[Senate Hearing 118-542]
[From the U.S. Government Publishing Office]
S. Hrg. 118-542
PHARMACY BENEFIT MANAGERS AND THE
PRESCRIPTION DRUG SUPPLY CHAIN:
IMPACT ON PATIENTS AND TAXPAYERS
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HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 30, 2023
__________
Printed for the use of the Committee on Finance
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
58-247 PDF WASHINGTON : 2025
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COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland TIM SCOTT, South Carolina
SHERROD BROWN, Ohio BILL CASSIDY, Louisiana
MICHAEL F. BENNET, Colorado JAMES LANKFORD, Oklahoma
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
SHELDON WHITEHOUSE, Rhode Island JOHN BARRASSO, Wyoming
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
CATHERINE CORTEZ MASTO, Nevada THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts MARSHA BLACKBURN, Tennessee
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
C O N T E N T S
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OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
WITNESSES
Feldman, Robin, Arthur J. Goldberg distinguished professor of
law, Albert Abramson '54 distinguished professor of law chair,
and director of the Center for Innovation, University of
California Law, San Francisco, CA.............................. 5
Van Nuys, Karen, Ph.D., senior fellow, Leonard D. Schaeffer
Center for Health Policy and Economics; and executive director,
Value of Life Sciences Innovation Program, University of
Southern California, Los Angeles, CA........................... 6
Burns, Lawton Robert, Ph.D., MBA, James Joo-Jin Kim professor,
professor of health care management, Wharton School, University
of Pennsylvania, Philadelphia, PA.............................. 8
Levitt, Jonathan E., co-founding partner, Frier Levitt Attorneys
at Law, Pine Brook, NJ......................................... 10
Gibbs, Matthew, Pharm.D., president, Capital Rx Inc., New York,
NY............................................................. 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Burns, Lawton Robert, Ph.D., MBA:
Testimony.................................................... 8
Prepared statement........................................... 47
Responses to questions from committee members................ 63
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement........................................... 66
Feldman, Robin:
Testimony.................................................... 5
Prepared statement........................................... 67
Responses to questions from committee members................ 69
Gibbs, Matthew, Pharm.D.:
Testimony.................................................... 12
Prepared statement........................................... 71
Responses to questions from committee members................ 73
Levitt, Jonathan E.:
Testimony.................................................... 10
Prepared statement........................................... 78
Responses to questions from committee members................ 175
Van Nuys, Karen, Ph.D.:
Testimony.................................................... 6
Prepared statement........................................... 192
Responses to questions from committee members................ 197
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement with attachments.......................... 210
Communications
American Pharmacists Association................................. 215
American Society of Health-System Pharmacists.................... 217
Association for Clinical Oncology................................ 219
Bagot, David, RPh................................................ 220
Big Y Foods Inc.................................................. 221
Biosimilars Forum................................................ 223
Center for Fiscal Equity......................................... 226
Chronic Care Policy Alliance..................................... 228
Cystic Fibrosis Foundation....................................... 229
EmployersRx Coalition: Employers' Prescription for Affordable
Drugs et al.................................................... 231
Harmon City, Inc................................................. 233
Hy-Vee, Inc...................................................... 234
Kitlowski, Edward................................................ 236
National Association of Chain Drug Stores........................ 238
National Association of Specialty Pharmacy....................... 241
National Community Pharmacists Association....................... 245
National Multiple Sclerosis Society.............................. 252
Nevada Pharmacy Alliance......................................... 257
Patients For Affordable Drugs Now................................ 259
Pharmaceutical Care Management Association....................... 262
Pharmacy Society of Wisconsin.................................... 268
SpartanNash...................................................... 270
Specialty Care Rx................................................ 272
Wegmans Food Markets, Inc........................................ 273
Wyoming Pharmacy Association..................................... 274
PHARMACY BENEFIT MANAGERS AND THE
PRESCRIPTION DRUG SUPPLY CHAIN:
IMPACT ON PATIENTS AND TAXPAYERS
----------
THURSDAY, MARCH 30, 2023
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:07
a.m., in Room SD-215, Dirksen Senate Office Building, Hon. Ron
Wyden (chairman of the committee) presiding.
Present: Senators Stabenow, Cantwell, Menendez, Carper,
Cardin, Brown, Whitehouse, Cortez Masto, Warren, Crapo,
Grassley, Cornyn, Thune, Cassidy, Lankford, Johnson, Tillis,
and Blackburn.
Also present: Democratic staff: Shawn Bishop, Chief Health
Advisor; Tiffany Smith, Deputy Staff Director and Chief
Counsel; and Polly Webster, Senior Health Counsel. Republican
staff: Kellie McConnell, Health Policy Director; Gregg Richard,
Staff Director; and Conor Sheehey, Senior Health Policy
Advisor.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The Finance Committee will come to order.
Colleagues, I am going to take just a minute to thank the
members for what I believe has been a very productive work
period. Our bipartisan efforts on organ transplants--thank you
very much, Senator Grassley--have really paid off. We are going
to have new contracting practices with much more accountability
to protect the millions of Americans who depend on these organ
transplants.
Senator Cardin and Senator Daines yesterday focused on
dental care. Senator Crapo and both sides are working to build
on our mental health work. I thought we had a very good and
bipartisan housing hearing that proceeded in the middle of the
work period. In my State, eight different school districts are
having to buy houses to rent to teachers because there is such
a housing shortage.
And finally yesterday, the investigation--a 2-year
investigation by the Finance Committee--exposed massive Federal
tax evasion by Credit Suisse, working with ultra-wealthy
Americans, often dual citizens, who are hiding their taxes,
concealing their tax obligations for years on end. So,
colleagues, thanks, and it was a productive time.
This morning, we are going to continue our longstanding
efforts to lower the cost of health care for taxpayers and
patients. Today, the committee focuses on pharmacy benefit
managers, in particular the new strategies like charging
administrative fees tied to the price of a drug that these
multibillion-dollar corporations have aggressively adopted in
the last 4 years, since we had previously looked at PBMs.
Pharmacy benefit managers had a strong case for themselves
back in the 1980s and 1990s. The original goal was to use their
access to limited data to negotiate lower drug prices on behalf
of their clients--insurance companies and employers.
When prescription drug coverage came to Medicare, with Part
D in the 2000s, PBMs shifted into overdrive to get to a larger
market and more sophisticated drugs. In recent years, it has
been increasingly apparent that PBMs are using their data,
their market power, and their know-how to keep prices high and
pad their profits instead of sharing the benefits of the prices
they negotiate with consumers in the Medicare program.
I believe this is an industry that is going in the wrong
direction, and that is having a big impact on the prices that
Americans pay at pharmacy counters from one end of the country
to another. There are especially serious consequences for the
Federal health programs that the Finance Committee oversees.
Between Medicare, Medicaid, CHIP, and the individual health
insurance market, the committee oversees health coverage for
more than half of all Americans, or roughly 180 million people.
Prescription spending for these Americans constitutes a
significant portion of the amount the United States as a whole
spends on pharmaceuticals each year. That totaled $577 billion
in 2021.
That is why it is so critical for the committee to examine
what needs to be done to modernize the rules of the road for
PBMs. Senator Crapo and I have talked about this at some
length, particularly this concept of modernizing the rules,
because what made sense really 34 years ago, does not look so
sensible today.
So we are taking off on this hearing--as with so many of
the things that I just outlined over this work period--with
strong bipartisan interest, and I thank Senator Crapo for that.
So what we are going to do is look at pharmacy benefit managers
with a thorough eye, and take any legislative steps necessary
to ensure taxpayers and patients are not getting a raw deal.
The Finance Committee has a long history of tackling these big-
league issues on a bipartisan basis, and the results speak for
themselves.
Finally, before I turn it over to Senator Crapo, I want to
illustrate just one example of PBM practices that are resulting
in high prices. In a competitive market, if two products have
equal quality, a business should prefer the lower-cost option.
However, oftentimes PBMs charge administrative fees to drug
makers, which are calculated as a percentage of a drug's list
price. That means PBMs get a higher payment if they favor
higher-cost drugs. In my view, that is a clear example of these
bizarre, these perverse incentives that PBMs have created that
have left so many Americans fed up and outraged at the health-
care system.
The consequences of this out-of-whack market are felt by
taxpayers and families every time they show up at the
prescription counter. Discounts negotiated by PBMs play an
important role in driving down premiums for seniors. But the
games PBMs play behind the scenes also appear to be driving up
drug costs for many seniors, who are forced to pay top dollar
for their prescriptions at the pharmacy counter, while PBMs
profit at their expense.
So we have an important opportunity today to look at the
latest practices, the most current practices being employed by
pharmacy benefit managers, and the impact that these tactics
have on taxpayers and Americans who count on affordable
medicine--affordable medicine--for a decent quality of life.
Thanks to all our witnesses.
Senator Crapo, please, and I thank you for your
cooperation.
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you very much, Mr. Chairman. I have
long championed efforts to improve prescription drug access and
affordability for all Americans, and I welcome the opportunity
to engage in this vitally important bipartisan hearing.
Whether at the pharmacy counter, the doctor's office, or
the hospital, some of the most lifesaving medications remain
out of reach for far too many working families and seniors,
especially in the face of persistent inflation.
Congress took a critical step toward addressing these
challenges nearly 20 years ago, when we voted to enact
Medicare's prescription drug benefit or Part D, leveraging
market-based competition to create and protect high-quality
coverage for seniors. In many ways, Medicare Part D reflects an
unprecedented success story.
Coming in massively under budget, with low and stable
monthly premiums and with a generic drug dispensing rate of
roughly 90 percent, Part D's resilient market-oriented
structure continues to ensure low-cost drug access for most
seniors, even as many other medical costs have continued to
skyrocket.
Stakeholders across the supply chain deserve credit for
these figures and trends. That said, much has changed in the
past 2 decades, and we have an obligation to both build on the
aspects of Part D that work well, and to address access and
affordability gaps where we find them.
In weighing and developing policy solutions, my priority is
always the patient. We need to identify avenues for lowering
out-of-pocket costs, increasing competition, and promoting
access to lifesaving innovation, and we need to do so in a
fiscally responsible manner.
Given the tremendous common ground and shared goals around
this issue, I am confident that we can fulfill these objectives
and deliver real results for seniors. A few major points
regularly raised by Idahoans--transparency, incentives, and
out-of-pocket costs--are of key importance as we hear today's
testimony.
As anyone who has looked at a flow chart or a diagram of
the drug supply chain can attest, the only clear thing about it
is how unclear and opaque it is. We need an all-of-the-above
approach to transparency that empowers consumers, plans,
providers, and pharmacies to make informed, cost-effective, and
clinically appropriate decisions, as well as to practice
meaningful oversight.
