Indiana Georgia
SCOTT FITZGERALD, Wisconsin ERIC SWALWELL, California
CLIFF BENTZ, Oregon TED LIEU, California
BEN CLINE, Virginia PRAMILA JAYAPAL, Washington
LANCE GOODEN, Texas MARY GAY SCANLON, Pennsylvania
JEFF VAN DREW, New Jersey JOE NEGUSE, Colorado
HARRIET HAGEMAN, Wyoming LUCY McBATH, Georgia
NATHANIEL MORAN, Texas ZOE LOFGREN, California
KELLY ARMSTRONG, North Dakota STEVE COHEN, Tennessee
Vacancy GLENN IVEY, Maryland
BECCA BALINT, Vermont
CHRISTOPHER HIXON, Majority Staff Director
AARON HILLER, Minority Staff Director & Chief of Staff
C O N T E N T S
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Wednesday, September 11, 2024
OPENING STATEMENTS
Page
The Honorable Dan Bishop, Member of the Subcommittee on the
Administrative State, Regulatory Reform, and Antitrust from the
State of North Carolina........................................ 1
The Honorable J. Luis Correa, Ranking Member of the Subcommittee
on the Administrative State, Regulatory Reform, and Antitrust
from the State of California................................... 2
The Honorable Jim Jordan, Chair of the Committee on the Judiciary
from the State of Ohio......................................... 5
The Honorable Jerrold Nadler, Ranking Member of the Committee on
the Judiciary from the State of New York....................... 5
The Honorable Thomas Massie, Chair of the Subcommittee on the
Administrative State, Regulatory Reform, and Antitrust from the
State of Kentucky.............................................. 7
WITNESSES
Dr. Anthony T. LoSasso, Professor and Chair, Department of
Economics, DePaul University
Oral Testimony................................................. 8
Prepared Testimony............................................. 10
Dr. T. Joseph Mattingly II, Associate Professor and Vice Chair of
Research, College of Pharmacy, University of Utah
Oral Testimony................................................. 16
Prepared Testimony............................................. 18
Dr. Richard G. Frank, Director, Health Program, Brookings
Institution
Oral Testimony................................................. 36
Prepared Testimony............................................. 38
Dr. Karen Van Nuys, Executive Director, Value of Life Sciences
Innovation, USC Schaeffer Center
Oral Testimony................................................. 49
Prepared Testimony............................................. 51
LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING
All materials submitted for the record by the Subcommittee on the
Administrative State, Regulatory Reform, and Antitrust are
listed below................................................... 89
Materials submitted by the Honorable J. Luis Correa, Ranking
Member of the Subcommittee on the Administrative State,
Regulatory Reform, and Antitrust from the State of California,
for the record
A report entitled, ``Pharmacy Benefit Managers: The Powerful
Middlemen Inflating Drug Costs and Squeezing Main Street
Pharmacies,'' Jul. 2024, Federal Trade Commission, Office
of Policy Planning
A report entitled, ``A brief look at current debates about
pharmacy benefit managers,'' Sept. 7, 2023, Brookings
A report entitled, ``The 2024 Economic Report on U.S.
Pharmacies and Pharmacy Benefit Managers,'' Mar. 2024,
Drug Channels Institute
A report entitled, ``PBMs and Prescription Drug Distribution:
An Economic Analysis of Criticisms Levied Against
Pharmacy Benefit Managers,'' Jul. 19, 2024, Compass
Lexecon
An article entitled, ``The Opaque Industry Secretly Inflating
Prices for Prescription Drugs,'' Jun. 21, 2024, The New
York Times
An article entitled, ``Mail-Order Drugs Were Supposed to Keep
Costs Down. It's Doing the Opposite,'' Jun. 25, 2024, The
Wall Street Journal
A dissenting statement of Commissioner Melissa Holyoak,
Federal Trade Commission, Jul. 9, 2024, in the matter of
the Pharmacy Benefit Managers Report, submitted by the
Honorable Nathaniel Moran, a Member of the Subcommittee
on the Administrative State, Regulatory Reform, and
Antitrust from the State of Texas
A letter to Jonathan Kanter, Assistant Attorney General, U.S.
Dept. of Justice, Antitrust Division, Xavier Becerra,
U.S. Dept. of Health and Human Serices, and Lina M. Khan,
Chair, Federal Trade Commission, PhRMA, June 5, 2024
A joint letter to the Members of the California Congressional
Delegation, from California Life Sciences and California
Pharmacists Association, regarding PBM reforms
QUESTIONS AND RESPONSES FOR THE RECORD
Questions for Richard Frank, Director, Health Program, Brookings
Institution; Anthony T. LoSasso, Professor, Chair, Department
of Economics, DePaul University; Karen Van Nuys, Executive
Director, Value of Life Sciences Innovation, USC Schaeffer
Center; T. Joseph Mattingly II, Associate Professor and Vice
Chair of Research, College of Pharmacy, University of Utah,
submitted by the Honorable J. Luis Correa, Ranking Member of
the Subcommittee on the Administrative State, Regulatory
Reform, and Antitrust from the State of California, for the
record
Response from T. Joseph Mattingly II, Associate Professor and
Vice Chair of Research, College of Pharmacy, University
of Utah
Response from Karen Van Nuys, Executive Director, Value of
Life Sciences Innovation, USC Schaeffer Center
Response from Anthony T. LoSasso, Professor, Chair,
Department of Economics, DePaul University
Response from Richard Frank, Director, Health Program,
Brookings Institution
THE ROLE OF PHARMACY BENEFIT MANAGERS
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Wednesday, September 11, 2024
House of Representatives
Subcommittee on the Administrative State,
Regulatory Reform, and Antitrust
Committee on the Judiciary
Washington, DC
The Subcommittee met, pursuant to notice, at 2:20 p.m., in
Room 2141, Rayburn House Office Building, the Hon. Thomas
Massie [Chair of the Subcommittee] presiding.
Members present: Representatives Massie, Jordan, Bishop,
Spartz, Fitzgerald, Bentz, Cline, Gooden, Van Drew, Hageman,
Moran, Correa, Nadler, Johnson, Scanlon, Lofgren, Ivey, Balint,
and Ross.
Mr. Bishop. [Presiding.] The Subcommittee will come to
order.
Without objection, the Chair is authorized to declare a
recess at any time.
We welcome everyone to today's hearing on the role of
Pharmacy Benefit Managers.
The Chair of the Subcommittee, Mr. Massie, is on the floor,
and in the interest of time and everyone else's presence here,
I'm going to proceed until he is able to join us.
In light of that, I will now recognize myself for an
opening statement.
Today's hearing will examine the role of pharmacy benefit
managers, known as PBMs, in the healthcare industry, including
the ability of PBMs to control access to, and the pricing of,
pharmaceutical products.
PBMs serve as one of a handful of intermediaries between
the pharmaceutical manufacturers that make prescription drugs
and the patients who consume them. While PBMs are just one link
in the pharmaceutical distribution chain, we have all heard of
their alleged outsized influence in the market.
According to some estimates, the largest three PBMs account
for nearly 80 percent of the market for pharmacy benefit
services. The top three PBMs are members of vertically
integrated companies that also own insurance companies,
provider groups, and pharmacies.
In some cases, a patient can purchase insurance, see a
doctor, and buy prescription drugs from three companies that
are all owned by the same parent company. Many claim that this
level of vertical integration is highly beneficial for
patients. By reducing administrative fees and leveraging their
sheer size, large vertically integrated conglomerates are often
able to operate more efficiently than disaggregated companies.
Additionally, having a vast network of options for patients
ensures that patients are likely to face the same treatment
options, regardless of where they are in the country.
However, vertical integration is not without potential
harms to patients. Because vertically integrated PBMs control
so much of the supply chain, and because there are so few
competitors in the market, PBMs have almost complete control
over a patient's access to medications. PBMs have the ability
to control which pharmacies are available to fill
prescriptions, sometimes steering patients to PBM-owned
pharmacies. PBMs also have the ability to control which
medications are available under a patient's healthcare
coverage.
Even if a medication is covered, patients often do not know
how much a prescription drug will cost until they get to the
register. For most other products, a consumer can research the
price of a good well in advance of the point of purchase.
However, a lack of price transparency has, unfortunately,
become the norm in the healthcare industry.
We are holding a bipartisan hearing today because across
the board we are hearing the same things from our constituents.
When we go home to our districts, we hear about the high cost
of prescription drugs; we hear about the confusion people face
in regard to the price of healthcare, and we hear about the
lack of access to community-based independent pharmacies.
While pharmacies run by vertically integrated conglomerates
can save patients money, some patients want the option of using
their local pharmacist. However, for independent pharmacists,
the take-it-or-leave-it contracts they sign with large PBMs
trap them into inflexible arrangements that leave little room
for innovation.
Also, for many independent pharmacists, operating outside
of a large PBM's network, effectively, means closing shop.
Without a PBM's patients, there isn't enough business to go
around.
Today, we have the opportunity to hear from experts in this
field who have been studying the healthcare supply chain for
decades. These experts are at the forefront of academic
scholarship on health policy and are prepared to help us better
understand the operations of the market and the costs and
benefits of PBMs more broadly. This information will better
inform us, as we work on possible solutions and consider the
proposals that have already been introduced.
I want to thank the witnesses for appearing before us
today, and I look forward to hearing what each of you has to
say.
I now recognize the Ranking Member, Mr. Correa, for an
opening statement.
Mr. Correa. Thank you, Mr. Chair.
I want to thank our witnesses for being here today. I
appreciate you being here today.
Today, we are going to examine the role of pharmacy benefit
managers, or PBMs, and their impact on our healthcare system
and the pharmaceutical drug delivery market. Nothing is so
simple about this topic, but one thing is certain: Things just
ain't right.
As the late, great Justice Louis Brandeis would say,
``Sunshine is the best disinfectant.'' So, I hope that today
the sun will shine brightly as we work to lift the veil on the
PBMs and their role on drug pricing and the drug delivery
market.
Until recently, most people didn't even know that PBMs
existed, and now, we see their handiwork everywhere. While some
of us Americans with good health plans and low deductibles may
secure our medications at reasonable rates, there are too many
hard-working Americans who can't afford medications. There are
too many heart-wrenching stories of families having to choose
between medications that they need to survive and food or
housing, and that is not right.
Decisions, life-and-death decisions, are being made today
for Americans in closed, backroom deals; instead, they should
be made by the medical providers, and that is also not right.
We need to find solutions to these problems, like we did
when Congress and the Biden-Harris Administration passed the
Inflation Reduction Act, capping the monthly price of insulin
and other critical drugs for Medicare beneficiaries.
We have a responsibility to all Americans to ensure that
they can fairly access the medications they need. I hope today
we will learn more from the witnesses on how to achieve this
goal.
Let me call your attention to this chart. Nothing is simple
about this chart. See here, point of payments from
manufacturers to PBMs. It says, ``Payments for manufacturers to
PBMs,'' well, there isn't just one payment made that applies to
everyone. There are many payments, depending on the drug, the
PBM, the manufacturer, and the deal that is reached.
What each consumer pays for his medication is even more
complicated, and this payment is only the first step.
Understanding how the system works, partially because of the
complexity and partially due to the lack of transparency,
requires an advanced degree in engineering design.
Which drugs are included on PBM-created formularies or the
list of drugs in the healthcare plan? How much people pay
following a convoluted process involving a number of entities:
The PBMs, the wholesalers, the aggregators, or group purchasing
organizations, pharmacy service administrative organizations,
health plans, pharmaceutical companies, pharmacists, and even
the employers. Everyday Americans are at their mercy, relying
on all these entities to do the right thing.
The complexities appear integral to the design. It's an
enigma wrapped in a mystery, hidden in a riddle, in a
conundrum. The average American and many small businesses can't
solve this alone.
Of course, on Main Street, I'm concerned with the stories
I'm hearing about pharmacies closing, pharmacies receiving
payments that don't cover the costs, or pharmacies having to
face payments being clawed back by PBMs. If these stories are
true, this is both unsustainable and unacceptable.
Let's be clear. The PBMs have and will continue to play an
important role in this market, and any suggestions to do away
with them are misplaced.
Over the years, the role of PBMs in the marketplace has
expanded from simply processing claims to having involvement in
almost all aspects of the pharmaceutical drug market. In fact,
there are numerous studies showing that PBMs have lowered
prices of drugs for their clients.
It should never be the case that a person with insurance
should pay more at the pharmacy using insurance than off-
insurance, but that appears to be happening in some cases, and
that, also, is not right.
As The New York Times reported in its recent investigation,
the job of the PBMs is to reduce drug costs. Instead, they
frequently do the opposite; they steer patients toward pricier
drugs, charge steep markups on what would otherwise be
inexpensive medications, and extract billions of dollars in
hidden fees.
Another mechanism that PBMs may be utilizing is to raise
costs and reap profits through mail order pharmacies. As The
Wall Street Journal reported, PBMs encourage employers to use
mail order pharmacies with the promise of cost savings, but,
instead, they are increasing costs.
Specifically, The Wall Street Journal article explained,
Branded drugs filled by mail order were marked up an average of
three to six times higher than the cost of medicines dispensed
by chain and grocery store pharmacies and roughly 35 times
higher than those filled by independent pharmacies.
This Subcommittee has jurisdiction over antitrust matters,
and we need to understand how this market operates. According
to the FTC's recent released Interim Report on PBMs, the top
three PBMs control almost 80 percent of the prescription drug
market--something that came into play over the years of mergers
with competitors.
I can show you the chart: The left, where it was before; to
the right is what exists today. This chart shows the extent of
how the number of large competitors consolidated over the last
two decades, and it appears now that the PBM market is overly
concentrated. Is that causing an anticompetitive result? The
FTC seems to say yes.
The extent of vertical integration in the market is also
astonishing, and quite frankly, as you see on this chart, every
major health plan is connected to a PBM, specialty and mail-in
pharmacies, and even one owns retail pharmacies. Some are now
producing their own drugs for the market. While vertical
integration can yield important efficiencies and benefits for
customers, it appears that these deep connections are harming
independent pharmacists, driving up costs, and harming
consumers, while enriching corporations.