Policymakers also need more line of sight into the black
box of drug pricing relationships and transactions, especially
as we look to pursue productive reforms in the future. We also
need to assess the various incentives that operate within the
medication supply chain.
Ideally, we should have frameworks both within Part D and
in other markets that encourage low prices through meaningful
competition. Unfortunately, in too many cases, certain dynamics
seem to drive list prices up, as the chairman has mentioned,
even as net prices reflective of rebates and discounts decline.
The gap between list and net price has grown dramatically
in recent years, keeping premiums stable but exposing some
consumers to astronomical out-of-pocket costs at the pharmacy
counter, particularly for uninsured patients or families
relying on high-
deductible health plans.
Misaligned incentives have also constrained biosimilar
uptake in Part D, driving manufacturers to launch products at
multiple different price points, with PBMs sometimes
preferencing the option with the higher sticker price. The
incentive structures at play here clearly warrant a hard look.
Americans face an out-of-pocket cost of less than $20 for
92 percent of the prescriptions filled. For the remainder,
however, costs can run much higher, particularly for seniors
enrolled in Part D. I look forward to discussing targeted
solutions to bridge this gap without fueling premium hikes for
older Americans.
With these priorities in mind, thank you to our witnesses
for your being here today, and I do look forward to your
testimony.
Thank you, Mr. Chairman.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. Thank you, Senator Crapo. And listening to
you and comparing it to those five areas that I touched on
where we have been working in a bipartisan way, this is
especially important, because people find this at the pharmacy
counter in communities all across the country. So we look
forward to having the majority and minority work together.
Let me briefly introduce our witnesses. Robin Feldman, J.D.
She is a national expert on drug pricing, competition,
innovation, and the law. She teaches at UC College of Law, San
Francisco, where she is the Arthur Goldberg distinguished
professor of law. She holds the Albert Abramson 54
distinguished professor of law chair, and with apologies to Ms.
Feldman and our other witnesses, I am going to be brief because
I think we have so many things going on today. I think you all
have wonderful backgrounds. I am just going to try to condense
this a little bit.
Karen Van Nuys is next. She holds multiple positions at the
Leonard D. Schaeffer Center for Health Policy and Economics,
including senior fellow and the executive director of the Value
of Life Sciences Innovation Program.
Lawton Robert Burns will be next. Dr. Burns is a professor
of health care management, professor of management, and the
James Joo-Jin professor at the University of Pennsylvania
Wharton School, with a special focus on studying health
strategy.
Jonathan Levitt is with us. He is co-founder of Frier
Levitt, a boutique health care law firm. He has dedicated his
practice to representing pharmacies, dispensers, provider
associations, manufacturers, wholesalers, and plan sponsors. We
welcome him.
And Dr. Matthew Gibbs is with us, president of Capital Rx,
a pharmacy benefit manager that operates with a fully
transparent flat-fee dispensary. He is responsible for several
core operations at Capital Rx which cut across client
relations, benefit design, customer support, and clinical
services.
With apologies for abbreviating all of your very
distinguished backgrounds, I would just ask unanimous consent
that a more complete record of their backgrounds be made a part
of the record.
[The biographies appear in the appendix on p. 213.]
The Chairman. Okay, let us begin with you, Ms. Feldman.
STATEMENT OF ROBIN FELDMAN, ARTHUR J. GOLDBERG DISTINGUISHED
PROFESSOR OF LAW, ALBERT ABRAMSON '54 DISTINGUISHED PROFESSOR
OF LAW CHAIR, AND DIRECTOR OF THE CENTER FOR INNOVATION,
UNIVERSITY OF CALIFORNIA LAW, SAN FRANCISCO, CA
Ms. Feldman. Thank you, Mr. Chairman and esteemed members
of the committee. The supply chain for medicine is riddled with
perverse incentives and marked by skyrocketing prices. Key
aspects of the problem can be traced to the industry that lies
at the center of drug pricing: pharmacy benefit managers, or
PBMs.
Historically, PBMs were just claims processors handling the
paperwork. But 15 years ago, when Medicare expanded to include
prescription drugs, PBMs offered to help health plans negotiate
with drug companies for better prices. But instead of prices
coming down, the prices of many drugs have increased
dramatically. For example, the prices of 65 common medicines
have almost tripled, just during that 15-year period. Now,
there are many contributing factors, but PBMs have been in the
middle of it.
So how did this happen? How did PBMs, who are supposed to
help bring prices down, end up driving prices higher instead?
Well, rather than act as honest brokers for the health plans,
PBMs have unsurprisingly acted in their own self-interest, and
as it turns out, their own interests are not aligned with lower
prices. Quite simply, higher prices put more dollars into a
PBM's pockets.
When the sticker price goes up for a drug and the PBM
negotiates a rebate, the PBM appears successful. It is a little
like a department store that raises the price of a coat before
putting it on sale. The markdown looks great when you walk in,
but it is not.
In addition, the PBM often keeps a percentage of the
rebate, so it gets to pocket more, again based on the price.
Now all this might not be so bad if no one actually paid that
high sticker price, but as Senator Crapo pointed out, many
people do. With many plans, the out-of-pocket payment comes as
a percentage of that high sticker price, and that is very
difficult. Many Americans do not have prescription drug
coverage, even if they do have health insurance.
Now, I mentioned raising the price of a coat before you put
it on sale, but it gets worse. So, imagine if the price jump is
higher than the sale discount. That is what is happening with
medicine. Between 2010 and 2017 in Medicare, prices for drugs
after rebate--we are talking about after rebate--still rose 313
percent on average. So we are buying the same coat, but we are
paying more and more. And a significant chunk of that increase
is going to the PBMs.
Now, a PBM may be brokering deals for the health plan, but
it is a very strange relationship. The PBMs refuse to give the
details of the deals they are making to their own clients, the
health plans. And, given the monopoly over pricing information,
and the fact that only three PBMs control most of the market,
PBMs are setting the terms of almost every arrangement. It is
not a free and fair market.
Despite the fact that PBMs should be serving as honest
brokers for the health plans, PBMs also ask drug companies for
side payments. And again, those payments rise when the prices
of drugs rise, and that creates perverse incentives. They
vigorously deny having a fiduciary or any other type of duty to
act in the best interest of the health plan and its patients.
So, at the end of the day, what do PBMs do to protect their
income stream of rebates and payments? Well, PBMs stand at the
center. They are the benefit managers. As well as negotiating
the prices, PBMs help decide if patients will be reimbursed and
how much they will be reimbursed. So, in dealing with drug
companies, PBMs can offer to exclude a drug company's
competitors, or to make it more difficult for patients to get
the competitor's medicine. As a result, this is where we end
up. Less-expensive medicines are disadvantaged, and patients
are channeled into higher-priced drugs.
Although the pharmaceutical supply chain is a complex
system, the overview of these aspects of the problem can be
summarized fairly simply. PBMs are able to exploit their role
at the center to extract dollars and channel the system into
higher-priced drugs. That is the core of the problem.
Thank you, and I look forward to your questions.
[The prepared statement of Ms. Feldman appears in the
appendix.]
The Chairman. Well said.
Let us go next to Dr. Van Nuys.
STATEMENT OF KAREN VAN NUYS, Ph.D., SENIOR FELLOW, LEONARD D.
SCHAEFFER CENTER FOR HEALTH POLICY AND ECONOMICS; AND EXECUTIVE
DIRECTOR, VALUE OF LIFE SCIENCES INNOVATION PROGRAM, UNIVERSITY
OF SOUTHERN CALIFORNIA, LOS ANGELES, CA
Dr. Van Nuys. Thank you, Chairman Wyden, Ranking Member
Crapo, and honorable members of the committee. Thank you for
the opportunity to testify today about the practices of
pharmacy benefit managers.
My name is Karen Van Nuys, and I am an economist and a
senior fellow at the Leonard D. Schaeffer Center for Health
Economics at the University of Southern California. The
opinions I offer here today are my own and build on previous
statements and publications.
At the Schaeffer Center, we have been studying prescription
drugs for over a decade, and we are among the first research
institutions to quantify the role of intermediaries in that
market. PBMs provide important and much-needed services to drug
companies, insurers, employers, and patients, and sit in the
middle of nearly every financial transaction.
This position provides them with extraordinary information
access and leverage. As has been widely reported, the PBM
industry has become larger and more vertically integrated. Four
out of five U.S. prescriptions are now handled by the top three
PBMs. While their size may allow them to negotiate lower drug
prices, it also positions them to suppress competition and
raise drug costs.
Which of these two possibilities prevails is ultimately an
empirical question that our research seeks to answer.
Estimating money flows in this market can be challenging,
because much of the needed data is opaque to outsiders. That
said, drug price researchers have been conducting these studies
that shine slivers of light into the dark corners of the
system. From these glimpses, we can assemble a collage of the
overall picture, and here are some things we have learned in
assembling that collage.
First, in some circumstances, PBMs raise drug costs. We
compared what Medicare paid for the most common generic drugs
with what those same prescriptions would have cost cash-paying
members at Costco. We found that Medicare could have saved $2.6
billion in 2018 on just 184 drugs if they had been purchased
without insurance at Costco. Somehow, involving the PBM and the
health plan in the transaction increased drug costs by 21
percent.
Second, in some branded markets, when PBMs negotiate
savings from manufacturers, they do not always pass those along
to patients and taxpayers. My Schaeffer colleagues and I
studied the money flows from U.S. insulin sales between 2014
and 2018. While PBMs negotiated a 31-percent reduction in net
payments to manufacturers, the total amount spent per unit of
insulin barely budged. Instead, intermediaries, including PBMs,
were capturing those savings. In 2014, intermediaries were
taking 31 out of every 100 dollars spent on insulin. Five years
later, they were claiming $53, more than half. PBM's share
alone grew 155 percent in 5 years.
PBMs use commercial tactics like copay clawbacks, spread
pricing, and strategic formulary placement to do this. This
leads to perverse outcomes, including patients' copays
exceeding the cost of the drug on one in four prescriptions,
and plans paying on average 31-percent markups for generic
scripts.
PBMs motivate manufacturers to compete for formulary
placement through rebates. PBMs often keep a share, leading
them to prefer drugs with higher rebates. So manufacturers
offer higher rebates, raising list prices to accommodate them.
Consequently, this form of competition pushes prices up rather
than down, and formularies can end up favoring the highest- not
lowest-cost drug.
High list prices have real consequences for patients. Those
without insurance may pay list prices directly; those with
insurance may still be exposed in the deductible phase or
through co-
insurance payments. Passing rebates through to health plans
creates its own problems for patients. Health plans may use
them to lower premiums, but this decreases the effective
generosity of coverage. It transfers resources from sick
patients to healthy beneficiaries.
Finally, the current rebate-focused price negotiation
process can generate counterintuitive formulary designs. For
example, researchers found that 72 percent of Medicare
formularies place at least one branded product on a lower cost-
sharing tier than its generic. Some biosimilar manufacturers
are finding that it is easier to get biosimilars with high list
prices and high rebates onto formularies compared to identical
products with lower prices.
While it is true that PBMs provide valuable services, the
lack of transparency in the transactions they control, the
misaligned incentives that govern their behavior, and vertical
consolidation in the PBM industry should be concerning to us
all. Increased transparency that gives market participants more
equal footing in price negotiations would help level the
playing field, and stricter reporting requirements for more
granular transaction data would allow regulators to analyze
specific markets and tactics, identify problems more quickly,
and provide us with more targeted solutions.
Thank you. I look forward to your questions.
[The prepared statement of Dr. Van Nuys appears in the
appendix.]
The Chairman. Thank you for your testimony. We are serious
about this.
Dr. Burns?
STATEMENT OF LAWTON ROBERT BURNS, Ph.D., MBA, JAMES JOO-JIN KIM
PROFESSOR, PROFESSOR OF HEALTH CARE MANAGEMENT, WHARTON SCHOOL,
UNIVERSITY OF PENNSYLVANIA, PHILADELPHIA, PA
Dr. Burns. Well, good morning. Thank you, Chairman Wyden
and Ranking Member Crapo, for inviting me to speak. My name is
Robert Burns. I am a professor of health care management and
strategy at the Wharton School.
One part of my research focuses on the entire health-care
ecosystem. I have taught the introductory course on the entire
health-care system for over 35 years. I am beginning to
understand it, so I understand everybody's frustration. I put
it into a textbook which was published 2 years ago. It covers
not only the life sciences side, pharma, and biotech, but also
the providers: the insurers--both public and private--and then
the employers. And it provides a big picture of what goes on
with health care.
I think you need to understand that big picture of the
ecosystem to understand some of the dynamics that you are
focusing on here today. Another part of my research does a deep
dive into what we call the supply chain, and I look at both the
institutional and retail supply chains in health care. I have
written two books on these topics, and I have been studying
them since the 1990s.
This past fall, I published a 650-page book just on the
PBMs and the GPOs, basically trying to ``demystify'' their
roles in the health-care system. To paraphrase Mark Antony in
Act III of Shakespeare's Julius Caesar, ``I come here today not
to praise the PBMs, but to bury some concerns about them.''
The Chairman. And you said you wrote 590 pages about PBMs?
Dr. Burns. And 650 pages on GPOs and PBMs.
The Chairman. That almost equals, Senator Grassley, the
report that you and I did. I think we have a close competition.
Excuse me for interrupting. It is not going to count against
your time.
Dr. Burns. My remarks today focus on three topics. First,
just the role of intermediaries: health intermediaries and
health-care-linked buyers and sellers. Health care is full of
them. They are not well-understood or appreciated. No course is
taught on these critters, and I liken them to the Rodney
Dangerfield of health care. They get absolutely no respect.
Worse yet, they are considered the whipping boys--in other
words, the people who take the rap and get spanked for the evil
doings of others. I spent 25 years studying these
intermediaries, starting with the HMOs in the 1990s, the GPOs
in the early 2000s, and then more recently the PBMs. They all
take the rap. They are all blamed for all the ills in health
care.
My first book on GPOs and the institutional supply chain
taught me a lot about these intermediaries. We have been down
this road before, and to quote President Harry Truman, ``The
only thing new in the world is the history we don't know.'' So
that is why I have devoted so much time to these things.
I believe there is a lot of smoke but not as much fire as
people think. I take my readers through an exercise in critical
thinking, looking at the allegations that you have seen
everywhere, and then I get my students to ask the question,
``Is what I just heard really true?''
A historical analysis--this is one of the tools I use--
shows that PBMs serve the interests of health plans and the
ERISA plan sponsors who utilize them. The PBMs are agents. They
are not rogue actors in the health-care system. They exert
leverage over manufacturers in terms of the volume, trading off
higher volumes for a lower unit cost.
They have used a lot of the same contracting tools for
decades, once you consult the historical record. One thing that
should alleviate some concerns here is that their business
models have been changing over the last 5 to 10 years. They no
longer rely on rebates the way they used to, and I think what
they are relying on now is the dispensing of specialty
pharmaceuticals, and we ought to reserve some time today to
talk about the role of specialty pharmaceuticals in the rising
prices for Medicare Part D seniors, because it is a huge role.
You ought to know that manufacturers do not like
intermediaries like PBMs. Very few people like intermediaries
like PBMs, and basically that is because they are using
leverage to extract price concessions from everybody. The name
of the game in this area is trade-offs. You are trading off
volume for price, access for price, things like that. You
cannot have it all.
But the PBMs are clearly instruments of trying to extract
leverage from the manufacturers. Yes, there has been some
consolidation of the PBMs, but it is a competitive market, and
if you look carefully, everybody in health care is
consolidating, not just the PBMs. I think the problem that we
face in this sector is no or little competition in the
specialty pharmacy area.
The second part of my report focuses on the rebates or what
we call the gross-to-net disparities. Rebates basically reflect
the difference between the gross and the net price. Research
shows, if you look carefully, that the rebates do not drive
increases in list price.
A lot of factors drive that gross-to-net disparity. A lot
of factors drive the rise in the list prices charged by
manufacturers. Some of those drivers are found in Federal
legislation and Federal contracting dynamics.
The second thing to recognize is that those rebates flow
increasingly to the health plans, who are the people that the
PBMs are agents for. They do not flow to the PBMs as much, and
I think Part D and Medicaid policies encourage manufacturers to
raise their list prices, as well as to increase their launch
prices, where I think a lot of the attention ought to focus.
Finally, there are a lot of issues about rising out-of-
pocket costs in Medicare Part D. That occurs primarily in the
catastrophic phase, and that is driven primarily by the high
cost of specialty pharmaceuticals.
The Chairman. We are going to have to move on.
Dr. Burns. I will stop.
[The prepared statement of Dr. Burns appears in the
appendix.]
The Chairman. Great; thank you very much.
Okay, let us see. Mr. Levitt?
STATEMENT OF JONATHAN E. LEVITT, CO-FOUNDING PARTNER, FRIER
LEVITT ATTORNEYS AT LAW, PINE BROOK, NJ
Mr. Levitt. Chairman Wyden, Ranking Member Crapo, and
members of the Senate Finance Committee, thank you for inviting
me to testify here today about PBMs. I am a trial lawyer with
the law firm of Frier Levitt. I represent stakeholders in the
drug supply chain--most importantly, independent, retail, and
specialty pharmacies.
I have been trying cases against PBMs for the last 20
years. I am here at my own cost. The six largest PBMs control
96 percent of the Nation's prescription drug market, and
adversely impact all stakeholders in the drug supply chain,
including patients, pharmacies, plan sponsors, and taxpayers.
As with all Americans, Medicare and Medicaid and employer
groups are at the mercy of PBMs and their vertically integrated
health-care conglomerates. These top PBMs are driving
independent pharmacies out of business; creating pharmacy
deserts, especially in rural areas; fueling drug list prices
higher for all Americans; and delaying and denying treatment
for the sickest Americans, including those with serious
diseases like cancer.
In my written testimony, I have provided information on all
PBM tactics that adversely impact the stakeholders. During
these opening remarks, I address how PBMs fuel drug prices and
extract the DIR fees from pharmacies. While drug manufacturers
set drug prices, the growing gap between the list price of
drugs and the actual net price is due to rebates that PBMs
extract from manufacturers for preferential formulary placement
and tiering treatment.
Americans pay their copay based on the list price of drugs,
not the net price. Thus, patients pay dramatically increased,
artificially inflated costs for drugs. PBMs, through their
sister companies, siphon a huge percentage of the list price of
drugs as profits to CVS Health, Cigna, and UnitedHealth, all of
whom own little-known companies called rebate aggregators.
Today, two of these PBM-owned rebate aggregators are
located outside the United States. Cigna, which owns Express
Scripts, owns Ascent Health, located in Switzerland.
UnitedHealth, which owns OptumRx, also owns Emisar, the rebate
aggregator located in Ireland.
Just this week, the Attorney General in Ohio filed a
lawsuit against Cigna for using, in his own words, ``a little-
known Switzerland-based company to illegally drive up drug
prices and ultimately push those higher costs onto patients,
who rely on lifesaving drugs such as insulin.''
Now let me make a few comments on DIR fees, the direct and
indirect remuneration that PBMs extract from pharmacies. PBMs
extracted $12.6 billion in 2021 in post-point-of-sale DIR fees
from retail and specialty pharmacies. These performance fees
are supposed to be based on legitimate adherence metrics that
measure how well a pharmacy has kept a patient on the
physician's prescribed drug regimen.
However, especially in the case of specialty pharmacies,
PBM adherence methodologies are designed to cheat pharmacies
and are shrouded in secrecy. Pharmacies are unable to audit
PBMs on the accuracy of their DIR fee calculations. PBMs
provide no adherence data, and pharmacies are unable to
challenge PBMs out of fear of retaliation.
CMS will eliminate DIR fees in 2024, but the problem is not
eliminated. PBMs and their affiliated Medicare Part D plans
will compensate for the lost DIR fee revenue, which is very
profitable, by drastically reducing pharmacy reimbursement.
Case in point: in 2024, Express Scripts will slash
pharmacies' reimbursement rates to rates that are worse than
the time when DIR fees existed. The other top PBMs are likely
to follow, which will drive more pharmacies out of business.
However, given that PBMs own their own affiliated mail-order
pharmacies, the largest specialty pharmacies, and giant chain
pharmacies, PBMs do not care if they drive independents out of
business. PBMs will make money one way or the other.
I have taken depositions of PBM executives and insurance
executives, and I have asked questions such as, ``What do you
do with the $12 billion of DIR fees that you take from
pharmacies? Does any of it go back to Medicare or to
patients?''
The answers to these questions that I have gotten under
oath from these executives are really staggering. I would love
to share those answers, but PBM gag clauses and protective
orders in these cases prevent me from doing so. I truly hope
Congress can shine more transparency on PBMs and pass
meaningful legislation for the benefit of all Americans.
I welcome your questions. Thank you.
[The prepared statement of Mr. Levitt appears in the
appendix.]
The Chairman. Thank you very much, Mr. Levitt.
Dr. Gibbs?
STATEMENT OF MATTHEW GIBBS, Pharm.D., PRESIDENT, CAPITAL Rx
INC., NEW YORK, NY
Dr. Gibbs. Thank you, Chairman Wyden, Ranking Member Crapo,
and members of the Finance Committee. First and foremost, I am
a pharmacist. I have been in the PBM industry for a very long
24 years, serving in various leadership roles. I am currently
serving as a member of the executive team at Capital Rx, a
disrupter PBM in the market.