The FTC's Interim Report included many worrisome allusions
and conclusions that PBMs are harming competition and
consumers. Some of their conclusions: The PBM market is highly
concentrated.
PBMs, due to their consolidation and integration, exercise a
significant power over Americans' access to drugs and
the price they pay.
PBMs may be steering patients to their own pharmacies and
extracting additional profit, while harming
unaffiliated pharmacies.
PBMs are using their market power to force pharmacies to enter
into unfair contracts.
PBMs are limiting access to more reasonably priced alternative
drugs through contract terms benefiting themselves.
Finally, I would say to the FTC: It's time to fish or cut
bait. If PBMs are engaging in anticompetitive activities
outlined in your report, do something. Either bring an action
or explain why you're not bringing action.
Mr. Chair, finally, I ask that the following documents be
included for the record:
First, the FTC Interim Report: Pharmacy Benefit Managers.
Second, the 2024 Economic Report on U.S. Pharmacies and
Pharmacy Benefit Managers.
Third, a Brief Look at Current Data bases about Pharmacy
Benefit Managers.
Fourth, the Opaque Industry Secretly Inflating Prices for
Prescription Drugs.
Fifth, Mail Order Drugs Were Supposed to Keep Costs Down; It's
Doing the Opposite.
Sixth, PhRMA Response to the Joint DOJ-FTC-HHS Consolidation of
Health Care Markets.
Seventh, PBMs and Prescription Drug Distribution.
Eighth, California Life Science and California Pharmacists
Association joint letter on PBM reforms.
Thank you, Mr. Chair. ith that, I yield.
Mr. Massie. [Presiding.] Without objection.
Mr. Correa. Thank you.
Mr. Massie. I now recognize the Chair of the Full
Committee, Mr. Jordan, for his opening statement.
Chair Jordan. Thank you, Mr. Chair, and I will be brief.
I appreciate putting this hearing together.
The Ranking Member just talked about the FTC needs to do
something. Maybe if they weren't so busy harassing Elon Musk,
they would have a chance to actually look at this issue in a
real way. You've got three companies that have 80 percent of
the market, and the FTC wants to send letters to Elon Musk
asking what journalists he is talking to. That might be a
problem, instead of dealing with the issue in front of us.
So, I appreciate the Chair calling in these experts,
working the other party to agree to the four witnesses, and
having this important hearing on something that impacts every
single one of our constituents in a real way.
With that, I would yield back.
Mr. Massie. I thank the Chair.
I now recognize the Ranking Member of the Full Committee,
Mr. Nadler, for his opening statement.
Mr. Nadler. Thank you, Mr. Chair.
Mr. Chair, the price of prescription drugs is out of
control, and it is directly affecting the health and safety of
our constituents. Over nine million adults have skipped
medications prescribed to them because they could not afford
them--with women, people with disabilities, and the uninsured
most affected.
Prices are skyrocketing and people are dying or not getting
the care they need, while healthcare giants reap massive
profits, merge with other companies to entrench their
dominance, and obscure critical information from Congress and
regulators about their practices.
One reason that prescription drugs have become unaffordable
for so many people is the growing dominance in the healthcare
market of pharmacy benefit managers, or PBMs, who serve as
middlemen between drug manufacturers, health insurers,
healthcare providers, and pharmacies.
As a recent FTC report found, the PBM market is highly
concentrated with the largest PBMs vertically integrated with
the Nation's largest health insurers and specialty and retail
pharmacies. As a result, the leading PBMs exercise significant
market power over consumers' access to drugs and the prices
paid for those medicines. This includes steering contracts to
their own affiliated businesses and away from local
independently owned pharmacies. They also have the ability to
negotiate higher drug prices, while limiting access to
potentially lower-cost generic alternatives. Because of their
dominance, they are able to keep their practices largely
shrouded in secrecy.
To address these concerns, we must act to increase
competition in the PBM market. To be clear, the problem is
bigger than the pharmacy benefit managers. It is true that only
three PBMs control 80 percent of the market, but PBMs play just
one part in our overly concentrated healthcare system.
I urge my colleagues on both sides of the aisle not to lose
sight of the forest for the trees. If we truly want to address
the rising cost of prescription drugs and healthcare, we must
address consolidation industrywide rather than just focusing on
one class of middlemen.
For example, 90 percent of all drugs are distributed
through just three drug wholesalers; 95 percent of all health
insurance markets are highly concentrated, and approximately 50
percent of all generic drug markets are dominated either by
monopoly or duopoly drug manufacturers, when controlling for
volume.
Not only does this lack of competition lead to higher
prices, but it also allows the dominant companies to avoid
transparency. An environment in which a handful of companies
control Americans' access to and prices for critical
medications means that we all lose.
We lose out on a more innovative healthcare market. We lose
money paying exorbitant prices for drugs. We lose time fighting
with our insurance provider for access to the drug our doctor
prescribed. We lose knowledgeable counseling from our local
independent pharmacist. In the worst cases, we lose a loved one
who could not access or afford the medicines they need.
Although interest in PBMs has ramped up this Congress,
their market dominance and their role in driving up drug prices
is not news. This Subcommittee addressed the issue five years
ago under a Democratic majority. We did not just talk about it;
we took action.
It is time for this Republican majority to act as well. We
do not need another rehash of known issues with no goals or
plans in mind to fix them.
Democrats have taken action to rein-in high drug costs and
to make medication more affordable and accessible. Last
Congress, over unanimous Republican opposition, Democrats
passed the Inflation Reduction Act, which expanded Medicare
benefits, lowered drug costs, and strengthened Medicare for the
future.
This Committee also passed three bipartisan bills that
would have addressed drug pricing: The Stop Stalling Access to
Affordable Medications Act, the Affordable Prescriptions for
Patients Through Promoting Competition Act, and the Preserve
Access to Affordable Generics and Biosimilars Act. Republicans
have failed to advance any of these bills during this Congress.
It is my hope that, as we continue our work to diagnose the
problems associated with consolidation and anticompetitive
conduct in healthcare markets, we will also work together in
finding meaningful solutions that would provide a better deal
for Americans on prescription drugs and other healthcare costs.
I thank our witnesses for appearing today, and I yield
back.
Mr. Massie. I thank the gentleman. Without objection, all
other opening statements will be included in the record.
I want to say, before I introduce today's witnesses, that I
want to thank my Ranking Member, Mr. Correa, for making this a
bipartisan hearing. This is one of those hearings that doesn't
quite frequently happen in Congress. We don't know what the
answer is. That is why we are having the hearing.
A lot of times, I'm not a lawyer, but the lawyers say,
``Don't ask a question unless you know the answer.'' I'm going
to ask questions I don't know the answer to today.
I'm also very appreciative of the witnesses who came here
and the Ranking Member for making this a bipartisan panel.
Oftentimes, you get some Republican witnesses and some Democrat
witnesses. I don't know your political affiliations; don't need
to know them. That is because we are working for the people
here today.
Thank you, Mr. Correa, for--
Mr. Correa. Mr. Chair, thank you very much. I think you
have just outlined the heavy burden that these witnesses have
in educating the Committee on where to go from here.
Thank you.
Mr. Massie. That is a heavy lift: To educate Congressman.
So, with that, I will now introduce today's witnesses.
Dr. Richard--oh, I'm sorry, we are going to start from
right to left, I believe.
Dr. Anthony LoSasso. Dr. LoSasso is a Professor, Driehaus
Fellow, and the Chair of the Department of Economics at the
Driehaus College of Business at DePaul University. His research
focuses on health and labor economics, health policy, and
health services and outcomes.
Dr. Joey Mattingly, II. Dr. Mattingly is an Associate
Professor and Vice Chair of Research at the University of Utah,
College of Pharmacy. He has worked in pharmacy for over 20
years, both as a pharmacist and, more recently, as an academic
focusing on drug pricing policy.
Dr. Richard Frank. Dr. Frank is the Director of the Center
on Health Policy and a Senior Fellow in Economic Studies at the
Brookings Institution. He is the emeritus Margaret T. Morris
Professor of Health Economics at Harvard Medical School, and
previously served as the Assistant Secretary for Planning and
Evaluation at the Department of Health and Human Services.
Dr. Karen Van Nuys. Dr. Van Nuys is the Executive Director
of the Value of Life Sciences Innovation Program and a Senior
Scholar at the USC Schaeffer Center. Her research focused on
the pharmaceutical distribution system and the impact of
intermediaries' business practices on prescription drug
utilization and cost.
We welcome our witnesses and thank them for appearing
today.
We will begin by swearing you in. Would you please rise and
raise your right hand?
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
Let the record reflect the witnesses have answered in the
affirmative.
Thank you and please be seated.
Please know that your written testimony will be entered
into the record in its entirety. Accordingly, we ask that you
summarize your testimony in five minutes.
Dr. LoSasso, you may begin.
STATEMENT OF DR. ANTHONY LoSASSO
Dr. LoSasso. Thank you, Chair Massie and Ranking Member
Correa, and Members of the Committee. I appreciate the
opportunity to be here with you today to be part of this
conversation on this really important topic.
My name is Tony LoSasso. I am the Chair of the Economics
Department at DePaul University in Chicago and have been
studying the healthcare system for about the last 30 years.
PBMs are an important, but widely misunderstood--and I
believe wrongfully maligned--part of the pharmaceutical supply
chain. I like to point out to people that no less than ancient
philosopher Plato had serious misgivings about middlemen. So,
you're in good company when you express skepticism and concern
about the role of middlemen.
However, we're going to talk a lot today, I hope, about
nuances. We'll talk about spread pricing and a lot of other
pharmacy networks, lots of details. At heart, what PBMs do is
force pharmaceutical companies to compete on price. Competing
on price, generally speaking, is the last thing that
pharmaceutical companies want to do.
I find it somewhat amazing that rebates have been made into
some sort of nefarious practice. This, to me, is testimony to,
apparently, a reality distortion that the pharmaceutical
industry is capable of pulling off. Rebates are a good thing
because they represent price decreases, and price competition
is a good thing for consumers.
So, the effort to regulate, and I fear neuter, the impact
of PBMs only plays into the hands of the pharmaceutical
industry and strengthens their bargaining power vis-a-vis PBMs.
Now, make no mistake, I am a fan of the pharmaceutical
industry. They are an engine of innovation that truly improves
lives, and I want them to succeed. I want us all to live to be
120 and be happy and healthy.
That does not mean that pharma should get a hall pass from
competition. Pharma has very rich profit margins, monopoly
privilege that comes with patent protection, and they are, by
and large, firmly in the driver's seat when it comes to pricing
power.
There's a lot of talk about concentration in the PBM
industry, rightfully so. However, the flip side of that is,
with that market concentration, which is again is not monopoly,
70-80 percent, that is big; that is significant. That does not
mean that there is not entry in that industry, the PBMs
industry, that is. With that concentration does come bargaining
power and an ability to push back and against what I just
mentioned as the pricing power of the pharmaceutical industry.
Complaints from pharmacies, which I'm sure we'll discuss, I
think distract from the key issues around getting drugs
efficiently to patients. Many pharmacies, independent and
otherwise, have lived off high dispensing fees for many years.
Pushback against that is a good thing. It's a good thing for
consumers. It may not be a good thing for independent
pharmacists, but the market is tough, and I think we want to be
in the business of encouraging competition that pushes entities
toward being more efficient.
Doctors, and I mean the real doctors that help people, they
know that, for people with chronic disease, adherence is an
enormous factor when it comes to drug delivery. Mail order has
been proven to be a mechanism to improve adherence to a drug
regime.
So, to wrap up, I think it's essential that we recognize
the value of PBMs and support their continued role in the
healthcare system. So, we should focus on enhancing, wherever
possible, market mechanisms in the pharmaceutical supply chain.
So, I just simply urge this Committee to carefully consider
the broader implications and potential for unintended
consequences of any legislation or regulatory efforts that
might weaken the role of PBMs.
Thank you.
[The prepared statement of Dr. LoSasso follows:]
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Mr. Massie. Thank you, Dr. LoSasso.
Dr. Mattingly, you may begin.
STATEMENT OF DR. JOEY MATTINGLY
Dr. Mattingly. Chair Massie, Ranking Member Correa, and the
Members of the Subcommittee, thanks again for this opportunity.
My name is Joey Mattingly. I'm a pharmacist and a health
economist on the faculty at the University of Utah. I study
drug pricing policy, pharmacy supply chain dynamics, and just
ways to improve our healthcare system. I also support our
university human resources team that's responsible for managing
the benefits for 30,000 beneficiaries.
I have worked in this field for 20 years, starting as a
pharmacy technician in my hometown of Bardstown, Kentucky, then
becoming a pharmacist and a district manager for a large
grocery store chain.
The past 10 years has been focused on drug pricing
research, academic research, specifically, talking about what
we're getting into today.
While the increase in interest in regulating PBMs allows us
to have a really rich discussion on how we pay for
pharmaceuticals, my fear is that advocacy efforts by all
stakeholders involved who stand to win or lose from the
regulation, it just distracts us from facts. I've had the
pleasure of working with all stakeholders involved in these
policy fights, and I genuinely empathize with all the
stakeholders.
In my written testimony, I've tried to detail several key
issues in the same way that I would teach my students, which I
just want to give a quick shoutout to the University of Utah,
my students, for helping prepare for this testimony.
To kick things off, I just want to highlight three key
areas I'd like the Committee to consider.
(1) We need a process to balance the individual patient
goals with the population goals. When I get sick, I can talk to
my doctor about a variety of treatment strategies. If that
strategy involves a medication, I'm also free to go to any
pharmacy I want.
However, as an employee of the University of Utah, if I
wish to go at the University of Utah, if I wish to use my
prescription insurance to pay for that medication, the decision
is no longer just a patient-doctor decision because I'm,
essentially, asking all my coworkers to pay or contribute for
my benefits. So, now, my healthcare goals have to align with my
employer's goals. So, we need to work on developing a fair
process that finds a win/win for both the patient and the
employer, as well as how to settle disagreements.