We must first take a step back to truly understand how the
PBM situation developed. Since PBMs emerged in the 1980s and
1990s, they have played a vital role in the overall supply
chain. PBMs connect all pharmacies in the U.S. via a single
uniform communication logic.
This logic allows pharmacies from single-store ownership to
multistore chain operations to communicate safety edits, drug-
to-drug interactions, disease-to-drug interactions, and patient
payment information. This happens within milliseconds and is
arguably the most efficient transaction in all of health care.
In the early 2000s, PBMs started to grow in scale, while at
the same time brand drug inflation increased. PBMs began to
negotiate directly with pharmaceutical manufacturers on rebates
for preferred product placement on the PBMs' formularies.
Rebates quickly became the lifeblood of every PBM. With this
development came a web of complex layers of rebate payment
definitions, which became impossible for any employer or
government entity to track.
The market then shifted in an arguably suspicious
direction, choosing consolidation over innovation. It is no
secret to anyone on this committee that 70 to 80 percent of the
PBM market is controlled by three major organizations. Each of
these is either owned by or owns a major insurance carrier.
PBMs also own dispensing assets, mail-service pharmacies,
and specialty home delivery, and in certain circumstances even
a retail chain. Fortunately, the Federal Trade Commission is
now examining these market concerns.
Most critical is the fact that nearly all PBMs utilize a
less-than-efficient pricing benchmark. This benchmark is known
as average wholesale price, or AWP. This was the pricing source
that was part of a class action lawsuit that required the
majority of publishers of AWP to stop before September 2011.
There was hope in the market that, at the time, a new
industry benchmark would emerge. Unfortunately, every PBM
migrated back to AWP through another available index, and it
now is again the market standard. State fee-for-service
Medicaid plans, however, were no longer going to leverage AWP,
so they relied on CMS to develop a new acquisition cost
benchmark called National Average Drug Acquisition Cost or
NADAC.
It is based on survey data from retail pharmacies that
report their invoiced acquisition cost at the drug level to
CMS. NADAC is published on a free public website, while AWP--
remembering that is the industry standard--is a fee-based
subscription service.
So how is Cap Rx different, and why am I the only PBM
meeting with you today? Capital Rx is set up to change the way
drugs are priced and patients are cared for to create enduring
social change. We are over 1 million members strong across all
payer types. Our pricing model abandons the traditional AWP
index and utilizes NADAC as the primary benchmark, and we have
a single ledger model that is easily understood by our payers.
The best way to describe the problem in the market is to
give you an everyday example. If you go in the pharmacy to pick
up an over-the-counter product, you quickly see the prices in
front of you and you know what you are going to pay when you
get to the register. But when you go to the back, and you go to
the pharmacy to pick up your prescription, you spin the
roulette wheel and cross your fingers and hope for the most
affordable price that month.
It does not have to be this way, and it is a direct result
of the AWP being manipulated by PBMs. The ask is simple: every
drug should have a price that is accessible to every American
at any time.
Traditional PBMs have trained everyone to believe that drug
pricing is unstable, using complex proprietary algorithms to
lower their contractual reimbursements to pharmacies, while at
the same time not returning those savings to the payers or the
patients.
And while Medicare limits this practice to some extent,
most commercial and managed Medicaid contracts still allow it
to continue. One solution is to use NADAC as a publicly
available price and the source of truth for drug costs. Is it
perfect? No. Is it fundamentally better than the industry
standard? Absolutely.
I will leave you with this final message. I have worked my
entire career to drive transparency into the pharmacy supply
chain. We are at a pivotal moment in history where we can
finally change what is broken and bring rational drug level
pricing to the American people.
Compulsory NADAC reporting from all retail, mail order, and
specialty pharmacy home deliveries will drive competition and
bring meaningful cost insights to payers and patients alike.
Thank you, Chairman Wyden, Ranking Member Crapo, and the
committee, for your time on this crucial issue.
[The prepared statement of Dr. Gibbs appears in the
appendix.]
The Chairman. All right. Colleagues and guests, we are
about to start votes. Two points. One, we are just going to
keep this moving. It is such an important topic, and Senator
Crapo and I will figure out a way to do it.
The first four questioners will still be the first four
questioners, though in a somewhat different order because
Senator Stabenow has to get to a Forestry hearing, and she has
been very patient, has a great interest.
Senator Stabenow?
Senator Stabenow. Thank you very much, Mr. Chairman and
Ranking Member, and thank you to all of you. This is a really
important hearing, and I very much appreciate your courtesy as
well.
I have long been involved in issues around rising prices of
prescription drugs, as many of our colleagues have, and I mean
this is, bottom line, about lifesaving medicine. It is about
people's life and their health, and I would say it is hard to
find something more serious than whether or not people can
afford the medicine that they need. And unfortunately, we know
that for decades Americans have been paying the highest prices
in the world, which makes no sense. And when we look at prices
three times higher as in many countries, I mean, it is just--it
makes absolutely no sense.
One of the lifesaving drugs we have tried to tackle, and we
are tackling, is insulin, and we know that prices have tripled
in the last decade, with insulin costs going up 800 percent
more than in other developed countries. So we have now put a
cap of $35 per month for someone on Medicare.
It is a good start. Drug companies that make insulin are
now appearing to move in this direction, but there is a lot
more to do--Medicare negotiation and so on. I know the Lowest
Price Act, which was signed into law in 2018, banned PBMs from
blocking pharmacists from telling patients how they could pay
less money for a prescription if they paid out of pocket. They
were not allowed to tell people that.
So that was just one of many, many bad practices. So let me
get to today. PBMs have said that their purpose is to negotiate
lower prices. I said, when we had a group of PBMs in front of
us a couple of years ago, we should call them ``PBNs,'' because
they are pretty bad negotiators, if that is what they are
supposed to be doing.
So, I would first ask Ms. Feldman, can you discuss in more
detail the PBMs' practices that have led Americans to pay the
highest prices in the world?
Ms. Feldman. Thank you. When PBMs channel patients into
higher-priced drugs, then the prices rise for everyone in the
system.
Fair and efficient markets do not work that way. Patients
should be encouraged to buy the drug with the lower sticker
price. That entire system is how we end up with some of the
highest prices in the world for the same drugs that other
developed countries are purchasing.
Senator Stabenow. Thank you very much.
And, Mr. Levitt, you talked about the DIR fees, and I share
your great concern both for those independent pharmacies and so
on, but also for beneficiaries. So could you talk more about
how the DIR fees harm the sickest people in the system, and
could you give us more details? We are talking about people who
have cancer or other serious diseases, and how they are
affected by these fees.
Mr. Levitt. Thank you. It is true that the sickest are the
most harmed, because I will say PBMs have made the argument
that when we collect all these rebates and also fees from
pharmacies, we are able to lower the premium. That is actually
true, that the premium is lowered--and for those who never use
their prescription drug card, they pay the lower premium.
But for the sickest Americans, those, for example, with
cancer, when they go to the pharmacy counter, as has been
stated, they pay the maximum copay. They go into the donut
hole, and then they go into catastrophic coverage--all of them,
anyone who is on a specialty drug.
So those patients who use their medication, they pay the
most. And also, the government does. In the catastrophic
coverage phase, the PBM insurance company pays the least.
Manufacturers and the government pay more, and so do patients.
So the sickest patients are the biggest losers.
Senator Stabenow. Thank you.
Mr. Chairman, thank you again, and the ranking member, for
holding this hearing. This is a very important piece of how we
are going to really make medicine in America affordable for
people. I would just add we, as taxpayers, pay for basic
research that creates these drugs, which I am happy to do, and
it is an important piece of what happens.
But it is public dollars, and then when we end up paying
the highest prices in the world, this does not equate. This
does not work, and I am so glad we are tackling this.
The Chairman. And thanks for all your leadership in these
issues, Senator Stabenow. I hope everybody picked up on the
point Mr. Levitt just made to Senator Stabenow, and that is,
you can do phenomenally well in the prescription drug system as
long as you never need medicines. If you do not need medicines,
everything works out well.
Senator Crapo?
Senator Crapo. Thank you very much, Mr. Chairman.
When we talk about the need for greater transparency in the
drug supply chain, that term can and should mean a few
different things. It means transparency for plans, who need to
select the best PBM option and conduct effective oversight. But
it also means transparency for consumers in choosing a plan, as
well as for providers in choosing the most cost-effective,
clinically appropriate medication to prescribe.
We also know from experience that any effective
transparency policy needs to drive down rather than increase
costs, and that credible trade secrets warrant protection. With
these considerations in mind, I will start with you, Mr. Levitt
and Dr. Van Nuys, in that order.
What specific and concrete policy steps should we take to
improve transparency under the Medicare Part D system for
patients and plan sponsors, as well as for providers and
pharmacies? I would ask you to be as succinct as you can,
because I want to have a few other answers as well.
Mr. Levitt. So, to speak very succinctly, I think that the
process for the government to take that would be the most
practical and the most effective would be to create a true
rebate safe harbor. So that would mean that it would be
transparent, that PBMs could legally take a rebate fee or an
administrative fee, but it would be limited to 3 percent, 4
percent, 5 percent, not 50 percent. So I think a very practical
rebate safe harbor would be a big change.
Senator Crapo. Okay, go ahead. Were you going to add
something?
Mr. Levitt. I was just going to add, from the patient
perspective, the Medicare Plan Finder is where patients go to
look and see their copay. The Medicare Plan Finder does not
reveal that patients are paying a copay based on that list
price of the drug instead of the net price after rebates and
after DIR fees.
Senator Crapo. All right; thank you.
Dr. Van Nuys?
Dr. Van Nuys. Thank you, yes. You heard from Dr. Gibbs in
his opening statement about how helpful the National Average
Drug Acquisition Cost data are to his business model, but they
are also helpful to researchers like us.
I think one action that the Federal Government can take is
to create similar pricing series that are collected regularly,
standardized, averaged, and posted publicly just like NADAC is.
That would help.
But those series are not on the acquisition cost, which is
the cost that pharmacies pay to wholesalers, but at other
points in the distribution system--so, for example, the prices
that are the reimbursements that pharmacies are receiving from
pharmacy benefit managers, or the prices that health plans are
paying their pharmacy benefit managers to settle claims.
If we had similar aggregated--so, not disclosing any
confidential information--if we had similar consistent
benchmarks and measures in those points of the distribution
system, people like Dr. Gibbs could use them in their business
negotiations, researchers like me and regulators could know
more about how prices are moving throughout the system. I think
that would be a big help.
Senator Crapo. All right; thank you very much.
Dr. Gibbs, what would your answer to that question be?
Dr. Gibbs. Well, I feel as if Dr. Van Nuys quoted me, but I
would say it is very similar. We are using a pricing index
everywhere--Medicare, managed Medicaid, commercial--off of AWP,
and it literally has nothing to do with the price of a drug. So
I do not know if people understand that in most, if not all,
Medicare contracts, you pay the average cost of all drugs.