(2) If you remove the PBM from the equation today, who or
what steps in to fill that void? PBMs have been around since
the 1960s, and while they have substantially evolved, many of
their core functions have remained constant for the past 60
years. PBMs, typically, gain customers from a process where
they respond to competitive bids, Requests for Proposals, from
plan sponsors, like employers and governments, who are
requesting for help developing formularies, managing a pharmacy
network. So, when we remove the PBM, we just have to know, OK,
then what? Who steps in and who stands to gain from this new
environment?
(3) Our pharmaceutical supply chain is riddled with
anticompetitive business practices by design. We have to
grapple with the fact that we made a tradeoff in the 1960s to,
essentially, by incentivizing the development of new
pharmaceuticals, we decided we would grant innovators temporary
monopoly power or market exclusivity. We, the U.S. citizens,
would get this massive investment from the business community,
which we have, and then, we would have to pay higher prices
initially. Forty years of celebrating the Hatch-Waxman Act, now
we've got a rich generic manufacturing community as well for
the last 40 years.
PBMs, along this time, have evolved to leverage large
populations to gain price concessions from these pharmaceutical
manufacturers that we grant those exclusivity rights.
Additionally, they use their size and their scale to capture
price concessions from pharmacies as well.
On one hand, this is good if the savings are passed on to
the health plans. On the other hand, the price concessions from
these, that these pharmacies give make once profitable
pharmacies no longer sustainable.
So, as this Subcommittee deliberates whether PBM practices
require additional regulation, I would just simply ask the
Members, walk through the same mental exercise as I try to ask
my students to walk through. Eliminate the PBM from the
equation, and then, play out the scenario for each of these
different stakeholders--what happens with patients and their
caregivers; what happens with the health plan sponsors; what
happens to pharmacies; and what happens to drug manufacturers?
Thank you all and I look forward to answering your
questions.
[The prepared statement of Dr. Mattingly follows:]
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Mr. Massie. Thank you, Dr. Mattingly.
Dr. Frank, you may begin.
Oh, make sure your microphone is on and pull it near you.
There you go.
STATEMENT OF DR. RICHARD FRANK
Dr. Frank. OK. Chair Massie, Ranking Member Correa, the
Members of the Subcommittee, thank you for inviting me here
today to talk about the role of pharmacy benefit managers, or
PBMs.
In my remarks here, I want to touch on three issues.
First, how PBMs are paid and what that implies for the
market.
Second, market structure within which PBMs operate;
specifically, vertical integration of PBMs and insurers on one
hand, and highly concentrated horizontal markets for PBM
services on the other.
Third, I want to talk about the circumstances facing
independent retail pharmacies and the role that PBMs play in
that.
So, let me start by noting that PBMs came to prominence by
introducing procompetitive incentives to market prescription
drugs. That resulted in price concessions that are estimated to
be 10-28 percent.
Turning now to payment, PBMs are paid in several ways.
The first is service fees for performing specific functions
like claims processing.
The second form of payment is to retain part of rebates
that they negotiate. Estimates of retention rates fall in the
9-13-percent range. Rebate retention creates incentives for
PBMs to bargain hard.
PBMs also earn revenues through a variety of fees charges
to pharmacies, and some PBM revenues come about because they
pay less to pharmacies than they charge the insurer or the
employer. That's called spread pricing.
PBMs negotiate a mix of fees, retained rebates, and spreads
with their customers. So, when larger retained rebates happen
and spread prices are larger, in allowable contracts, service
fees tend to be lower.
Now, let me turn to market structure. In 2022, the largest
four PBMs accounted for 87 percent of sales. This is due to
both scaled economies and horizontal mergers that we saw in
that chart. This likely gives large PBMs the upper hand in
negotiations with some payers and pharmacies, resulting in the
ability to extract excess profits.
The market has also moved rapidly toward vertical
integration. Each of the four top PBMs is integrated with a
major insurer. Vertical integration, in theory, can create
synergies by managing the drug and the medical benefits
together. Those synergies can result in improved patient care
and reduced costs.
Vertical integration can also have a less happy result,
such as avoidance of regulatory rules. This stems from the
ability to disguise profits as costs to avoid regulations that,
for example, limit the margins of health insurers.
Another concern involves potential anticompetitive conduct.
For example, insurers may choose to sell their PBM and health
insurance services to employers as a package or a bundle, and
that would impede competition from insurers who don't have a
PBM.
The evidence on these things is thin. There's little
evidence showing that there are synergies, but there is
emerging evidence suggesting that there is regulatory gaming
linked to vertical integration.
Let me now turn to retain pharmacies. Steering of customers
to PBMs, to preferred pharmacies, claim to disadvantage
independent pharmacies. This is particularly troubling in rural
America because of the greater potential for pharmacy deserts.
Independent pharmacies face challenges, though, broad economic
challenges, such as competition from mail order, smaller scale,
and lack of robust purchasing arrangements.
The situation for pharmacies, independent pharmacies, is
varied. The number of rural independent pharmacies declined 16
percent between 2003-2021, while urban chains, I mean, while
rural chains grew about 4.5 percent. During that same period,
metropolitan independent pharmacies grew 28 percent, while the
chain pharmacies only grew 10.5 percent. So, it's a mixed
picture. Gross margins were flat at around 21 percent over the
recent history.
Then, there's scale problems. Independent pharmacies
dispense about a third of the number of prescriptions that a
chain pharmacy does on average. So, they just have a much
smaller scale, and their purchasing arrangements leave them
sort of 2-6 percent, with higher costs of about 2-6 percent.
So, in finalizing, let me just make one final comment that
I concluded after undertaking, undertaking a view of the
landscape; those efforts to improve competition and efficiency
in PBM markets is a sensible way to go, but being successful in
doing that will only make a small difference to the overall
drug pricing problem.
Thank you for your attention.
[The prepared statement of Dr. Frank follows:]
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Mr. Massie. Thank you, Dr. Frank.
Dr. Van Nuys, you are now recognized for your statement.
STATEMENT OF DR. KAREN VAN NUYS
Dr. Van Nuys. Chair Massie, Ranking Member Correa, and the
honorable Members of the Subcommittee, thank you for the
opportunity to testify about pharmacy benefit managers in our
healthcare system.
I'm an economist and have been researching pharmaceutical
distribution economics at the USC Schaeffer Center for the last
decade. The opinions I offer here today are my own.
PBMs play a crucial role in our healthcare system. They are
key intermediaries managing drug benefits, negotiating rebates,
designing formularies, and processing claims. Their central
role in the system affords them unique access to data about
nearly every transaction in the value chain.
The industry's current structure and practices raise
significant concerns about market power, pricing distortions,
and misaligned incentives that may raise costs for patients,
employers, and taxpayers while stifling competition.
Today, three PBMs handle about 80 percent of the U.S.
retail prescription market. All three are vertically integrated
with large insurers, specialty pharmacies, and other healthcare
entities. Those three vertically integrated companies ranked
4th, 6th, and 16th in the Fortune 500, accounting for nearly a
trillion dollars in revenue.
This concentration of market power combined with extensive
vertical integration has enabled several concerning practices.
I'll give some examples.
First, although PBMs are supposed to lower drug costs, we
found that involving a PBM increases generic drug costs. We
discovered that Medicare could have saved $2.6 billion in 2018
on the most common generic drugs if they had been purchased at
Costo for cash. On average, Medicare overpaid by 21 percent.
Second, the current rebate system is driving up branded
list prices. We found that between 2014-2018, insulin list
prices rose 40 percent, while the net prices taken home by
manufacturers fell 31 percent. Those 31 percent savings that
PBMs were negotiating for manufacturers were not passed on.
They were absorbed by the PBMs and other intermediaries. Over
five years, the share of insulin spending captured by PBMs and
other intermediaries more than doubled.
Third, we've seen PBMs steer patients to higher-cost drugs.
They have given more favorable formulary placement to expensive
brand-name drugs over lower-cost generics or biosimilars,
likely due to the larger rebates offered on higher-priced
products.
Fourth, spread pricing, where PBMs charge health plans more
than they pay pharmacies and pocket the difference, enables PBM
to hide their true compensation. A 2018 Ohio State audit found
PBMs charged 31 percent average spreads for generic drugs in
its Medicaid managed care system.
Finally, PBMs are increasingly restricting access to
medications. Schaeffer researchers found that from 2011-2020,
the share of drugs restricted in Medicare Part D plan
formularies rose from 32-44 percent.
The impact of these inefficiencies in the PBM market is
far-reaching. Federal programs like Medicare and Medicaid are
overpaying for drugs, increasing costs for taxpayers. Employers
are struggling to assess whether they're getting value for
money from their PBMs. Consumers are facing higher out-of-
pocket costs and restricted access to medications, and
uninsured individuals are paying inflated cash prices that may
put needed medications out of reach.
I recommend several policy options to address these market
inefficiencies.
First, we need more transparency. This means requiring
greater disclosure of rebates and true net pricing to PBM
clients. CMS should be authorized to develop and publish high-
quality average net price benchmarks by drug for key supply
chain transactions.
Second, we need to reevaluate the current rebate system and
develop alternatives that better align with patient and payer
interests. We should ensure that patient out-of-pocket
expenditures are based on post-rebate prices.
Third, we need to scrutinize vertical integration in the
PBM industry more closely. This includes investigating
practices that weaken standalone competitors. Finally, we must
explore ways to align PBM incentives with the interests of
patients and payers. This could involve changing how PBMs are
compensated or imposing fiduciary requirements on them.
In conclusion, while PBMs play a crucial role in our
healthcare system, the current industry structure raises
significant concerns about the impact on drug prices, patient
access, and overall health costs. By implementing these policy
recommendations, we can better harness the potential benefits
of PBMs for the benefit of patients, employers, workers, and
taxpayers.
Thank you. I'm happy to answer your questions.
[The prepared statement of Dr. Van Nuys follows:]
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Mr. Massie. Thank you, Dr. Van Nuys.
I now recognize the--oh, sorry. We will now proceed under
the five-minute rule with questions, and I now recognize the
gentlewoman from Indiana for five minutes.
Ms. Spartz. Thank you, Mr. Chair. I appreciate having this
hearing, and I hope we will have a good discussion. I know we
had a lot of about--discussion about competition and
consolidation, and since we talked about Plato, I have to
mention Aristotle, about his oligarchs and oligopoly issues
that he discussed when we have business controlling the
government.
That is what is happening in healthcare. Unfortunately, we
don't have the markets. We have oligopolies in each sector of
healthcare fighting on committees and bankrupting the country
and bankrupting the families. So, we need to have a serious
discussion. It is going to be destruction of our country.
Healthcare became the biggest driver of our national debt
and debt of American families, one of seven families on
insolvency for medical debt. We right now have hyperinflation
of price, and the system is going to blow up. A lot of my
colleagues on the other side will offer complete government
takeover, which is going to be a terrible solution.
We need to have a solution, as you know, I am glad that the
Chair--the minority leader of the Committee mentioned about
Affordable Care Act, Obamacare--but as you know, that actually
drove consolidation hospitals. As you know, maybe not, it was a
bad intent, but a lot of payments were to consolidate the
market through Medicare. We have seen what's happening.
A lot of you know what site neutrality does with hospital
overbilling, Medicare, roughly 300 billion effects our budget.
Then Biden enslaved doctors. Let's talk about, recently,
Inflation Reduction Act--we give a huge subsidy to big
insurance and subsidize their profits. So, premiums--that is
another 300 billion hit to the budget.
So, we now have a huge problem there. We need to have
discussions, not look for the evils. There was a reason that
PBMs were created. They are not doing their job, too. They are
not passing along their rebates to consumer. We do not have
competition in that market. Everyone is making a lot of money,
and country is going bankrupt.
This is a big problem, whether it is through government--
but it is a government-created monopoly. We are subsidizing
through Medicare, through Medicaid, through all the bills,
create barriers of entry, Affordable Care Act, even though
physicians cannot own hospitals. Well, physicians can be owned
by a hospital, but cannot own hospitals--and a lot of mandates
and insurance in all the industry.
So, we need to have a serious discussion. I appreciate you
being open-minded because we all have in it together. We need
to get all the stakeholders to the table, not look who is evil,
because it is like a balloon. It is going to pop-pop on the
other side because we have enormous opportunity for innovation,
and we have to have. This is what changed Americans' lives. It
helps us to be a healthy country.
We have to have competition for value and outcomes, not
wait until person gets so sick and keep them alive. As long as
they are not dead, they are very profitable. People serve a
system. This became so corrupt. We have to have a bipartisan
conversation, and I hope we can.
I hope people in your industries will be able to step up
because it is very difficult to do it here. As I always say,
there is no lobby for the people here, OK? We are supposed to
be the lobby. So, appreciate a lot of my Republican colleagues
bringing some transparency and conversation. So, I hope my
Democrat colleagues will join in some of these discussions
because we have to save healthcare.
So, my question that I want maybe goes from looking from a
PBM perspective and some other ones, if you would look from
some of the key issues including in--because I understand we
are going to eliminate PBMs. Big pharma is going to do whatever
they want. They were the ones that created it, right? What
would you do to make sure that we don't create where we do is a
lot of regulating PBMs more, giving insurance commissioners
more power, create that--they just go lobby more State houses
and write bigger checks in the State house. There will be
oligopolies protected at the State level, OK?
So, this is not a solution. So, what can we do in that
particular industry to make sure that we have a competition for
value and help people have access to proper medication, that we
have more choices for consumer, and be able to have innovative
solution entering that, and how the PBM market can be more
competitive?
So, Dr. LoSasso, I start with you. I think I have almost
run out of time, so if you briefly can think quickly, sir,
because you have a need to be very quick.
Dr. LoSasso. Thank you, Congresswoman. Well, there's a lot
there. I think that you definitely raised some important points
there. I think we do want to have a system that allows for
competition in the drug space that represents a meaningful
counterweight to, as mentioned earlier, the monopoly privilege
that pharmaceutical companies have with patent protection.
So, I guess I would say just be very cautious--in closing,
be very cautious about how you go about trying to regulate it
because we've seen many instances where well-intentioned
regulation leads to terrible, unintended consequences.