That is your guarantee. Drugs do not have a price. You do
not know the price of generic Lipitor. You pay a price based on
all generics' average over a year. We do not buy any products
like that in our economy. We have accepted it in the drug
business. And until we get rid of the fundamental issue of
these average benchmarks that are not related to drug costs, we
can do all these other great, creative things around rebates,
transparency, but when the cost basis is not reflective of
actual cost, it is not going to be worth it. We have to change
that.
Senator Crapo. Well, thank you very much.
I have a number of other questions that basically ask for
solutions, and I am not going to have time to get into those.
So I am going to yield my time back to the chairman.
But I would like to ask you all--I will tell you, we will
be submitting questions for the record to you, and I ask you to
really pay a lot of attention to these questions, because we
need the kind of expertise and guidance that you can give to us
to help us put together the right solutions here.
The Chairman. And I second Senator Crapo's request. We want
to make this a bipartisan effort in this committee. So please,
treat Senator Crapo's questions like mine and everyone else's.
We have got to get moving on this.
My first question to you, Ms. Feldman, is that in 2021,
Senator Grassley and I released what was, really, a landmark
report, reviewing contracts between the three biggest PBMs and
insulin manufacturers. One of the findings was that the
manufacturers often paid PBMs administrative fees for
services--for example, for providing data--and PBMs made
billions of dollars every year off these fees.
The report also found that these administrative fees are
often based on a drug's list price. So, preferring a higher-
priced drug by placing it on an advantageous lower formulary
tier can make more money for the PBM, yet higher costs for
patients and taxpayers.
Question: doesn't the PBMs' practice of preferring higher-
priced drugs raise patient costs and overall drug spending?
Ms. Feldman. Yes, of course. When patients are channeled
into higher-priced drugs, the prices rise. With the system you
have just described, the problem is that the person negotiating
on behalf of the patient should not be getting paid by the
other side. It is a conflict of interest. It is a problem, and
it pushes those prices higher.
When that payment is based on a higher price for the drug,
it undermines the negotiation entirely.
The Chairman. You are being way too logical for a lot of
the ways the Federal Government does business, and I appreciate
it.
Dr. Van Nuys, for you: your research suggests that PBMs may
be overcharging their health plan clients for generic
medicines, including Medicare Part D plans. One of your studies
found that Medicare was overcharged by $2.6 billion for generic
medicines in 2018 alone, compared to Costco's pricing for the
same drugs.
A separate Harvard study backs up your findings. They found
Medicare would have saved $3 billion in 2020 if Part D plans
were charged the same prices that Mark Cuban's Cost Plus Drugs
company charged us for generics. This is all factually correct
thus far; is that correct?
Dr. Van Nuys. Yes.
The Chairman. Okay. Now, it is no secret that big PBMs can
be effective negotiators when there is competition between drug
manufacturers. It is hard to believe they are not getting as
good a deal, if not better, than Costco or Mark Cuban. So I
want to finish up with a specific example.
CivicaScript is a nonprofit pharmaceutical manufacturer.
They sell a generic prostate cancer drug for $160. The average
price that the PBMs are charging the Part D plans for the exact
same drug is over $3,000. Just let that all sink in a little
bit--the difference between generic prostate cancer drugs for
$160; PBMs are charging Part D $3,000. Yet Civica cannot get
the big three PBMs to cover their drug, which is a tiny
fraction of what they are doing their business with.
So as a result, Part D plans--and consequently patients and
taxpayers--for this drug, this specific drug in this specific
case, they are facing a markup of nearly 2,000 percent. Is that
right?
Dr. Van Nuys. The math?
The Chairman. Yes.
Dr. Van Nuys. Oh, I trust your math, yes.
The Chairman. Yes, correct. So, colleagues, we are going to
enter this letter into the record from CivicaScript. It
provides more details on the issue. But the example that we
have cited with a generic prostate cancer drug, we are talking
about a markup of almost 2,000 percent. So something is way out
of whack here, all right?
[The letter appears in the appendix beginning on p. 211.]
The Chairman. One last question for you, Dr. Van Nuys. Why
do PBMs appear to be charging such high prices to their health
plan clients for these medicines?
Dr. Van Nuys. I think the short answer is, because they
can. Lack of transparency in these markets allows PBMs to pay
the pharmacy one reimbursement and then charge the plan a
different price for that same prescription and keep the
difference, which is the spread.
And because plans cannot see what the pharmacy has been
paid, they do not know when they are being overcharged. It is
that kind of lack of transparency that certainly is driving
what happened with the Costco study that we did. I suspect that
is also going on in the CivicaScript example you just cited.
In the CivicaScript example, there is also this added
complexity of the PBM owning the specialty pharmacy that is
dispensing it. That is a different issue, but also related to
your question.
The Chairman. So let me close with this, and my time is
just about up. This sounds like a really bad news discussion
for patient costs and spending under Medicare. Is that your
assessment as well?
Dr. Van Nuys. Yes, I agree.
The Chairman. Because we have got to figure out how to hold
down costs in America. We have got to figure out how to
strengthen Medicare. Senator Crapo and I talk about this often.
In this committee, colleagues, the late Senator Hatch worked
with us, and I think Senator Grassley remembers as well. We
built the CHRONIC Care bill.
We are interested in finding ways for people to get good-
quality care, and to make it more affordable. We have just
gotten a snapshot in time of just how the consumer gets fleeced
under these kinds of PBM practices, and how that really ripples
right through to Medicare, which picks up so many of these
bills. And we just cannot afford to do business this way and
meet the challenge of Medicare in our time.
Senator Grassley?
Senator Grassley. Mr. Chairman, thank you for continuing
this committee's work on PBMs. Something ought to get done this
Congress, considering the fact that there is already a bill out
of Judiciary, a bill out of Commerce. Senator Sanders is
talking about getting a bill out of the HELP Committee. The
House committee is already working on this issue.
I believe it is our duty to understand how the
pharmaceutical supply chain is working, and what we can do to
improve it. In 2019, this committee held a hearing with PBM
executives, and we worked to advance a bipartisan bill to shed
more light on PBMs and drug companies. The Inflation Reduction
Act took big steps to reduce drug prices, but there are
approximately 30 provisions in the Grassley-Wyden bill still
not law that would establish more accountability in the drug
pricing world, including for PBMs.
The current drug price system is so opaque that it is easy
to see why there are many questions about PBM motives and
practices. In 2018, I pressed the Federal Trade Commission to
investigate PBMs. Last year, the FTC began studying PBMs, and I
am not waiting--we cannot wait for FTC to issue their report.
The Judiciary and Commerce Committees have passed PBM bills
that I am working on with Senator Cantwell. Senator Cantwell is
also on this committee. The Prescription Pricing for the People
bill requires the FTC to study pharmaceutical intermediaries,
including vertical integration, and issue a report and
recommendations to Congress within 1 year. This bill has passed
the Judiciary Committee on a voice vote. The PBM Transparency
Act has advanced out of the Commerce Committee with a
bipartisan vote of 18 to 9. This bill puts sunshine on PBMs and
saves taxpayers $740 million.
I pursued bipartisan legislation, held hearings, and
conducted oversight. In the Grassley-Wyden 2-year investigation
into insulin price-gouging, we found that that PBM scheme
encourages drug makers to spike the drug list price in order to
offer greater rebates, and in turn secure priority placement on
covered meds, and all at the expense of many patients.
This especially impacts those who are uninsured,
underinsured, and on high-deductible plans. Recently three
insulin manufacturers announced that they were lowering the
list price on their insulin products. I believe the key way
that we can solve high prescription drug prices is to have more
transparency.
One of the panelists talked about PBMs being scapegoats. I
think they have created their own scapegoat environment,
because of lack of transparency. If you want people to
understand what you are doing and you are playing a very
important role in this whole business of getting pills from the
manufacturer to the consumer, then why not have transparency,
and then you do not have any problems with the public not
understanding what you are doing?
So, my one and only question will be to Dr. Van Nuys and
Mr. Levitt. The Cantwell-Grassley PBM Transparency Act requires
transparency reporting to shine sunlight on prices and fees.
Why is PBM transparency important to ensuring taxpayers and
patients are getting the lowest drug prices possible?
Dr. Van Nuys. I think transparency is an essential first
step, because it gives researchers like me, regulators like the
Federal Government, the opportunity to understand the bigger
picture. But more importantly, that kind of transparency is
actually going to provide participants in the markets with
information about the true prices that they are facing.
When they have information about the true prices that they
are facing, they can make better economic decisions, and they
can choose the highest-value opportunity. So I think it is an
important first step. I think it will help in at least those
two ways.
Senator Grassley. Mr. Levitt?
Mr. Levitt. Thank you. It is our contention, based on
information we have seen in litigation and how we studied the
market, that there is a huge percentage of the list price of a
drug that is retained by the PBM and the PBM rebate aggregator.
Transparency would shine the light on that.
It is okay if PBMs make some money, but if it is 20 or 30
percent of the list price of a drug, that is a problem. If we
are able to shine that transparency on those rebates, we can
actually lower the list price of drugs for all Americans.
Pharmaceutical companies could literally charge less and earn
the same net price. Plan sponsors including the government,
Medicare and Medicaid, and private employers could pay a lower
price for drugs, and pharmacies could stay in business because
they could get a reasonable reimbursement rate.
The Chairman. I thank my colleague, and next is Senator
Cornyn.
Senator Cornyn. Thank you, Mr. Chairman. This is an
extraordinary panel, and there is so much complexity here that
I am going to join Senator Crapo in sending you some specific
questions about solutions. I am not sure what the right
metaphor is. I have heard you talk about the system being
riddled with perverse incentives.
Sometimes the PBM is called the ``black box,'' and I have
heard us talk about transparency. I start with the fundamental
proposition that our pharmaceutical industry is entitled to a
return on their investment for their risk-taking, and that we
are the beneficiary of that from the public health standpoint.
The fact that the American and the international
pharmaceutical industry can come up with Operation Warp Speed
in an incredible amount of time and save millions of lives, is
something to be celebrated.
Conversely, I do believe that there is a lot of
gamesmanship going on in the industry. Maybe that is an
understatement for all of you here. So again, I do not know
what the right metaphor is--whether it is a Rubik's Cube, or a
shell game, or whatever you want to call it--but transparency,
as many of you have said, seems to be an important part of
getting the right answer.
But I cannot help but feel like this is by design, the
complexity and the difficulty of actually determining what is
the price of the drug. Dr. Gibbs, you talked about the
importance of setting that standard. So I am very interested in
getting some specific proposals, and of course Senator Grassley
and others have talked about transparency.
But it strikes me that without transparency, the market
cannot work. Dr. Van Nuys, do you agree with that?
Dr. Van Nuys. Wholeheartedly, yes.
Senator Cornyn. I mean, I am not an economist. I am a
recovering lawyer, but it seems to me that this whole area is
rife with gamesmanship. We have even had examples of drugs that
have had as many as 100 different patents, so-called patent
thickets, and product-hopping and other gamesmanship by the
industry, to try to maximize price.
Again, I do not begrudge the industry making a return on
their investment, and I know it is highly risky. But I do
object to the gamesmanship and the playing of a rigged system.
So, Dr. Van Nuys, why is it that Costco can charge so much less
for the same drug?
Dr. Van Nuys. Again, I am going to go back to transparency.
I think that because, in a cash market, there is no third-party
payer, there is no spread. The PBM is not charging a spread,
and so Costco does not have to pass those costs on to the
patient.
Senator Cornyn. I am not--I usually do not gamble when I go
to Las Vegas, but sometimes they talk about the spread. This
sounds like it is one big gambling operation.
Dr. Van Nuys. I am not sure whether it is gambling, but it
is a way for PBMs to capture money inside that distribution
process, yes.
Senator Cornyn. And, Dr. Gibbs, you talked about the
mechanism that you have used to try to provide more
transparency and sort of a standard price that people can
operate from, because we lack the basic information to
understand the system and this whole----
Mr. Levitt has talked about all the ``do not disclose''
statements and the confidential settlements and things like
that that prohibit him from telling us what he knows about this
system. But what impact do you think your company and the way
you are operating in terms of the business model, compared to
Amazon or Mark Cuban's Cost Plus Drugs--what promise does that
have to lead us out of this terrible mess?
Dr. Gibbs. Sure. Thank you, Senator, for your question. I
would say our goal is and always has been to bring transparency
options, regardless of channels.
Senator Cornyn. You want to make money too though, don't
you?
Dr. Gibbs. Correct. I mean we are--we are a startup. We
started in 2018, and we are not profitable yet. We are getting
there, and it----
Senator Cornyn. I do not think Amazon was either for the
first period of time.
Dr. Gibbs. Exactly, exactly. And using a price index like
NADAC, which is published by CMS--they actually do the survey
to the pharmacies. And by making it more robust so it is not
voluntary--today it is a voluntary survey--and getting better
responses to that will lead us to the actual drug cost.
And then you can have your nuance of Costco, Mark Cuban,
and a person can actually go in and look, and actually be
informed of what the real price is once and for all. Today,
with all the dynamics, from PBM spread to stores having
different usual and customary fees, to membership programs that
all the stores have, it has created this quagmire for a person
to really know what they are going to pay.
The only way is to level set. The good news is, we have the
tools already. We just need to enforce them.
Senator Cornyn. Well, Dr. Burns, I appreciate your
scholarly work, but the fact it took you 650 pages or so to
explain PBMs and GPOs I think speaks volumes about where we
are.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Cornyn.
Next would be Senator Cardin.
Senator Cardin. Thank you, Mr. Chairman, and let me thank
you for calling this hearing. I want to thank our panelists.
Put me down on the comments that you made in the opening. I
strongly support greater transparency.
The rebate systems seem to be leading to the wrong types of
incentives. Higher-cost drugs are priority over lower-cost
drugs, and quite frankly, I do not know who holds the pharmacy
benefit managers accountable for any public responsibility.
I think that is the challenge. We, the taxpayers, are the
largest payers and consumers of pharmaceutical products, and
yet the pharmacy benefit managers that play a critical role in
this are really not accountable to us. To me, that is the major
challenge.
So, I do not know how we get a handle on the accountability
issue, but let me mention one area that has been one of my
major areas of concern. We have many low-cost drugs that are
very important in our health-care system, infusion drugs, that
are in short supply.
I have heard specifically of examples where patients were
denied the protocol care because the drugs were not available.
These are low-cost drugs that in the richest country in the
world, that spends the most on pharmaceutical products--to me
it is outrageous that these drugs are not in adequate supply.
Now, you would think the pharmacy benefit managers that are
negotiating on behalf of the companies' coverage for drugs
would have leverage to make sure that low-cost drugs are
available. But it does not seem to be the case, and this past
year we added more drugs to the shortage-of-supply list than we
ever have in the past.
So how can we modify our system to make sure that we have
adequate supplies, and how can the pharmacy benefit managers be
engaged in that process? Who wants to take a shot at that?
Please.
Dr. Burns. Well, there are Federal reports that the major
problem with drug shortages is not PBMs; it is with the
manufacturers, and I am not here today to bash the
manufacturers. But oftentimes, those shortages are driven by
manufacturing problems and compliance problems in the plants
operated by those manufacturers. That is the source of the
problem, number one.
The source of the problem number two is, sometimes we just
do not have enough manufacturers there, such that one could
pick up the slack if one of the other manufacturers' production
goes down.
Senator Cardin. I agree with you that the primary
responsibility is with drug manufacturers and their profit
motives. If they cannot make enough on a particular drug, they
are going to use that capacity for other purposes.
But I would just argue that pharmacy benefit managers are a
huge part of the pharmaceutical chain here, and they could use
their leverage in regard to pharmaceutical manufacturers. I
would suggest also that the group purchasing organizations that
are setting up could also add to the number of drug shortages
because of the pricing here.
So there is part of what they are setting up, to me, that
makes the problem more challenging. Yes, did you want to
respond, Mr. Levitt?
Mr. Levitt. Yes, I think that it is true. Manufacturers
should be making these short-supply drugs. But I think one of
the things that PBMs can do in a more moral control of the
formulary, is to put these low-cost drugs on the formulary,
encourage manufacturers to make these by giving them a fair
return, and giving the pharmacies a fair return for dispensing
some of these drugs.
Senator Cardin. I agree. It seems to me that, as I see it,
the PBMs have ignored this issue, and in some cases have made
it worse because of the way that they have organized their
pricing. So, it encourages the pharmaceutical manufacturers to
do what they are doing today, rather than trying to provide a
different avenue so that we can deal with the shortages.
We have some legislation here to deal with the shelf life
of drugs and to make it easier, and some incentives to add
capacity for lower-cost drug manufacturing. So, we are doing
some things on the supply side.
But when you look at the profits that are being made, both
at the manufacturer level and at the benefit manager level, to
me it is shocking that there is not an attention to the patient
who needs these drugs.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Senator Cassidy is next.
Senator Cassidy. Dr. Burns, it's like no one is talking to
you, man, so I would like to talk to you. We have several
academics on, and if you read Ms. Feldman and Dr. Van Nuys, you
are thinking, are you all from the same planet, right? You seem
to be--so let me just ask about some things that Dr. Van Nuys
puts in her testimony and have your response.
In 2019 before patents were due to expire, Gilead
introduced an authorized generic version of Harvoni that was
going to lower out-of-pocket cost by $2,500, but it never made
it to several PBMs' formularies. The patients continued to pay
top dollar, even though there was a generic that was available.
I think I summarized that correctly, Dr. Van Nuys.
Now, that would look like something which is an abuse of a
PBM, by a PBM. What would you say to that, Dr. Burns?
Dr. Burns. Well, one has to look at the incentives in
Medicare Part D plans, and the incentives there are to get the
beneficiary through all of the various coverage phases into the
catastrophic phase, where the government picks up almost all of
the tab and the health plan pays very little.
So it is the health plans who have an incentive for the
patients to move through those coverage plans, such that their
liability is diminished when the patient hits the catastrophic
phase. It is not the PBM; it is the health plan that the PBM is
an agent for.
Senator Cassidy. So you are saying that the health plan
would be instructing the Part D PBM in order to put that
formulary so as to move the person into the catastrophic phase
most rapidly?
Dr. Burns. Well, the health plans run the Part D plans.
They are not instructing the PBM to run the patient----
Senator Cassidy. So, it still sounds like a little bit of a
collusion. If you have an insurance company that owns, in
whole, the PBM company, and they are telling them, listen, we
want to offload our responsibility, so stick it to the patient
buying the drug and move them into--that is what you are
saying, huh?
Dr. Burns. Not necessarily, because that vertical
integration that you have talked about with the health plans
owning the PBMs, that is mostly recent, okay. Up until 2018,
the only health plan that owned a PBM----
Senator Cassidy. Yes, but I think what we are describing is
still a recent phenomenon, at least until that was capped.
Mr. Levitt, you are shaking your head. You are waving your
hand. You are like jumping up and down, but be concise.
Mr. Levitt. I thought I was being more subtle than that,
but yes. I mean the PBMs, and the insurance companies are one
in the same, and there is no firewall. So UnitedHealth owns
Optum. Cigna owns Express Scripts, and CVS owns Caremark and
SilverScript.
So to the extent--that was an accurate statement. These
health plans want the patient to have a higher-cost drug to
move through the coverage phases to get to the catastrophic.
Senator Cassidy. So I think what you are saying is that we
have to actually broaden our view. The PBM is merely an agent
for the insurance company that is willing to foist cost upon
both the consumer and upon the Federal taxpayer, in order to
maximize their profit?
Mr. Levitt. That is right, but----
Senator Cassidy. Let me stop you, because I have limited
time.
Dr. Van Nuys, now recent legislation has changed the
dynamic of the Medicare Part D incentive. Theoretically, there
is no longer a reward for sticking it to the patient and moving
her into the catastrophic. Would you expect that which Dr.
Burns, I think it is fair to say--I do not know if
``minimizes'' is the right word but seems to give less
importance to--how do you think this is going to impact it?
Dr. Van Nuys. I will start by saying I am not sure, but I
do think that it could alleviate some of the issues. I do not
know. We will have to see how it plays out to understand.
Senator Cassidy. And, Dr. Burns, coming back to you, I
think you are quoting Weinstein-Schulman's data when you, in
your testimony, say that people are inferring that the higher
list price, even though net price is minimally rising, that
they are inferring that that is related to the fees, the
rebates, et cetera.
Seems like a pretty good inference to me. And so, knowing
that that high list price is what the person, the patient in
her deductible, is going to pay, they are still extracting more
money from the Medicare beneficiary, a lot more money. Your
thoughts on that?
Dr. Burns. Sure. Research, as well as my own study of some
of these drugs, shows that the list price goes up because the
manufacturers can get away with it.
Senator Cassidy. Now the Schulman article or articles, and
the Schulman-Weinstein most recently, show that the list price
grows, I do not know, 2.7 percent, whereas the--I am sorry.
List price will grow 5 percent and net price is growing 1.7
percent. Now, that is not the manufacturer; in fact, there is a
depressive effect. Others have noted that this is costing
manufacturers a fair amount of money. So I am not sure. So
where would you come from?