Mr. Massie. The gentlelady yields back, and I will
recognize the Ranking Member, Mr. Correa, for five minutes.
Mr. Correa. Thank you, Mr. Chair.
Our witnesses I can see clearly now. This has clarified the
whole picture. Like my colleague from Indiana said, though,
PBMs don't work. The Inflation Reduction Act didn't work.
Obamacare didn't work.
So, I was trying to legislate from the view that we don't
want to do any harm. Do no harm. We want to be careful with the
good intentions. There is a lot, a lot, of legislative
proposals out there right now, too many of us to look at in
this brief time period. I am going to talk about three of them
right now, and if I can get some very quick opinions from the
four of you as to some of these proposals.
Banning rebates, Ms. Van Nuys--Dr. Van Nuys--good or bad?
Dr. Van Nuys. I can't give you--
Mr. Correa. Complicated.
Dr. Van Nuys. Yes. It's complicated. I'm sorry. It's full
industry, but--
Mr. Correa. Dr. Frank, banning rebates?
Dr. Frank. I think rebates serve--
Mr. Correa. Can't hear you.
Dr. Frank. I think rebates serve a useful purpose. I think
they have strong incentives. Coupled with market power, they
can create problems.
Mr. Correa. Banning rebates--yes/no?
Dr. Frank. No.
Mr. Correa. Dr. Mattingly, banning rebates?
Dr. Mattingly. No. I do think that rebates allow an
opportunity to--you want the person negotiating the lower price
to have some skin in the game, too. So, it's something we have
to debate. Is it 100 percent pass-through that we want back to
the health plan, or do we want the PBM to have--
Mr. Correa. There is an incentive, skin in the game. Don't
ban them is what you are saying.
Dr. LoSasso?
Dr. LoSasso. Short answer, no. Longer answer, rebates
themselves are a workaround, a bodge, if you will, that cropped
up because--probably arguably Robinson-Patman Act. So, maybe
eliminate Robinson-Patman.
Mr. Correa. OK. Easier said than done. Second, spread
pricing. Dr. Van Nuys, eliminate it? Yes or no?
Dr. Van Nuys. Don't eliminate, but I think introduce
transparency.
Mr. Correa. Dr. Frank?
Dr. Frank. Transparency is a good idea here.
Mr. Correa. Was that a no, yes or no, on spread pricing
eliminated? Yes/no?
Dr. Frank. No.
Mr. Correa. OK. Dr. Mattingly, spread pricing?
Dr. Mattingly. No. Same thing. I think there needs to be
incentives along the supply chain.
Mr. Correa. Would you also say transparency?
Dr. Mattingly. Absolutely.
Mr. Correa. OK. Dr. LoSasso, spread pricing, eliminate?
Yes/no?
Dr. LoSasso. It's a no on eliminating spread pricing
because it does align incentives, and as it stands right now,
payers have the choice. They can offer spread pricing or do
fees. They generally choose for spread pricing.
Mr. Correa. Mr. Chair, I am on a roll here. I think we got
some consensus. Let's try a third one here.
Transparency. Dr. Van Nuys, more transparency?
Dr. Van Nuys. A hundred percent, yes.
Mr. Correa. Dr. Frank?
Dr. Frank. I'm a targeted yes. I think that there are
private negotiations that have been where you get better prices
because they're done privately, but there are a variety of
places where transparency would be helpful.
Mr. Correa. So, private negotiations are good because--
Dr. Frank. So, for example, rebates are one of the places--
the CBO and the Office of the Actuary in HHS both have scored
positive costs if you make the rebates fully transparent.
Mr. Correa. Dr. Mattingly?
Dr. Mattingly. I think we need to be very clear.
Transparency to whom? Transparency is good, but to whom?
Mr. Correa. Us. The world. Public.
Dr. Mattingly. Yes. So, if it's to the patient--so, often,
the customer of the PBM--or the PBM is serving a health plan,
like an H.R. director. So maybe we have to talk about, what's
the transparency from H.R. to its employees on, like, a self-
funded insurance plan or whatnot?
So, we just need to be clear what's the transparency, what
we're talking about, as we're writing these regulations.
Mr. Correa. Dr. LoSasso, transparency? Yes/no?
Dr. LoSasso. Transparency is not an automatic no-brainer.
Yes, I think there--I can go very far afield here and cite a
famous study in economics of the Danish ready-mix cement market
where prices for cement were mandated by the government to be
transparent, and prices subsequently rose because--
Mr. Correa. Thank you.
Dr. Frank, my 17 seconds left, the FTC interim report
provided many examples of harm to healthcare market by PBMs.
Can you quickly tell me what the FTC got right and what they
got wrong in that report, Dr. Frank?
Dr. Frank. They raised a lot of potential difficulties.
However, the evidence presented is pretty thin.
Mr. Correa. Out of time. Mr. Chair, thank you very much.
Mr. Massie. Thank you. The Member yields back.
Without objection, Ms. Ross will be permitted to
participate in today's hearing for the purposes of questioning
the witnesses if a Member yields the time for that purpose.
Now, I would like to recognize the gentleman from Wisconsin
for five minutes.
Mr. Fitzgerald. Thank you, Mr. Chair.
In the 24 years I was in the Wisconsin State Senate, this
issue was something that we worked on, and actually with
President involved, and actually tried to move PBM legislation
on a couple of occasions.
Unfortunately, what we saw was--in Wisconsin--that there
were many--I will call them hometown pharmacies, smaller,
independent pharmacies, which--many of my constituents were
customers of these pharmacies for many years, loved their
pharmacist, right? Very comfortable with the advice they were
being given, long-term plans that was integrated with their
physicians.
Clearly, what was happening was that the PBMs started to
skim. As that happened and they became larger and greater, we
started to see pharmacies start to close in Wisconsin, and they
ended up at one of the big three, right?
So, Dr. LoSasso, can you talk a little bit about the
landscape and where we were maybe 20 years ago compared to
where we are now on the vertical integration of PBMs and how
they interact with the pharmacies that our constituents deal
with all the time?
Dr. LoSasso. Of course. Thank you, Congressman. So yes. As
has been pointed out by folks on this panel and the Members of
the Committee, there has been quite a great--quite a lot of
vertical market integration going on in the PBM space. This is,
again, as has been pointed out, not necessarily a bad thing.
There are potential efficiency gains.
I guess I'll speak to this idea that you raise around what
I guess I would refer to as contracting--creating selective
networks of pharmacies were you could have a pharmacy that is
on the outside, will not be part of the network created by the
PBM. Selective contracting is a quite old concept in healthcare
and other industries as well. What it does is it effectively
allows for lower prices that are passed on to consumers,
ultimately.
In other words, if a low-efficiency, high-cost pharmacist--
pharmacy--cannot meet the terms that the PBM asks of them, they
can't be part of the network. What do we do about--I don't know
that we do anything about that, to be honest, because I think--
do we want to have a system that props up the inefficient
providers in markets? I would argue no, that's not a--that
should not be a policy goal. So, I guess I'll pause there.
Mr. Fitzgerald. Very good.
In July 2024, the FTC released its Interim Staff Report on
PBMs, which concluded that PBMs wield significant power of
patients' ability to access affordable drugs. Unlike the 2005
report on PBMs, the report did not have the support of the
entire commission.
In fact, Commissioner Holyoak dissented, arguing that the
report failed to meet the standards of economic rigor expected
of commission reports more generally. Chair Khan argued that
the report lacked empirical evidence of a number of factors,
including the State of competition in the prescription drug
market.
Dr. Frank, you commented on the FTC report and the
Commissioner Holyoak's dissent in your testimony. Do you think
her concerns about the report were actually legitimate or not?
Dr. Frank. I commented on her dissent as well as one of her
colleagues' dissents to the report. There were multiple places
that both commissioners pointed out that the evidence was
pretty thin, and it is hard to draw conclusions about, sort of,
some of the big points raised in the report. I think that my
reading is consistent with that.
Mr. Fitzgerald. Very good.
Just really quick, the Trump-era price transparency rule--
that required hospitals to post prices showing their average
negotiated rates since 2021. Many of the hospitals that we
worked in with Wisconsin have implemented tools on their own.
They have kind of created a website so that there is
transparency.
Dr. Mattingly, do you believe that a similar price
transparency rule for PBMs would be a positive step? Do you
think it is being utilized, and would it work?
Dr. Mattingly. Yes. I do want to--sorry. I do want to
entertain something like that. I think it could be positive. I
think it's really important to recognize that for some generic
prices, it's maybe helpful. We can look and see what a price of
a low-cost generic is, but if it's a really high-cost-brand
medication, knowing what the price is, isn't going to matter if
you need that drug.
So, if it's a life-saving medication, it's not going no
matter what the price is. You can tell it--you can post it
everywhere you want, and I still need it. You know? So, I guess
we just got to figure out, when is it actually going to help?
Mr. Fitzgerald. Yes. I yield back.
Mr. Massie. I thank the gentleman.
I now recognize the Ranking Member of the Full Committee,
Mr. Nadler, for five minutes.
Mr. Nadler. Thank you, Mr. Chair.
Dr. Van Nuys, in your written testimony, you discuss the
practice of spread pricing. Could you explain how this practice
works and why it is concerning, especially in the context of
government programs like Medicaid?
Dr. Van Nuys. Yes. Spread pricing is the practice where a
pharmacy benefit manager reimburses the pharmacy one rate for
filling a prescription and then charges the health plan a
different, higher rate for filling that same prescription. Then
they keep the difference, and that's called the spread.
The health plan does not see what the pharmacy is
reimbursed. As a result, the health plan doesn't know what they
are paying. Part of what they are paying for pharmacy benefit
services is that spread, and they don't know how big it is.
Nobody can make a good, sound economic decision without knowing
what prices they're paying.
The State of Ohio audited its Medicaid managed care program
in 2018 and learned that they were being charged those spreads
of 31 percent on average on generic drugs. As a result, they
fired their PBMs, which suggests to me that they were very
surprised to learn that the spreads were as high as they were.
They would not have known about this if they had not done this
audit.
So, I think that having spread pricing--the practice by
itself is not as problematic as the fact that there's no
transparency into it, and it actually masks prices and
compensation levels for PDMs.
Mr. Nadler. Thank you. Dr. Van Nuys, how do PBM practices
affect the uninsured?
Dr. Van Nuys. The uninsured? Oh. So, when it comes to
negotiating the prices of brand drugs, pharmacy benefit
managers and drug manufacturers negotiate over the list price
of the drug and the rebate. We've heard a little bit about
rebates here, right?
So, in the process of negotiating that, the PBM wants a
higher rebate because they get to keep a part of it, and the
manufacturer wants to pay a higher rebate because that will get
them preferred placement on the formulary. So, both of those
agents are sort of working toward higher rebates, but what that
tends to do is push up the list price of the drug because the
rebate is taken out of the list price, and the net price is
what remains.
Mr. Nadler. No one is pushing in the other direction.
Dr. Van Nuys. No one's pushing in the--not on the list
price. So, uninsured patients frequently face the list price of
the drug, not that negotiated net price after the rebate, but
the list price of the drug.
Mr. Nadler. So, the uninsured pay higher prices than the
insured.
Dr. Van Nuys. Yes.
Mr. Nadler. Dr. Frank, we have talked about a lack of
competition in the PBM market contributing to high drug prices.
Do you believe this is also a problem in other sectors of the
healthcare industry?
Dr. Frank. The concentration is problematic elsewhere,
absolutely. I think we see it a bit in Medicare Advantage, for
example. That would be one of the places that I think is a
poster child for sort of high levels of concentration.
Mr. Nadler. What recommendations do you have for promoting
competition in hospital and physician markets?
Dr. Frank. Well, I'll give you one example. In Medicare
Advantage, we have set things up so that the county is where
competition happens, right? That's the way the markets are
defined. That's fine in your borough. It's not so great in
Nebraska.
What we could do to promote competition is make markets
larger so that companies that enter can count on getting a lot
of business. In New York, it's true--Nebraska, not so much.
Mr. Nadler. New York what?
Dr. Frank. In New York, it's true that you go into that
market; there are a lot of bodies for you to compete for.
That's less true in Nebraska. So, by making the markets
geographically larger, getting more people in, you create
incentives for entering competition.
Mr. Nadler. Thank you.
Dr. Van Nuys and Dr. Frank, in order, what reforms do you
recommend that Congress take to address the concerns related to
PBMs?
Dr. Van Nuys, let's start with you.
Dr. Van Nuys. I recommend creating greater transparency by
developing and publishing pricing benchmarks that are true net
pricing benchmarks so that the folks who are transacting in
these markets can actually make better economic decisions, know
what prices they're facing.
Mr. Nadler. Dr. Frank?
Dr. Frank. I guess I would try to do things that promote
competition from independent pharmacies--I mean independent
PBMs--because, right now, you've got the three vertically
integrated ones, and there is some midsize independent PBMs. To
try to get them and others like them to be able to compete more
effectively, doing things to encourage their entry into the
market could go a long way to help.
Mr. Nadler. You mentioned the three vertically integrated
PBMS. Do you think antitrust action should be taken against
them?
Dr. Frank. Well, no, let me tell you what my concern with
taking antitrust action is. The areas of antitrust that are the
hardest to make a case on, where the case law and the economics
is messiest, is in vertical relations. I think you'd have to go
after that. Because the process is a very long litigation,
highly uncertain given the messiness of the area--I would try
out something else first.
Mr. Nadler. Thank you.
My time has expired. I yield back.
Mr. Massie. The gentleman yields back.
I now recognize the Chair of the Full Committee, Mr.
Jordan, for five minutes.
Chair Jordan. Thank you, Mr. Chair, for this important
hearing.
Dr. LoSasso, you started off our testimony--I think it was
your second sentence you said even Plato doesn't like or didn't
like middlemen, referring to the PBMs. The way I understand
it--and again, just a country boy here, but PBMs work with
insurance companies to negotiate prices with manufacturers and
then dictate to the pharmacy what they get paid. If you are not
in the network, look out. You are in trouble.
That doesn't sound like a middleman. That sounds like the
dictator at the top. That sounds like a monopoly. That is the
concern, and particularly when 80 percent of the market is
vertically integrated, as the gentleman just pointed out, as
the Ranking Member just pointed out.
So, I guess I am going to go back to the question the
Ranking Member just asked Dr. Frank. Why isn't this an
antitrust concern? I guess I will start with the guy who
brought up the middlemen at the start of the hearing, Dr.
LoSasso.
Dr. LoSasso. Thank you, Congressman. So, yes, broadly
speaking, the picture you paint is more or less accurate--
Chair Jordan. Well, first, is the picture accurate? I am
not trying to paint any special picture. I am trying to get to
the facts. That is an accurate picture, isn't it?
Dr. LoSasso. Well, it ignores some important aspects, which
is that the payer ultimately--
Chair Jordan. Three pharmacies, 80 percent of the market.
Are three PBMs 80 percent of the market? Is that true?
Dr. LoSasso. Estimates vary, but yes, 70-80 percent, 3-4.
Chair Jordan. Three dominate, right?
Dr. LoSasso. Three to four, yes, depending on--
Chair Jordan. They work with insurance companies to
negotiate prices with manufacturers and then tell pharmacists
what you are going to get paid.
Dr. LoSasso. So, remember the key part there is that
pharmaceutical companies control list price, right?
Pharmaceutical companies have a great deal of market power,
given monopoly privileges.
The payer, on the other end, the person--the entity at--
whether that's a labor union, whether that's a large employer--
they are able to view options. They're able to say, ``No, I
don't want''--the first thing--I'm not a large employer, of
course, but I would want to know, what is the average spread?
You're offering me an alternative. The PBMs say I could do
spread pricing. Here's an option. I can do spread pricing; I
can do fees.
Well, what is the spread? Why didn't that Medicaid
program--I think it was Ohio. That would have been one of the
first questions I'd ask if I was an Ohio Medicaid Director.
What is the average spread price for generics? I'd hate to find
out with an audit down the road.
So, all I'm saying is that there are people with skin in
the game that are able to push back, and that is the payers.
Chair Jordan. Let me ask you this. Can a large PBM tell an
independent pharmacy: If you work with some new innovative
company to bypass our network, we will cut your pharmacy off
from our network and subject you to fees and audits? Can that
happen, Dr. Mattingly? We'll jump around a little.
Dr. Mattingly. I'm sorry. Can you repeat that scenario
again?
Chair Jordan. Could a large PBM tell an independent
pharmacy: If you work with a new innovative company to bypass
our PBM network, we will cut your pharmacy off from our network
and subject your pharmacy to fees and audits? Can they do that?
Dr. Mattingly. I don't know, but they might be able to,
yes.
Chair Jordan. Dr. Frank, what do you think? Can they do
that?
Dr. Frank. I think that's certainly a risk that they can
often have the market power--
Chair Jordan. We think it is happening.
How about you, Dr. Van Nuys?
Dr. Van Nuys. Yes, I think it probably happens.
Chair Jordan. Yes. Is that--we got the manufacturer. We got
the insurance company. We got the wholesale distributors. We
got the pharmacists. We got the PBMs. If they can do that, that
is probably not good for the one we should care about most,
which is the patient, right?
Dr. Van Nuys. Yes, particularly patients in rural areas or
in underserved areas where, disproportionately, independent
pharmacies are the ones who are serving those patients.
Chair Jordan. Dr. LoSasso, I started with you. I will give
you the last word here and my last few seconds. Anything you
want to add?
Dr. LoSasso. Well, I would--yes. I appreciate that. Thank
you. I would just add that pharmacy networks, selective
contracting, broadly speaking, as I pointed out earlier, that
is a mechanism that can be used to ensure a high-performing set
of pharmacies that can deliver drugs to patients. I can't speak
to any of the sort of punitive measures that you mentioned. I
don't know anything about that.
As a general matter, being able to create a high-performing
network of pharmacies is a useful function because it can
improve efficiencies. It can force the pharmacy that can't meet
the objectives of the PBM, in this instance, to become more
efficient or move on.
Chair Jordan. I was going to yield my remaining time to the
Chair, but as happens sometimes, there is nothing left. Thank
you, Mr. Chair.
Mr. Massie. Thank you. The gentleman yields back.
I now recognize the gentleman from Georgia for his five
minutes.
Mr. Johnson. Thank you, Mr. Chair, for this very important
and bipartisan hearing.
With all due respect to my friend, the country boy from
Ohio, I would point out there is a lot of city boys who would
be interested in the same answers that you were trying to
elicit. I will point out, too, the witness--
Chair Jordan. Ah, it is great to see we are on the same
page for a change, brother.
Mr. Johnson. I am happy about that.
Chair Jordan. Yes. That is--amazing day.
Mr. Johnson. Now, typically, when a widget is manufactured,
the widget manufacturer would manufacture the widget. The
widget would then be placed with a distributor. The distributor
would then place the widget with a retailer, and the retailer
would make it available to the customer. Correct? That is the
normal supply chain or distribution channel.
It is much more complicated in the pharmaceutical industry.
I would also point out the fact that drug prices in the United
States of America, as it relates to pricing for the same drug
in another industrialized Nation, the cost in the U.S.--like
say insulin, for instance. Back in 2018, a vial of insulin in
the U.S. cost $98.70, and you go right across the border to
Canada and get that same vial for $12.
So, we see these kinds of price disparities across a broad
range, in fact all, pharmaceutical drugs. We see that
happening. We also know that 90 percent of the pharmaceutical
drugs that are delivered to consumers--90 percent are generics.
So, there is no exclusivity issue in terms of patents.
So, question I want to ask--the widget manufacturing
process in the U.S. being as complicated as it is, does that
same supply chain distribution process--is it employed in a
place like Canada? Do--yes, Dr. Van Nuys.
Dr. Van Nuys. I am not an expert on the Canadian drug
distribution market, so I can't say for sure. I do believe that
because of the very different healthcare system in Canada
versus the U.S., we don't have the same kind of intermediaries.
Mr. Johnson. I guess what I want to ask is, do PBMs exist
in any other market than the U.S.? Can you answer that, Dr.
Mattingly?
Dr. Mattingly. Absolutely. Congressman, I love your example
of the widget. I use that in my class all the time, so thank
you for that.
Absolutely. So, in Canada--and I had this opportunity right
after pharmacy school. I got to go spend about a month with the
British Columbia Ministry of Health, so working with the
province. So, this was for the government. So, I went and
shadowed and worked there for four weeks, came back. I was
like, ``That was like a PBM.'' Right? So, their State level,
province, is making the same decisions.
Mr. Johnson. Single-payer kind of model.
Dr. Mattingly. Well, and Canada has multiple provinces. So,
it's not a single payer, as we like to think. It's even more
complicated there.
Mr. Johnson. Well, single concept. Multiple payers, I
guess, but same concept.
Dr. Mattingly. Right. Sure.
Mr. Johnson. A single payer among various provinces.
Dr. Mattingly. Well, instead of our premium payments going
to function to a for-profit company that's set up to administer
the benefits, it's maybe my tax dollars that are going through
that way. So, it's just two different ways of handling it.
Mr. Johnson. How is it that the U.S. distribution channel
for pharmaceuticals incorporated the PBM model as its
distribution process? How did that come about, and why? Is it
still useful?
Dr. Mattingly. Yes. It did start in 1958 in Canada and made
its way over to the United States in the early 1960s. We
started as prepaid pharmacy card systems. So, pharmacists
actually helped us create these to begin with because we
thought pharmaceuticals were getting too expensive in the
1960s. So, a way to handle that was, ``Let's pay ahead of
time,'' and again, knowing that patients are going to have this
spending.
So, it started, again, to address as the rising costs of
drugs were coming along. Again, the rising cost of drugs to
your widget--we put these widgets through many years of
research and development that have to then meet a barrier that
they are safe and efficacious to be distributed to our
patients.
Mr. Johnson. That should have no bearing on the
distribution process.
Dr. Mattingly. Oh, no, sir.
Mr. Johnson. OK. I have no further questions. I yield back.
Mr. Massie. Thank you. The gentleman yields back.
I now recognize the gentleman from Oregon for five minutes.
Mr. Bentz. Thank you, Mr. Chair, and thank all of you for
your testimony.
Dr. Mattingly, what exact part, if there is just one part,
have PBMs played in the closing of the small pharmacies?
Certainly, in my district back in Oregon, it is a huge, huge
space--my district is bigger than the State of Washington, and
we had at one time small pharmacies all over it. They are
disappearing.
It is not just pharmacies that have disappeared. We have
seen a wave of consolidation in the funeral homes, consolidated
towing companies, and doctors have become hospitalists. The
whole thing is collapsing into bigger spaces or perhaps more
efficient, perhaps not.
So, tell me, though, what PBMs have done to cause this
trend to continue, if anything.
Dr. Mattingly. Thank you. That is a great question. I
absolutely--from my perspective, I feel like there is a major
just scale difference and I talk about--again, to try to
encourage my students because pharmacies close and pharmacies
do open. So, there are pharmacists who seek out to start a new
business.
If I want to open Joe's Pharmacy, my ability to negotiate
with three companies that control 80 percent of the
prescription drug market is quite limited. So, at the end of
the day, it is often that size and scale thing. It is not just
the independents, because I think we have seen large chains
announce that they are closing stores, too, meaning that, is
our retail market changing? It is something that we have to
consider.
Even during the pandemic--I grew up working at a grocery
store. I always loved to go to the grocery. During the
pandemic, I had my groceries delivered a time or two, and it
was like, that is pretty convenient. Maybe I don't need to go
to the big box to get my groceries. I still do because I enjoy
it, but my point is I don't know how much of it is also a
function of the retail market changing that we have to
evaluate.
Mr. Bentz. Do you have a number of how much PBMs take out
of the healthcare system? Cost the healthcare system? I heard
at one point someone said it is a very small percentage of the
total 3\1/4\-4 trillion we spend.
Dr. Mattingly. Oh, that is a really good question, a really
good research question, so thank you for that. I would say one
of the things we are focused so much on the pharmacy market
side of it, and I think maybe what you are getting at is, too,
is the pharmacy segment is still a small segment of the overall
healthcare spend. I don't know if that is where you were
headed.
Mr. Bentz. No, no. My question simply is, PBMs are
providing some sort of a service. How much of it is it costing?
Dr. Mattingly. No. So, I don't have that.
Do you have that, Richard? Please.
Dr. Frank. Their margins are about 4-6 percent, and--what?
Mr. Bentz. Four to six percent?
Dr. Frank. Four to six percent. So, if you kind of look at
that as part of the--in terms of the overall drug spend, it is
actually, pretty small because--
Mr. Bentz. So, when I was--the articles I read suggested
that we were using PBMs as a whipping boy for a much larger
problem, but that is why I am trying to get at how big a
problem is this. If we get busy as a Congress, we are going to
solve this problem. How much have we reduced the cost of
medicine?
Dr. Mattingly. Right. So, that was a point I was trying to
make at the end of my presentation, which was, even though
there is good things that can happen by addressing the PBM
market, but it is only going to do a small, modest amount to
really bring down the cost of prescription drugs.
Mr. Bentz. Right. Certainly, if someone has that number, I
would love to see it.
Dr. Van Nuys, do you have reason to believe that PBMs are
the worst of the middlemen? Or is there somebody worse? Or
maybe they are not bad. Maybe they are good. Maybe they are the
best of the middlemen. Where do they fit.
Dr. Van Nuys. I don't think I have a way to rank order
them. I will say to your question about, how much PBMs are
costing the system, keep in mind that the three largest ones
are vertically integrated with health plans and pharmacies, and
so on, and because of that vertical integration they can shift
revenues and profits into other sectors.
So, just because what we are reporting as PBM--the PBM
share, it doesn't necessarily mean that this is the whole--
Mr. Bentz. Right. You shifted to the entire supply chain,
and we are selecting just one part of it. Are you saying that
we should change our focus to that entire vertically integrated
thing?
Dr. Van Nuys. I think in the case of a vertically
integrated company, yes.
Mr. Bentz. Yes, Dr. Frank.
Dr. Frank. Yes. I think that one of the important things
that maybe we haven't brought out as much is that a lot of
these issues are now insurance issues and not PBM issues,
because in fact, as we said, they are all vertical--most 70
percent of Americans are in vertically integrated plans that
have a PBM and an insurance policy. A lot of the things that
are going on are driven by the dynamics of the insurance market
as much as the PBM per se.
Mr. Bentz. Right. Thank you all very much.
I yield back.
Mr. Massie. The gentleman yields back. I now recognize the
gentlelady from Pennsylvania for five minutes.
Ms. Scanlon. Thank you, Mr. Chair. Thank you to our
witnesses. It is always interesting trying to find the
particular antitrust angle that we can bring to some of these
issues that really kind of cross a broad swath of our country.
We know our healthcare system is becoming defined by
concentration and a lack of competition, whether we are talking
about insurers, providers, drug manufacturers, PBMs, or all the
middlemen throughout the system. We see the impact of decades
of mergers and acquisitions, the rise of private equity in our
healthcare system, which is causing particular problems and
lacks antitrust enforcement.
I am kind of interested in the suggestion we used. What is
it? Robinson-Patman, was that--yes. That was your suggestion?
We will get to that in a minute.
So, we see that Americans don't have many choices usually
among which insurers to pick or providers to see or PBMs to use
or even pharmacies to go to. So, that drives the result that
Americans pay more for prescription drugs and healthcare
generally than nearly every other advanced economy.
We also see that conglomerates own the pharmacy networks as
you have suggested, and when we look at this whole picture and
incredibly the thicket of interrelating operations here, we see
why the patient often loses out in the fight between the
pharmaceutical companies, the insurers, and the PBMs over who
has to pay what.
I am encouraged by this bipartisan work by our colleagues
here and other Committees to produce legislation to promote
transparency and rein in some of this sector's worst practices.
I would be pleased to see this Committee advance serious
legislation to combat these problems.