Dr. Burns. Well, the manufacturer is setting that list
price, and then the PBMs act as agents on the health plan to
negotiate down that price----
Senator Cassidy. No. That list price is a negotiation
between the rebate and the net price. In fact, I think I know
that the manufacturers do not report, as a profit, the list
price. They only report the net price, which tells me that that
is all they are counting on, and the rebate, the price between
the list and the net, is that which the PBM is demanding for
where they put it on a tier, etcetera. Would you dispute that?
Dr. Burns. Well, the PBM demands that, in order to get on
the formulary, and then demands a bigger rebate in order to get
a more favored position on that formulary. And then the PBM
translates or passes along those rebates to the health plan.
The issue is what the health plans do with that money, not the
PBMs.
Senator Cassidy. I am way over, but I will say that the
lack of--the opaqueness of it is, I think, what people are
concerned about, because we do not know the entirety of that is
going back to the payer. It may be going back to the integrated
insurance company, but we do not know that it is going back to
Google, Exxon, Deloitte and Touche, or you know, Performance
Contracting in Louisiana.
Dr. Burns. And what I would say is----
The Chairman. To be continued, Senator Cassidy. Important
points.
Senator Menendez is next, followed by Senator Carper and
Senator Thune.
Senator Menendez. Mr. Levitt, pharmacy benefit managers are
key players, or should be, in alleviating patients' financial
burden at the pharmacy counter, as they frequently set
patients' out-of-pocket costs based on a drug's list price. The
higher the list price, the more the patient pays, an obvious
burden.
Less obvious, but equally concerning, is that PBMs benefit
significantly from high list prices and have no incentive to
choose lower-priced drugs to drive down patient costs. PBMs
extract rebates from manufacturers based on list price in
exchange for a manufacturer's drug receiving formulary
placement.
Those rebates are passed on to plans that employ them, but
almost never to patients, and manufacturers also pay
distributors, group purchasing organizations, and specialty
pharmacies percentage fees that are based on the list price.
The patient gets nothing.
So, under the current structure, PBMs make more money when
a drug's list price increases, while patients bear the
financial burden. Conversely, if a manufacturer lowers the list
price, PBMs stand to lose money while patients benefit.
So, Mr. Levitt, do you agree that it would be better for
patients if the supply chain was delinked from list prices, so
that patients' out-of-pocket costs were based on net prices?
Mr. Levitt. Yes. There is absolutely no doubt that patients
would do better paying a copay based on that lower price, based
on the drug benefit structure of almost all plans.
Senator Menendez. And let me ask you, would patients be
better off if PBMs and other supply chain entities were paid
flat fees for the services they provide?
Mr. Levitt. Absolutely they would, as long as it is a
reasonable flat fee.
Senator Menendez. Now, Humira treats people who are
afflicted with crippling rheumatoid arthritis. This critical
medicine can cost patients more than $80,000 a year. It should
be good news to consumers that Humira biosimilars are being
launched, which should make the treatment more affordable for
patients who desperately need it.
But because the economic incentives to PBMs are completely
skewed, the biosimilar drugs launch with two different prices:
one with a high list price and a large rebate; one with a low
list price and a lower rebate. So take another look at this
chart. We know PBMs favor the high list price in order to
obtain larger rebates, even though the patient would pay
significantly less if PBMs selected the drug with the lower
list price.
So is it true, Mr. Levitt, that the current structure
incentivizes PBMs to select higher-cost drugs to the detriment
of patients?
Mr. Levitt. Yes, Senator, it does, and it is often to the
detriment of the patient, because sometimes there is a better
drug on formulary that does not pay as much of a rebate that
would be better for the patient.
Senator Menendez. You know, the Pharmacy Care Management
Association, which represents the PBMs, includes research on
their website that states, and I quote, ``High list prices hurt
patients who must pay these prices. If list prices were lower,
out-of-pocket payments based on list prices would be lower and
more affordable.''
It rocked my mind when I read this. So if the PBMs
themselves acknowledge lower list prices would help patients at
the pharmacy counter, why would they still place preference on
a higher list price product, when a drug company has given them
a better option for their patients?
Mr. Levitt. Because they have established this architecture
in the system, where they have these rebate aggregators that we
believe are secretly siphoning a lot of that rebate out and not
giving it back to the plan or the consumer.
Senator Menendez. Thank you.
Now finally, as a result of mergers and acquisitions in
recent years, CVS Caremark, Express Scripts, and OptumRx now
control approximately 80 percent--80 percent--of all U.S.
prescription drug claims. This level of concentration gives
these PBMs market power over data, drug coverage, and
contracting--80 percent.
The hyper-consolidation, with little to no regulatory
oversight, creates inappropriate negotiating leverage that
discourages competition and makes it difficult to achieve
transparency, affordability, and timely access for patients.
So, Mr. Levitt, how does the consolidation in the PBM market
impact costs for patients, and what sort of regulation and
oversight is needed to protect consumers?
Mr. Levitt. I think, first of all, this massive power
influence over physicians, which is a problem--we want
physicians to act independently. I think some of the things
Congress could do to lower drug prices would be to create more
transparency, as has been discussed a lot, but also a safe
harbor for rebates.
If PBMs want to earn a rebate, to keep money, it should be
at an amount defined by the government. I think that would help
lower drug prices.
Senator Menendez. Thank you. Thank you, Mr. Chairman. I
appreciate that Mr. Levitt's from New Jersey, his sock wear.
The Chairman. I noticed.
Senator Menendez. It looks like he may have graduated from
North Carolina at one point.
The Chairman. All right. Next will be Senator Carper and
Senator Thune, and I thank my colleagues for their patience,
and when we start voting, we are going to keep everything
going.
Senator Carper?
Senator Carper. Thank you, Mr. Chairman. Welcome everyone.
Nice to see you all.
I am from Delaware, born in West Virginia, grew up in West
Virginia, but I am privileged to represent the people of
Delaware here for quite a while now.
We are proud in Delaware, especially with being the first
State to ratify the Constitution. And in the Constitution, you
may recall--in the preamble of the Constitution it starts with
these words: ``We the people of the United States, in order to
form a more perfect union.'' It does not say in order to form a
perfect union, but a more perfect union.
Out of that, I take the idea that everything we do, we can
do better, and we need to do better. That includes the way we
deliver health care: to cover more people, to do it in a cost-
effective way, harness market forces where we can to provide
better health care.
I will just say, there are four questions that I ask when I
am considering, among other things, how to make pharmaceuticals
more available to people, to make sure that they are getting
the drugs that they need at a reasonable cost.
But I ask four questions in this room, and one of those is,
given an idea, I say, what is the effect on patients, how does
it affect patients? Then I ask, how will this affect taxpayers?
What are the budget implications of what is suggested to us?
The third question I ask is, a particular answer or idea, does
it foster innovation? Does it diminish innovation? And the last
question I ask is, does a particular idea simplify or make more
complex an already complex situation, as you know?
And with that in mind, I am going to ask, not a question
for all of you. I am going to pick on Dr. Karen Van Nuys, and I
would appreciate your response to this.
Again, one of my guiding principles--and I just mentioned
it is the first one--is, in terms of pharmaceuticals, the work
that we do here with respect to prescription drugs--one of my
first questions is, how does it affect patients at the counter
in terms of their pocketbooks?
That is why I previously cosponsored something called
Creating Transparency to Have Drug Rebates Unlocked, and you
bet there is an acronym for all that. It is C, capital C,
through, T-H-R-U (C-THRU). And it is led by Senator Wyden, and
would have ensured that cost savings from rebates provided by
drug manufacturers would be passed on to patients.
At the same time, sometimes lowering costs in one part of
our health-care market, as you know, can cause another--it is
like squeezing a balloon; it pops out some place else.
But here is my question, Dr. Van Nuys. Can you share with
us briefly your thoughts on how we can better ensure that
rebate cost savings are passed down to patients at the counter,
while also managing costs for our Federal Government? And is
there a narrow or maybe an incremental way to go about this so
we can balance these trade-offs? Thank you.
Dr. Van Nuys. Thank you, Senator. Let's see. As you know,
it is hard to lower patient out-of-pocket costs without
impacting premiums and squeezing the balloon in one place and
having it bulge in another.
And so one of the solutions or avenues to help would be to
take some of the savings that we have identified, right, that
$2.6 billion that Medicare was overpaying for low-cost generic
drugs in 2018, and figure out ways to take that money out of
the current system and get it to patients for out-of-pocket
relief or so we can lower premiums. We can do a lot of things
with that.
We had--my coauthor Erin Trish and I--an op-ed in The
Washington Post this week about taking those low-cost generic
drugs out of the benefit, so that we do not run it through this
process that adds 21 percent to their cost.
Right now, 21 percent is going to intermediaries. There are
much better things we can be doing with that money: helping
patients, helping taxpayers, helping the domestic supply
industry, and helping innovation.
Senator Carper. That is a very good answer. Yes, so go
ahead and then I will--my time will expire, but go ahead,
please.
Ms. Feldman. I believe there are three key areas that are
really worth focusing on to try to bring sanity here.
Senator Carper. Yes, ma'am.
Ms. Feldman. One is to clarify that the PBMs have a duty to
the health plans and the patients they represent. The second is
to ensure transparency, so the market can operate--price and
price term transparency. And the third is to ensure that
patients get the benefit when they choose a cost-effective
drug, so that when the drug has a lower sticker price and the
patient chooses it, the patient pays less.
Senator Carper. Great. I am going to ask the men--I have to
go. I address the men on the panel. If you agree with what she
just said, those three, raise your right hand.
[No hands raised.]
Senator Carper. If you agree with two of them, raise your
right hand.
[No hands raised.]
Senator Carper. How about one? All right. Well, we will
come back, and we will let the guys have their discussion later
on. Thank you. Thanks very much.
The Chairman. Thank you, Senator Carper.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman.
I would say, if we were starting over, I would blow up this
whole model of the supply chain, because I think it is an
antiquated model. I believe the free market works when there is
competition. But you have so much vertical integration, so much
consolidation of market power, and no transparency, as has been
pointed out a lot of times already.
And I just--this to me makes no sense, and I have tried to
study this supply chain and how this drug pricing works in this
country, and I just--it is incredibly complex. There is not any
other product that we buy in the market that has such a
complicated and antiquated way of getting products to the
consumer.
I say that as just an observation and something that I hope
we can work on. But I know that these, some of these issues are
embedded in a system that has been in place for a long time.
But I would start over.
Let me start--I have a question having to do with the 340B
program, which is critical to South Dakota hospitals, and, Mr.
Levitt, if you could speak to this. I often hear concerns from
South Dakota pharmacists, hospitals, and health centers when it
comes to engaging the PBMs, especially on the 340B program.
The dynamics of 340B are complicated as well. There is a
lot going on with contract pharmacies right now, but it is
important that the program continues to serve its intended
purpose of helping our hospitals and health centers support
their communities. So, could you talk about the impact of PBMs'
practices on hospitals and health centers in the 340B program?