I am concerned about the counterproductive attempts we are
seeing by the House Majority to repeal provisions in the
Inflation Reduction Act that have been lowering drug prices for
seniors and saving taxpayer dollars. That bill allowed, as you
know, Medicare for the first time ever to negotiate directly
with drug manufacturers to lower and cap the prices that
seniors pay, and my senior constituents are really concerned
about the prospect that we might see the significant progress
we have made there rolled back somehow. So, don't want to see
that.
I did want to pick up on a couple of the issues that Mr.
Bentz raised, and also some of the issues raised by our
witnesses. Dr. LoSasso, what was your suggestion with respect
to enforcement I think it was of Robinson-Patman? How would
that address the issues we are talking about today?
Dr. LoSasso. Well, I guess I should point out, first, that
I am not a legal scholar, nor do I claim to be, but my better-
informed colleagues tell me that the reason behind the somewhat
clumsy rebate mechanism is because of restrictions in Robinson-
Patman around price discrimination policy. So that is probably
the extent of my understanding of Robinson-Patman Act.
Ms. Scanlon. OK. So, more research for us.
Dr. LoSasso. Indeed.
Ms. Scanlon. OK. Dr. Mattingly, you noted that the
concessions that PBMs get from pharmacies are contributing to
consolidation of pharmacies, essentially squeezing the
independents out of the market. What could Congress do to
remedy this?
Dr. Mattingly. When we are evaluating legislation,
especially things like NADAC--or, sorry, National Average Drug
Acquisition Cost, or cost-plus-type pricing, because we know
those kind of things have been thrown out there--when we are
talking about what the cost of the drug should be and the cost
of the dispensing fee, we need to really understand, what is
the value of the service that the pharmacist is providing?
When I was a pharmacist--I guess I am still a pharmacist,
but I was a real pharmacist before--I wasn't incentivized to
tell the patient not to take a drug, right? Like my revenue is
based on you filling a prescription. If I say we talk and we
figure out your history, and it is like, hey, maybe you
shouldn't take this medication, I get zero revenue. Now, we
swear an oath, like we would do that.
Maybe that shouldn't be the case. Like maybe we should
figure a way for the care that I provide that I am compensated
for, and then there could be a combination of that fee for
service in combination with a capitated kind of model.
Ms. Scanlon. Interesting. Dr. Frank, I was interested in
your comments about the pharmacy deserts in rural areas. We see
a similar thing in the very economically distressed urban areas
that I represent. I have limited time, so I was going to ask
Dr. Van Nuys, you suggested that the savings that PBMs are
negotiating are being absorbed by them rather than being passed
along to patients or insurers or other payees and suggested
that one way to better align the PBMs' incentives with patients
and payers would be to impose fiduciary duties on PBMs. What
would that look like?
Dr. Van Nuys. It is a good question. It is a very complex
fix to a very complex system. Right now, PBM--the only
fiduciary responsibility that PBMs have is to their
shareholders. That is not necessarily how we want our
healthcare to operate. So, requiring PBMs to act as
fiduciaries, either to their health plan clients or to the
employees and beneficiaries of those health plans, changes the
focus of what is required of them.
Ms. Scanlon. OK. Thank you. I see my time has expired. I
yield back.
Mr. Massie. The gentlelady yields back.
I recognize the gentleman from North Carolina for five
minutes.
Mr. Bishop. Thank you, Mr. Chair. This is an intimidating
kind of witness--or hearing in which to ask questions,
especially given the way Congress is, you have got to run out
to do a little speech and get back in, so I missed Dr. LoSasso,
I missed Dr. Mattingly, I missed Dr. Frank. I got to hear Dr.
Van Nuys' testimony. Then, I have heard the questions and the
answers.
I will say it all seems like a Rube Goldberg contraption,
and so you have got a lot of really smart experts, and they do
a lot of research, and we never really get to the point where
everybody feels like pharmaceutical costs are about right. We
never get a lot of satisfaction there. You have got some
arguments, and then you have got--Dr. LoSasso, do I get the
basic essence of your position that you think this is really
driven by pharmaceutical manufacturers and the patent system
and the fact that you have got to sort of have a heavy
counterweight to them, somebody that can negotiate with them,
and that is what--PBMs kind of help that function get carried
out? Is that right?
Dr. LoSasso. In brief, sir, yes, I do believe that PBMs are
not only the tip of the spear when it comes to engaging in
price competition and enforcing price competition, they
probably are the entirety of the spear.
Mr. Bishop. OK. Because of the rest of the way the system
is composed, right? Because you have got pharmaceutical
manufacturing and you have got the patents associated with
those, and things like that. Is that--and you have got all the
consolidation in the healthcare industry through payers,
payors, and all those kinds of things.
Dr. LoSasso. In my view, they are the only entity that
really has an incentive to try to pass along savings, because
what they are ultimately selling is insurance. The lower the
premium, the better. If you can bring down the premium, then
you get more business.
Mr. Bishop. Do I understand, then Dr. Van Nuys, again, I
heard your testimony. So, all you believe that PBMs play an
important role, and they are--on balance, they are a net plus.
Is that correct? Anybody differ from that point of view?
Dr. Van Nuys, what I heard you say specifically in your
testimony, if you will, you told us about a lot of things that
are problematic, but you also--I thought there was a premise in
there that they are really important--they provide important
benefits. Did I get that correct?
Dr. Van Nuys. Yes. They play an important role. You need
somebody negotiating drug prices. You need somebody designing
formularies. You need somebody managing pharmacy networks.
The second half of your question was, on balance, are we
seeing those benefits or are we seeing greater costs because of
this sort of countervailing forces?
Mr. Bishop. The gentleman from Georgia, Mr. Johnson, said
something that probably came at one of your testimony--that 90
percent of the drugs are generics. Is that correct?
So, I am sort of left surprised by that. If the
pharmaceutical manufacturers and the monopoly they are
provided--and I am aware of the games they play in terms of
trying to preserve patent for a longer period of time and
reformulate, and so forth, and there is a lot of scams in there
maybe.
If it is 90 percent driven by generics, and that is
supposed to be--that shouldn't be operating, then why are we
having to set up the whole Rube Goldberg contraption for the
sake of 10 percent of the market? Dr. LoSasso?
Dr. LoSasso. It is not 90 percent of the dollars.
Mr. Bishop. OK.
Dr. LoSasso. OK. So just to be clear.
Mr. Bishop. It is interesting and revealing. It is like
reading Bork's Antitrust--no, it is like having to read the
CliffsNotes to Bork's Antitrust Paradox and then come in and
try to ask intelligent questions about it.
So, given the limitations I am facing on that score, I am
going to yield to the Chair the balance of my time.
Mr. Massie. I thank the gentleman from North Carolina.
Dr. Frank, I think you were centering on what might be a
solution or an improvement, which was these independent PBMs.
You said there is some hope there. There is consolidation.
There is three or four that are controlling everything, but
there are some trying to get into the market.
What could we do to make them more competitive? Or is there
something we could unshackle to make them more competitive?
Dr. Frank. I think that is a really important question. I
think it is one that I have been thinking about a lot. I don't
have a great answer.
Mr. Massie. Give me your best answer. Best effort.
Dr. Frank. My best answer is that the government now, one
way or another, is involved in about half the insurance
purchases around the country. Right? So, there is probably--and
I don't know a better way to put it, but there is probably some
ways to, as we have done in other areas, like when we started
Medicare Part D, is to put our thumb on the scale a little bit
to make the market work better.
How exactly to do that I haven't figured out yet, but I
think that given what an important role the government has in
procurement of prescription drugs and working through PBMs and
PDPs, there may be some ways there to advantage some of these
independent entities.
Mr. Massie. The gentleman's time from North Carolina has
expired, which means my time has expired. I may come back and
ask some of the other witnesses the same question, so be
thinking about it.
I now yield to Mr. Ivey--or, sorry, recognize Mr. Ivey for
five minutes.
Mr. Ivey. Thank you, Mr. Chair. I want to commend you for
this hearing. I think this is a great example of a bipartisan
effort, and I appreciate the panel as well, very interesting
and provocative answers.
I do want to--if the clerk could put up the exhibit. This
is--are you able to see that? OK. This is from the FTC Staff
Report ``Pharmacy Benefit Managers: The Powerful Middlemen
Inflating Drug Costs and Squeezing Main Street Pharmacies.'' I
wanted to ask you some questions about this.
Dr. Frank, I think you touched on some of this already in
talking about how difficult vertical integration antitrust
cases can be. Man, this sure looks like one to me. You have got
the concentration of the PBMs, which is around 80 percent. I
didn't realize until I saw this graphic the extent of the
vertical integration. This is pretty significant.
I want to ask you two questions, though. So, even if it is
a complicated or difficult case to make, and it is sort of
touches on what the Chair asked a moment ago, isn't this the
type of thing that FTC/DOJ antitrust should be trying to break
up in some way?
If we want to try and figure out a way to give the other
three PBMs, which I guess is--what is that, Humana, MedImpact,
and Prime? Are those the three? A chance to try and break into
that 80 percent wall, wouldn't sort of breaking up the
relationship between the PBMs, CVS, Express Scripts, and Optum,
which the rest of their vertical integrated columns, wouldn't
that be the way to do it? Not sure, but, yes, Dr. Frank, what
is your take on that?
Dr. Frank. It certainly is tempting target. As I said, I am
reluctant just because the economics aren't worked out. We
don't have super great evidence on that, and it would take us--
you and I would probably be somewhere else by the time that
those things got worked out.
I do think that there are other things that we can do in
the interim that can be done either administratively or
regulatorily that would sort of move the ball ahead and it is
for that reason that I--
Mr. Ivey. OK. Well, let me ask you a quick followup, and
then I am going to yield some time.
So, one of the things when I asked unknown--unnamed PBMs
about this issue, and they said: Well, Mr. Ivey, but the
relationships between the PBMs and the other entities in that
vertical column are all those transactions are done at arm's
length. So, it is all done at fair market value.
I said--well, I didn't say it. I thought it. Come on.
[Laughter.]
Mr. Ivey. Come on. I think one of you referenced a minute
ago about the possibility of sharing benefits up and down the
stream. That creates the problem of overpricing at that level,
and also distorts the information that we are trying to get at
from the transparency piece.
I can't think of another way to address it, but I do want
to yield the balance of my time to the gentlelady from North
Carolina.
Ms. Ross. Well, thank you very much, Mr. Ivey.
I have been working on bipartisan PBM legislation that has
been going through Energy and Commerce, and you are probably
familiar with a lot of it. A lot of it, given--and I love the
setup from my colleague. A lot of the problem is this vertical
integration, because the savings are not going to the patients.
So, yes, there might be some savings, but they are either
going back to the insurance company or they are going to the
PBM. That doesn't accomplish the goal, and that is the
antitrust problem. The antitrust problem isn't that there is a
PBM trying to find efficiency. The antitrust problem is that
the PBM is either self-serving or serving the people that they
are contracting with and not serving the patient. That is the
fundamental thing here.
I love what Dr. Van Nuys said about having some kind of
fiduciary responsibility, but I think what we should be
thinking about is, if you are going to get into the business of
having vertical integration with PBMs, that the beneficiary
cannot be the vertical integration. That is the antitrust
problem, and we need to figure out, maybe it is not breaking it
up. Maybe it is more regulation for how that vertical
integration can work.
That is the nub of it, because the vertical integration is
not helping the patient at all, and it is not reducing drug
prices to the patient at all.
Thank you, and I yield back.
Mr. Ivey. Thank you. I yield back the balance of my time.
Mr. Massie. The gentleman yields back.
I now recognize the gentleman from Virginia for five
minutes.
Mr. Cline. Thanks, Mr. Chair. This is a great hearing,
timely topic, and I appreciate the bipartisan nature of it.
With the rise in premiums and deductibles and the ever-
increasing costs of prescription drugs, it is clear something
needs to change, and I am a firm believer that free market
solutions are the best solutions, and to truly have a free
market we need competition. When you have 95 percent of the
prescriptions in the hands of six PBMs, you don't have
competition.
This hearing is so important, because we are seeing clear
anticompetitive growth in our healthcare system. The FTC has
said that they are going to be taking action in court, but we
do want to examine, in terms of our Article 1 powers, what
Congress can do about that.
Last year, 46brooklyn Research released a report on how
PBMs define brand, generic, and specialty. They found that
those definitions--brand, generic, and specialty--differ from
PBM to PBM. In other words, instead of using the FDA drug
application designation of NDAs and biologic license
applications for defining brand and abbreviated new drug
applications, ANDAs, for defining generic, PBMs essentially
make up their own definitions.
Similarly, the analysis found that a surprisingly large
portion of the drugs on the specialty list were generics, 42-54
percent. Dr. Mattingly, in your testimony, you mentioned drug
price definitions and how that can impact what is paid. Have
you done any research or work regarding how PBMs define drugs
in their contracts?
Dr. Mattingly. That is a great question. One of the things
I kind of joke about with specialty is that it is not really--
it is expensive, and that seems to be the biggest part of the
definition that leads to that. It causes a lot of problems, so,
no, I think you are keen to pointing that out, that maybe we
need to have a more clear definition of what breaks things into
these tiers.
Mr. Cline. I saw a couple of other heads nodding. Does
anyone else want to weigh in on that?
Dr. Van Nuys. I will also add that I think the 46brooklyn
folks have also demonstrated that sometimes drugs are
reclassified and from regular to specialty, and then, because
of the PBM contract, the patient is required to use the
specialty pharmacy that is affiliated with the PBM. So, that is
another--it is not just that the price is different, but now
you also have to buy it from my pharmacy.
Mr. Cline. Dr. Frank?
Dr. Frank. What she said.
[Laughter.]
Mr. Cline. Thank you. Dr. Frank, actually, you spoke a lot
about vertical integration in your testimony. When it comes to
the big three, which side of the business makes the most cash,
insurance or PBM?
Dr. Frank. A huge amount of the profit comes from the
specialty and the mail order. A disproportionate part. I
haven't sort of allocated it all out, so I can't give you a
precise answer, but it is a disproportionate amount coming from
the PBM, those two pieces of the PBM industry.
What is important here is also that because of the
regulations on medical loss ratios in the health insurance side
of things, it is very convenient for the PBMs to overcharge the
insurers to avoid regulation because the revenues still go back
to the parent company and so do the profits, that they are out
of the reach of the regulators.
Mr. Cline. Does anyone else want to weigh in on that? Well,
that we have got a lot of questions that have--and some
legislation moving forward that may or may not address the
concerns. I am glad this Committee is exercising its
jurisdiction, and I think there may be some answers that lie in
this Committee.
So, with that, I yield back. Thank you, Mr. Chair.
Mr. Massie. Would the gentleman yield his remaining--
Mr. Cline. Yes, I yield back.
Mr. Massie. So, may I--
Mr. Cline. I yield to the Chair.
Mr. Massie. OK. Thank you very much. Didn't want to take
anything that wasn't mine, but I will take it.
So, what I hear from small mom-and-pop pharmacists is, ``I
am paying $25 for this drug and that CVS or the hospital is
paying $5 for it,'' or ``I am filling a prescription, and even
before I consider my labor or my employees, I am filling it for
less than--they are paying me less than it costs me.''
What scale would they have to operate at to make money if
they are paying more than they are getting reimbursed? Like is
there any scale that that works? Dr. Van Nuys?
Dr. Van Nuys. Well, no. What you have laid out, there is no
scale. You don't make it up on volume. It is true that if you
are larger, you can get better pricing from a wholesaler.
Mr. Massie. That doesn't speak--that is not saying that the
employees are not working as hard at the small pharmacy or that
there is no scale at which when you are paying more than you
are getting for the drug, there is no scale at which that
works.
So, there is something wrong there in the pricing. Maybe
these small pharmacies are twice as efficient. Maybe the
employees are more motivated. It is a scale thing, and that is
a problem.
Let's see, I recognize the gentlelady from Vermont now for
five minutes.
Ms. Balint. Thank you, Mr. Chair.
I represent Vermont, and it is a very rural State. We are a
collection of small, tight-knit communities, and in many towns
and villages there are small businesses like independent
pharmacies that are often the bedrock of communities.
I can tell you I had the same independent pharmacy for 20
years. It closed recently. I can tell you there were times when
I went into my independent pharmacist. If things had gone
haywire with my insurance, Frank would literally say to me--
because I have asthma,
You know, I know you, you have been my person for 20 years, we
will get it straightened out, I know where you live, it is
going to be OK.
They recently closed after decades of serving my community.
They are not the only one, and I am very concerned. Mr. Bentz
talked about this in Oregon as well, that we do see independent
pharmacies closing, and it is a very serious concern, not just
because of the level of care that you get from these
pharmacies, but also, in a rural State, you have got to drive
then farther to get that prescription or to get that counsel.
We have an aging population, and you can just imagine, and
it is snowy, and it is icy, and it is dirt roads, and so it
does materially affect us when these independent pharmacies
close.
Now, the FTC conducted an in-depth study in PBM practices,
and one part of their report really stood out to me. The FTC
used a case study of two generic cancer drugs to find that non-
big three pharmacies--so those independent pharmacies like the
ones that have closed in Vermont in the last few years--they
pay 20-40 times the average national price for those drugs.
So, it goes to what you were saying just now, Mr. Chair. On
top of that, the retail chain outlets seem to be doing pretty
well actually. So, the FTC found that pharmacies affiliated
with the big three PBMs retain nearly $1.6 billion in
dispensing revenue above the national average.
So, I really appreciate you are all here. I am glad this is
a bipartisan hearing where we are really trying to dig in.
Ms. Van Nuys, I really would like to dig in a little bit on
this piece of the independent pharmacies. Why are independent
pharmacies at such a disadvantage, in particular, when it comes
to the generic drugs? Or are they? What are the disadvantages
that independent pharmacies come up against in pricing?
Dr. Van Nuys. So, the report that I was referencing
earlier, there is some evidence to suggest that the large PBMs
who have integrated pharmacies are reclassifying drugs to then
require them to be purchased at their mail-order pharmacy or at
their specialty pharmacy. There is also, in that same report,
evidence that they are doing that strategically in the sense
that the more profitable prescriptions are more likely to be
sent to the integrated pharmacy than they are to independent
pharmacies. So, I think that is one element here.
These sorts of behaviors--again, back to the FTC report--we
would love to know more about how this is happening and what
the aggregate results of these actions are.
Ms. Balint. So, can you explain just to make it as clear to
us as possible, we have heard a lot about the dangers of the
vertical integration as it relates to consumers and being able
to actually see any value from the PBMs, right?
Can I just see that slide? Do we still have that slide
available that was at--OK. So, this is bringing me back six
years to when I was on the Finance Committee in my State
Senate. OK? It is just as confusing now as it was then.
It makes no sense to the average person, to the average
consumer, and certainly for those of us who are the eyes and
ears for average consumers, you can't explain this stuff. We
are not seeing the benefit from PBMs. Somebody is, but it is
not us. So, can you also just tell me, how does vertical
integration really impact negatively independent pharmacies and
consumers from your perspective?
Dr. Van Nuys. So, again, specifically, these vertically
integrated PBMs are taking their profitable business and
directing it toward other parts of their own organization
rather than allowing the independents to benefit from it.
Ms. Balint. So, basically, what we are saying is our
independents just don't have a shot.
Dr. Van Nuys. They are not on a playing field that they can
compete on. They are up against a very formidable adversary.
Ms. Balint. Appreciate it. Sorry for going over. I yield
back.
Mr. Massie. No problem. Thank you for yielding back.
I now recognize the gentleman from New Jersey for five
minutes.
Mr. Van Drew. Thank you, Mr. Chair. Mr. Chair, thank you
for having this hearing. It is valuable. It is worthwhile, and
I know it is only the very, very rudimentary beginning, but it
is still good. You have got to begin somewhere. Hopefully, we
can get something done.
I am a dentist. I was a practicing dentist for 30-some
years, and I practiced through even being in the State Senate,
State Assembly, and the Mayor of my town. I had a partner and
was able to do it, and it is a wonderful profession.
I will tell you; people assume because I am a dentist that
I have the--I know it is where I am going to go with this--that
I have the answers to healthcare. They go, ``Jeff, you are in
Congress now.'' Of course, I sold my practice when I got in
Congress. ``We need you to settle the healthcare program. I
have a problem.''
I have people that actually come up to me and say that all
the time, we do have some other dentists and physicians, et
cetera. I know of no problem, quite frankly, in general--and I
know we are talking the specific subject now--but that is more
difficult, more complex, and harder to solve at so many levels,
because every time you do something there is a ripple effect
somewhere else, and it is a really difficult issue.
I am actually candid about it when I am in a debate or a
discussion and people say, ``Well, what are you going to do
about healthcare?'' I will talk about some ideas, don't get me
wrong, and we all know the political talking points. We also
know those aren't going to be the answers at the end of the
day. This is a really difficult issue.
So, thank you--all of you--for the work that you do.
So, the first question I am going to ask is about the PBMs,
the insurance companies, and the manufacturers. Again, you
heard it today, and my colleagues asked excellent questions.
Some folks think it is the manufacturers. Some think it is the
PBMs. Some think it is insurance companies. It is probably all
of them.
I will start by picking on Dr. Mattingly. What would you
do--I am going to ask this question a couple of times. You are
king of the world, man. You are king of the country, and your
one task in life is to fix this thing. I call you up. I am Jeff
Van Drew. I want to write some bills. What should I do? You are
in control. What should I do?
Dr. Mattingly. Well, first, thank you for the promotion.
One of the challenges that we have is we don't have a process
to really value any of these things that you have listed out.
Like we don't--we, I say ``we,'' like society, like we struggle
to value, what is the value we should place on a brand-name
pharmaceutical? What is the value we should place on a generic
pharmaceutical?
Mr. Van Drew. Do you mean the financial value?
Dr. Mattingly. Economic value. No. What is it if an
employer, it is important that your employees are healthy, so
they come to work and they are productive. Right? So, that is
why health insurance is valuable to an employer.
For patients--so, we don't know what the--how do we truly
come to an agreement on what a drug price should be? Some drug
prices are too low. I keep hearing that it is all about drug
prices being too high. Some generic prices have gone so low
that we run into supply chain shortages. So, like, it is more
complex on the other side, too.
Mr. Van Drew. By the way, try to explain that to the
public. Gee, this drug is too cheap, and it is hurting us. So,
you know what? That is not easy. Go ahead.
Dr. Mattingly. Yes. I am not the most popular sometimes in
trying to explain these things. Also, then, when you flip to
the side with the insurance or the PBM, what is the value that
they are providing? So, I have heard a lot about vertical
integration.
Well, why would we vertically integrate? Like why would
Apple build a $3 trillion company off the vertical integration
with their software and hardware all under one roof? So, is
there value from a vertically integrated chain or is the cost
of the vertical integration problematic, like where it is
anticompetitive?
So, that is why--I struggle because I want to know, like,
we can't agree on when the insurance company is doing us a good
job and we should pay them, like managing a formulary or
setting up a pharmacy network and evaluating the pharmacy
network.
Then, the pharmacists, we don't value--we don't have a good
way of valuing the pharmacists' services. Again, with you as a
dentist, you probably recognize there were things in your
practice that you felt like, well, I did not get paid well for
this, but I got paid well for that, and so sometimes it is mind
blowing to think, as a provider, what do I need to do? Like
what do you want me to do? How do you value what I do?
Mr. Van Drew. OK. So, it would be exploratory in nature,
and we are not even there to really determine, to factually try
to find out the best route to go.
Dentistry changed a lot for a lot of reasons, partly
because of the debt of the students coming out now. So, you all
have noticed, wherever you live, that you are seeing larger
facilities that are corporate in nature. In my day, you went
out, you put your shingle up, you started out, and you might
have some debt from school, but it wasn't so overburdening that
you couldn't also have more debt to start your practice.
The same thing--and I want to associate with the remarks of
my friend on the other side of the aisle from Vermont. I am in
New Jersey, admittedly, the more rural part of New Jersey, down
in the Southern half of the State. Nevertheless, people do--and
I don't know what the answer to this is at all. Nobody does. We
miss the independent pharmacy. There is nothing wrong with the
CVSs, the Walgreens, et cetera.
Dr. LoSasso, you said something about they are inefficient
providers, and therefore they go. I get it. There is something
to providing healthcare that is more than just being a Walmart.
I know we can't define that fiscally, but it is a real issue.
They are just going to go away, to be honest with you.
There is nothing I am going to say at this hearing that is
going to stop that.
How much--I am going to ask you all really quickly on this,
and then I will yield back. How much of the cost of all of it--
and I won't even say all of healthcare, but of pharmaceuticals,
just like in healthcare, we can do surgeries and things we
never ever could do before. Everybody is getting dental
implants now. Years ago, man, nobody would ever spend that kind
of money or get implants.
In pharmaceuticals, how much is due to the new types of
drug therapy that we can give people that is very, very
expensive? When we inhibit that, if we put such price controls
in, that it was no longer effective for companies to say, ``We
want to pursue more new and innovative drugs''?
I am going to start with you, Dr. Van Nuys. I love somebody
that has got a ``Van'' in their name. Just go right down the
row, and we have got to be quick, I know.
Dr. Van Nuys. I don't have those numbers, but I do know
that what we are overpaying on, like, the generic side of the
market is not going to support that kind of innovation.
Mr. Van Drew. Do you agree that some generics are too cheap
or no?
Dr. Van Nuys. Sure. I am sure there are some.
Mr. Van Drew. OK.
Dr. Van Nuys. In general, no.
Mr. Van Drew. We are overpaying, you believe, in--
Dr. Van Nuys. Medicare is, 21 percent.
Mr. Van Drew. OK.
Mr. Massie. The time has expired.
Mr. Van Drew. I know. Can they just finish answering or no?
Mr. Massie. We will let one more answer.
Mr. Van Drew. OK. One more of you. We will go to you. You
are next.
Dr. Frank. I think that there is a balancing act here, and
the--right now we pay too much for brand name prescription
drugs some--a lot of times, particularly ones where there are
multiple other drugs that do more or less the same thing for
the same illness.
There are certainly some places where paying a high price
has been well worth the price. I think of the Hepatitis C
drugs, for example. High price, good deal, and so the question
is which ones--and that is going back to Dr. Mattingly's point,
which spay for value. A lot of times we are not getting a lot
of value.
Mr. Van Drew. Thanks. Thank you for your answer.
Mr. Chair, I yield back. Could you ask the question as
Chair, is this worthy of antitrust action?
Mr. Massie. We may get to that, but now I need to recognize
the gentlelady from Wisconsin for five minutes. Or, sorry,
Wyoming.
Ms. Hageman. Wisconsin?
Mr. Massie. I am so sorry.
[Laughter.]
Mr. Massie. There is somebody on the Committee from
Wisconsin.
Ms. Hageman. Yes. They are both W.
Mr. Massie. Just don't say I am from Tennessee, please.
Ms. Hageman. PBMs may be the best example of the adage that
the government is always trying to fix its last solution. Let
that sink in for just a minute.
Dr. Frank, in your testimony, you said that, quote,
Retail pharmacies face an array of challenging economic
conditions threatening the survival of some of those operating
in rural America, yet much of what threatens those enterprises
is not tied to PBMs.
Then, you highlight a number of potential contributing
factors in your testimony, but I would like to seek some
clarity on your conclusions as I am from Wyoming and I
represent the least populated State in the Nation and the ninth
largest land-wise. So, obviously, we have a lot of rural areas
in Wyoming that need to be served by pharmacies.
I want to discuss what the top contributing factors are.
You even summarize your testimony by saying that, quote,
There is little reason to believe that PBMs are the main
economic force creating these risks.
In your opinion, what factors contribute the most to rural
America's problems with access to pharmaceuticals?
Dr. Frank. I do think that--well, let me start by saying
that the independent pharmacy issue is really different between
rural areas, urban, and metropolitan areas. The point I was
trying to make was this is a problem, because pharmacy deserts
are growing in this country, and about half of all places--
rural areas are served primarily by independent pharmacy.
So, there is a problem here. I am just not sure that the
blame or the solution is PBMs. To me, there are other things
that can be done in policy that, unfortunately, it doesn't
relate to antitrust necessarily, but are important fixes for
keeping rural places healthy.
We do it in a variety of other parts of our public
programs. We do it in Medicare for hospitals, we do it in just
a whole variety of areas, and I think that there are lessons to
be imported into--
Ms. Hageman. Such as?
Dr. Frank. Such as making payment adjustments for rural
pharmacies. So, for example, again, you add a bump to an
independent rural pharmacy when they are this little community
provider, or something like that. So, I think there are
policies like that this can preserve these things because even
though there are potentially efficiency disadvantaged, as a
community resource, they have an efficiency advantage in that
they keep people healthy in important ways.
Ms. Hageman. Right. I think that we only have a couple of
Walgreens in the entire State of Wyoming. We have one Whole
Foods in Jackson. We don't have the access to some of these
chains that other places have.
Dr. Frank. Right.
Ms. Hageman. Dr. Van Nuys, turning to you quickly, you
provide a number of policy recommendations, which include
increasing transparency, reevaluating the rebate system,
scrutinizing vertical integration, and better aligning PBM
incentives with patient and payer interests. There have been
efforts in recent years at the State level to make reforms to
the PBM structure.
Have any of these efforts been successful?
Dr. Van Nuys. I know that the State legislation has been--
some of it has been relatively recently passed and is only now
being implemented. I have not seen the data that lets us
evaluate how that is working. I do know what they did in Ohio
when they audited their PBM and fired them for that 31 percent
spread pricing margin and hired a single PBM to administer
their whole Medicaid managed care program, that has been saving
them $150-$200 million a year.
Ms. Hageman. So, there is one State that has successfully
done some reform in this area.
Dr. Van Nuys. Other States have done similar, I think.
Ms. Hageman. OK. Do you think that this is something that
could be accomplished at the State level? Or is it your
conclusion that Congress needs to act as well?
Dr. Van Nuys. I do think that some progress can be made at
the State level. I do think because these are national
organizations it is maybe more efficient to have them subject
to a single set of rules. I don't know.
Ms. Hageman. So, do you have any particular State that you
would recommend that we look to what they have done to
determine whether that is something that could be implemented
on a national basis or that other States ought to be looking to
for addressing this issue?
Dr. Van Nuys. So, most of the State legislation that I have
seen is kind of piecemeal, right? They go after spread pricing,
or they go after registration or something like that. So, I
don't think there is any State that has accomplished the big--
Ms. Hageman. What about the rest of you? Do you have any
examples of where there are States or areas that they have
successfully addressed the PBM issue?
Dr. LoSasso. Well, I can speak to at least one situation
that I studied is probably more of an example of what not to
do, and that was the comparison of Michigan and Illinois, where
Michigan thought that it could carve out specialty and
specifically carve out those aforementioned curative therapies
for Hep C, Sovaldi, and so forth, back in 2012.
What happened was that Illinois kept PBM model in place.
The market evolved. The market changed. Sovaldi and other drugs
went off patent. Cheaper generics came available. The lack of a
PBM in Michigan's context meant that they were not nimble
enough to move toward the cheaper generics that became
available and cheaper substitutes that were available from
other manufacturers. They wound up spending about $50 million
more than they otherwise would have compared to Illinois.
Ms. Hageman. OK. Thank you.
I yield back.
Mr. Massie. I thank the gentlelady from Wyoming.
I now recognize the gentleman from Texas for five minutes.
Mr. Moran. Thank you, Mr. Chair. Chair, thank you for
holding this hearing today, and thank you to the witnesses for
taking time to testify.
One of the really great things I like about this hearing is
I feel like we are hearing a very balanced testimony on both
sides of this issue. It is very complicated, so thank you for
truly an informative gathering opportunity today for those of
us that are still forming our opinions about the PBM issue and
what we need to do legislatively, if anything, to fix the
rising cost for drugs for Americans today.
Mr. Chair, I would ask unanimous consent to introduce the
dissenting statement of Commissioner Melissa Holyoak in the
matter of the Pharmacy Benefit Managers Report, July 9, 2024,
into the record.
Mr. Massie. Without objection.
Mr. Moran. All right. I want to play devil's advocate for a
couple of you here today on some of the things you have talked
about. Dr. LoSasso, if I got that correct, I want to come to
you and ask you, first, so Dr. Frank, just a second ago,
mentioned about pharmacy deserts. I am in a very rural area,
just like Ms. Hageman is. I represent Northeast Texas, 17
counties, larger than the State of New Jersey, the entire State
of New Jersey, Mr.--yes.
[Laughter.]
Mr. Moran. I know. You can fact check that if you would
like to.
The point is, I have got some counties that don't even have
a pharmacy at all in my county--in my district. So, there is
pharmacy desert there.
As a county judge before I came here, I actually saw the
benefit of Pharmacy Benefit Managers. I hired one in our county
that came in and said,
Hey, here is what you can do in your self-insured plan to
replace the higher cost drugs with more generics. We have saved
a lot of money for our employees. We kept the benefit to their
health high in the process.
Then, as I visited with my independent pharmacies around
the district, in particular, I found that they were struggling
because of, really, the vertical integration issue of the PBM.
So, I don't think that this is a widespread ``all PBMs are
bad'' situation. It is just there are some unintended
consequences here that I think are devastating to rural
communities in particular. So, I want to go back to you, Mr.
LoSasso, and ask, there was a proposed fix over here by Dr.
Frank. He said payment adjustments for rural pharmacies. What
do you think about that?
Dr. LoSasso. Well, it is certainly a very interesting and
potentially beneficial solution to the problem that has been
brought up. I would never contradict Dr. Frank. So, it will
probably be gamed, like all these types of adjustments and set-
asides and add-ons invariably result in.
Again, like you actually gave a great example there. You
were in a situation where you wanted to save some money, you
brought it into a PBM. They were aggressive. They gave you the
savings you wanted. So, you got what you wanted.
However, then you realized that there were these--what you
viewed as spillover effects that impacted the pharmacists, the
local pharmacies. So, I wonder if you could have it both ways.
Mr. Moran. Yes. I don't know, because I know the pendulum
swings, and the reason I am concerned about it is because, in
some circumstances, you mentioned about the inefficiencies of
smaller pharmacies. If they can't basically live up to a
certain quantity of drugs that they are going to actually
dispense, and maybe they can't be part of the PBM network,
well, that becomes problematic because now my people in East
Texas don't have access to that because there is not a large
enough population base in certain areas to have a CVS or a
Walgreens.
So, now they are not taking their drugs. They are not
following up the way they should, and now they have bigger,
worse outcomes, health outcomes, that we are all going to have
to pay for. We don't want to have to do that.
So, there is a real benefit to having the smaller
independent pharmacies in all these markets, and we are seeing
them disappear. We are also seeing a lot of our consumers
driven to pharmacies they don't want to necessarily have.
So, I would love to find a solution that works for the
consumer but still stays true to free market principles,
because, quite frankly, I am always starting in that stance to
say, ``I am a free market guy. Let the market work it out.''
We have screwed this market up already, and so there is the
other pushback I would have on both sides of the argument is we
are already, as a government, intruding on the free market
here. Because we have screwed it up, so how do we fix it a
little bit better without further intruding on the free market?
In the last 30 seconds, am I off base in my comments here? Does
anybody disagree? Dr. Van Nuys?
Dr. Van Nuys. I don't disagree.
Mr. Moran. OK. Dr. Frank?
Dr. Frank. Yes. I don't think we should blame ourselves
quite as much. The whole pharmaceutical supply chain is a
creation of nature of man, of government, an patents, FDA,
Medicare, just all the way down the line, and to not have any
consequences from having built something from the ground up, so
go easy on yourself.
Mr. Moran. I have got--well, thank you. You are the only
one in America that is going to tell me that, by the way.
I have got a lot more questions, and I won't ask them, but
I do want to say I think there is space for us to have
discussion on the patent reform as well, in particular, as it
regard pharmaceuticals, because I think that could be a driving
factor to bring down costs as well.
So, thank you all for your testimony today. Very important,
very difficult. We need to work together, both ends of this
spectrum, to find a good solution for the consumers and the
United States and preserve the free market.
Thank you. I yield back.
Mr. Massie. Thank you, Mr. Moran.
We are up against votes, so if anybody leaves and doesn't
hear my questions, I won't be offended. I have five minutes
remaining. I saved it for the end to try and cover things that
haven't been covered.
Dr. LoSasso, what is the radical free market solution to
this? Just clear out all the underbrush, and what would get rid
of all the history? How do we fix this? You have got like a
minute to solve it all.
Dr. LoSasso. Oh, that is all. Yes.
Mr. Massie. From scratch.
Dr. LoSasso. Yes. Well, boy, geez. If we just didn't--if we
are just in the PBM--I guess--
Mr. Massie. I was told you are a free market guy.
Dr. LoSasso. Right. So, of course, the original sin was
allowing for no tax on employer-sponsored health insurance
benefits. So, that weakens the--
Mr. Massie. I agree with you there.
Dr. LoSasso. That weakens that the pay--the incentives that
the payers have to even really think about in pushback, because
a lot of what we talked about here today that I think troubles
me is that we tend to be ignoring the role of the payers. The
payers are the ones sitting there looking at the proposals from
multiple insurance companies, vertically integrated or not.
They still have choice. If I don't like T-Mobile, I will go to
AT&T. Right?
So, I can't really be ripped off that much, right? Even
with the 80 percent that the three vertically integrated
insurance chains--
Mr. Massie. What if Apple owned AT&T?
Dr. LoSasso. Sorry?
Mr. Massie. What if Apple owned AT&T? That is my concern.
That might be a better analogy.
Dr. LoSasso. Well, yes. Then I could still go back to T-
Mobile.
Mr. Massie. OK.
Dr. LoSasso. Yes.
Mr. Massie. With an Android.
Dr. LoSasso. So, OK, I don't want to monopolize your time
here. If you want to just, it is--
Mr. Massie. OK.
Dr. LoSasso. You get the idea.
Mr. Massie. The original sin was telling employers that
they should provide this, and then giving them the government
benefit to make and then not extending that same benefit to
individuals who tried to go out and buy healthcare. So, I agree
with you on that.
Dr. Frank, or maybe it was Dr. Mattingly--I don't know--one
of you was asked about antitrust action, and it didn't seem
like there was a clear-cut case here, given the existing laws.
So, I don't want to relitigate that question.
I want to ask a question. Is there one piece of law that we
could pass? Since the existing law doesn't seem to be
actionable or clearly actionable in this situation, is there a
rule that we could pass that would fix this, the
anticompetitive nature of it?
Dr. Frank. Well, I have at least an idea about how you
could get rid of some of the--attenuate some for the game
playing, the regulatory avoidance. So, what you might do there
is sort of handle it the way we handle multinationals, which is
insist on transfer pricing, that you have transfer pricing
rules that somehow reflect something close to fair market
value, because right now Dr. Van Nuys and I both made the point
that there is a lot of game playing that can be done within
that vertical structure to avoid regulations, to avoid--
Mr. Massie. What is transfer pricing? What do you mean by
that?
Dr. Frank. So, transfer pricing is--I am a PBM, and I sell
services to the insurance company. Well, if my insurance
company has their profits regulated, then I am going to charge
them a lot, because that is on the books as a cost. Even though
it is revenue to the PBM, that goes back to the parent company.
So, those second set of revenues are not regulated. They are
not subject to margin regulation in health insurance.
So, by doing transfer prices, which insists on constraining
what can be done in terms of who can charge the other one what,
you eliminate or you reduce the ability to play games to avoid
regulation, taxes, and things like that.
Mr. Massie. OK. One minute remaining. Dr. Van Nuys, you had
four suggestions. If you could implement just one of those in
legislation, what would it be?
Dr. Van Nuys. Transparency.
Mr. Massie. What would that look like, transparency? How
would we impose it?
Mr. Massie. In pricing?
Dr. Van Nuys. So, what I want is aggregate benchmarks,
average prices at different points in the transaction system.
So, CMS already publishes a series called the National Average
Drug Acquisition Cost, NADAC. They collect with surveys, and
they aggregate it, and they publish it monthly, and anybody can
get it. I can get it. You can get it.
That gives us a benchmark to evaluate one particular
transaction. That is the transaction between the--sorry, the
pharmacy and the wholesaler, the prices between the pharmacy
and the wholesaler. I want something like that at the different
transactions in the chain. So, I want to know what PBMs are
charging health plans to settle a claim, what PBMs are paying
pharmacies to settle a claim, what PBMs are negotiating with
manufacturers. I want an average benchmark like NADAC, high
quality, net--
Mr. Massie. What would you do with that information? Who
would use it?
Dr. Van Nuys. I think market participants would use it to
understand whether the prices that they are being offered by
whoever their counterparty is, the PBM, are fair, and are
reasonable. Right? So, any of those market participants could
use that benchmark. They don't have anything like that now.
Mr. Massie. All right. Thank you very much.
My time has expired, and that means we are done with the
hearing. I appreciate the indulgence of the Ranking Member
here. Did you want to say anything before we close?
Mr. Correa. Just, Mr. Chair, I want to thank you very much
for handling this--handling this Committee hearing in a
nonpartisan way. America is much better off with the
information we got today. Barely scratched the surface, but we
have some work to do, and I want to thank our witnesses for
your good testimony today. Much appreciate you all.
Mr. Massie. That concludes today's hearing. We thank our
witnesses very much for appearing before the Committee.
Without objection, all Members will have five legislative
days to submit additional written questions for the witnesses
or additional materials for the record.
Without objection, the hearing is adjourned.
[Whereupon, at 4:39 p.m., the Subcommittee was adjourned.]
All materials submitted for the record by Members of the
Subcommittee on the Administrative State, Regulatory Reform,
and Antitrust can be found at: https://docs.house.gov/
Committee/Calendar/ByEvent.aspx?EventID=117633.
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