Mr. Levitt. Thank you, Senator. I think nowhere in the drug
supply chain is the influence of vertically integrated health-
care companies with PBMs--and with what they call third-party
administrators in the 340B program--more troubling.
The whole idea of 340B is to get 50 percent of the drug
costs as a profit back to the hospitals like the ones in South
Dakota. But what really happens? You have PBMs that take maybe
a DIR fee of 5 percent or 10 percent. So that 50-percent profit
that is supposed to go to hospitals in your State is taken by
PBMs.
PBMs also own a third-party company that manages the 340B
program. Those third-party companies might take out another 10
percent. So now, of that 50-percent profit that was supposed to
help with indigent care in South Dakota, 15 percent is gone.
Then you have the PBMs that own pharmacies and specialty
pharmacies, and they act as contract pharmacies, as you
mentioned, for the covered entities in your State, and they
might take out another 10 percent or maybe more. So, at the end
of the day, the 340B program is completely frustrated by PBMs,
their specialty pharmacies, their retail pharmacies, and by
their third-party administrators.
Senator Thune. Let me--I want to direct this question to
you too, Mr. Levitt. But we talked a little, you hit a little
bit on independent pharmacies, but I also hear concerns from
pharmacists in South Dakota regarding their retroactive direct
and indirect remuneration fees, and this is something that CMS
took a step toward providing more certainty on in their final
rule last year by incorporating these fees in a negotiated
rate.
However, I know that pharmacies continue to have concerns
about low reimbursement rates from PBMs, and we need to ensure
that our independent pharmacies remain viable, serve patients,
while also ensuring that the Medicare program is a good steward
of taxpayer dollars by promoting value and rewarding quality.
In your submission to the committee, you discussed the
current performance metrics for pharmacies, some of which you
state may not benefit pharmacies or patients. How do we
incentivize or reward those pharmacies that are providing high-
quality care to patients?
Mr. Levitt. The current system that PBMs use, the metrics
that they use for medication adherence--there is no oversight.
One of the Senators talked about accountability. CMS has
absolutely no idea how these big insurance companies for the
Medicare Part D program are evaluating adherence. It does not
incentivize physicians that dispense drugs, or pharmacies.
The solution might be CMS becoming more active in
understanding how adherence is judged, so that the pharmacies
that are truly doing well, serving patients, can get benefited
more.
Senator Thune. Good; thank you.
Mr. Chairman, I am about out of time, so I will--I have one
question I would like to submit for Mr. Gibbs for the record,
dealing with the things that you are doing in terms of
technology and some of the ideas that you have that hopefully
could impact in a positive way the price that consumers are
paying at the counter. So I will submit that one for the
record. But thank you, Mr. Chairman.
The Chairman. I thank my friend. I just want to say before
he goes, I think there is no question that if you were starting
over today, literally starting from scratch, nobody would go
out and set up what we are dealing with now. And that is part
of our challenge, and we are going to make it bipartisan, and
that is what Senator Crapo and I have been talking about. I
look forward to working with him.
Senator Tillis is next.
Senator Tillis. Thank you, Mr. Chair. I thank you all for
being here.
I spent most of my career in management consulting, supply
chain optimization, strategic resources--all things that are
relevant to this topic. For the last 8 years, I have been
trying to get use cases that I could follow through the entire
process, from the investigational new drug, to the new drug
application, clinical trials, the manufacturing of product,
going to the PBMs, going through the insurers, the health-care
providers. And in 8 years I have not had anybody in this value
chain willing to step up and go through the whole process. That
suggests to me, Dr. Burns, that there is a lot of smoke. We
just do not know exactly where the fires are.
But I do, for one, think that we have some use cases where
the PBMs are likely to be guilty of some of the fires. I think
right now we probably have people across the country viewing
this committee kind of like a Super Bowl watch party. You have
PBMs watching it; they are going to get hammered today. You
have the other people watching it, probably cheering. But every
once in a while, a statement is going to be made going, ``Whoa!
We have a dysfunction here.''
I look at health-care policy pretty simply. To me, there
are three critical success factors: how are you going to
improve access, how are you going to improve outcomes, and how
are you going to reduce costs? And until we get transparency in
the entire process, we are not going to make headway here.
The other thing I would like to do, Mr. Chair, is have a
hearing at some point where past members, past or current
members who passed bills, have to sit where you are, and the
industry and all the people in the supply chain get to ask you
questions about what you were thinking. They may have been a
good idea, but a lot of the restrictions that we have are
congressionally mandated. So, we have to look in the mirror if
we are going to solve this problem.
Pfizer launched a rheumatoid arthritis drug at a lower cost
than the originator drug. A PBM placed a high price, high
rebate on the formulary. Gilead authorized generic versions of
a branded hep-C drug. They found that nearly half of Part D
plans covered the branded versions, but the authorized generics
were specifically launched to reduce patient cost. By the end
of 2020, less than 20 percent of Medicare patients received
either.
Mylan launched a generic version of a lifesaving cancer
drug for two price points. This PBM placed the high price, high
rebate drug on the formulary. Sandoz, biosimilar, same sort of
outcome: higher price, higher rebate on the formulary. Amgen
with Humira, widely prescribed drug, similar story.
Teva, lifesaving cancer drug, similar story. AbbVie, same
story. These are examples, some of them widely prescribed
drugs, that make no sense in terms of the ultimate cost and the
availability of it. I said in a committee hearing, last week I
believe, with Mr. Becerra--I said I think everybody in the
value chain needs to be at the table to take a haircut.
Now the question is, if we do it right, that haircut will
probably look more similar to Dr. Gibbs. If we do it wrong,
somebody in the value chain is going to get a haircut very
similar to Mr. Levitt. And, Mr. Levitt, I appreciate you being
here, because if we get this right, you are going to have fewer
clients going forward, and I think you will be okay with that.
But this is another thing that 5 minutes cannot simply
allow me to drill down on with somebody who has written 600
pages. That is the CliffsNotes version of all that we need to
understand to get this policy right.
But you reminded me of an experience I had going into a
controlled burn, when you said there is a lot of smoke, but you
cannot see the fire. When you go in a controlled burn on a
house, you have to put your hand on the firefighter ahead of
you, because you are not going to see him the minute you enter
the house. But there is a fire, and my guess is there are, in
some segments of the supply chain, big ones that are going to
be difficult to bear out, others where we can have some hits,
the singles and doubles, and get something done.
But I am telling the industry, everybody in the supply
chain, there is no rational basis for us not to have use cases
so we can figure out the root causes of the problem, and it is
not as simple as any one. You have to go through this and
figure out what their value add is.
I think over time the PBMs have morphed; there is a lot of
vertical integration now, a number of things that we have to
look at if we are serious about coming up with a bipartisan
proposal for solving this. Now I would like to reserve the
right to speak with you all individually, because I think your
expertise requires far more attention than I can give you in
the remaining 6 seconds. So, thank you for being here.
The Chairman. I thank my colleague, and as we talked about
yesterday, I am very much looking forward to working with him
on this.
Senator Brown is next.
Senator Brown. Thank you, Mr. Chairman.
Senator Tillis, thank you for your comments. I heard about
the last two-thirds of them. Thank you for that. With the
Inflation Reduction Act, we stood up to big pharma and dark
money and finally began to take action to bring down the cost
of prescription drugs.
I thank the chairman for his leadership on that. I have
been working on this my whole career, pushing for Medicare
price negotiations, pushing to crack down on drug company
price-gouging. Their lobbyists rarely lose. They lost this
time. We are seeing the same kind of actions with railroad
lobbyists fortunately.
We can build on that success to lower prices further by
reforming DIR fees. It is an impenetrable system of fees most
people have never heard of that makes it harder for local
pharmacies--we all hear from them often--to serve Ohioans who
count on them every day.
Fees are so exorbitant in some cases, they force people's
community pharmacy out of network or to close altogether. I
called the administration last year to finalize its DIR fee
reform proposal to help lower drug costs for seniors. CMS has
acted to protect seniors' pocketbooks, but there are other
problems with these fees that the rule does not touch.
Mr. Levitt, for you: what other actions should Congress
take to better protect consumers and local businesses they
count on by addressing DIR fees or any new practices PBMs are
starting because of the CMS rule?
Mr. Levitt. I think that there is some current law that
applies to Medicare Part D. Terms and conditions in Medicare
Part D are supposed to be reasonable and relevant. But PBMs
think that they can pay below cost to pharmacies and still get
away with it. Their argument is, ``Look, we have 68,000
pharmacies in our network. If it was not reasonable, they would
all drop out.''
But they are dropping out. So I would like CMS to clarify
some current guidance. The guidance that says, ``reimbursement
rates must be reasonable,'' I would like CMS to clarify to PBMs
that that means that the reimbursement rate actually must be
reasonable.
Senator Brown. Thank you.
Another concern I have with DIR fees is that pharmacies are
paid or forced to pay based on quality measures.
That sounds great, but I also hear from pharmacists in Ohio
these measures are often inconsistent, sometimes just do not
make sense. Some pharmacies, as I think you know from your head
nod, Mr. Levitt, learn about these quality measures only after
it is too late to address them. Elaborate on that, would you?
Mr. Levitt. Sure. These DIR fees are based on performance.
They are supposed to be based on the performance of pharmacies.
But 50 percent of DIR fees plus are paid by specialty
pharmacies, and the PBMs do not know how to measure adherence
for specialty drugs.
I think they do it intentionally wrong. Sometimes they do
it themselves instead of outsourcing adherence. If we had more
time, I could give you specific examples. But I think CMS has
no idea how these PBMs are judging adherence. I think CMS
should take a look.
We sometimes ask the PBMs in depositions, ``Have you gone
to CMS and asked them whether you are doing adherence
measurements correctly?'' There is no communication between CMS
and these big PBMs on DIR fees, including on the net
reimbursement rate after the DIR fee.
Senator Brown. Thank you.
One of the biggest problems with our whole prescription
drug system--and I think all five of you know this--is how
opaque it is. Just a few companies dominate each part of the
supply chain, which is far more convoluted than it needs to be,
always frankly, to the benefit of the big drug companies.
Even the experts are mostly guessing about what is
happening behind closed doors at the pharmaceutical companies,
again all to their benefit. I am proud that my State is in some
ways taking the lead in tackling some of these problems. Ohio
is getting some $100 million in overcharges back from PBMs.
Earlier this week, we sued one of the mysterious group
purchasing organizations, GPOs, that are owned by PBMs and used
to take dollars from the pockets of people who simply need
their medications. It is unacceptable that these shadowy,
secretive entities have so much power over people's health
care.
Mr. Levitt, talk for the last couple of minutes--how do
GPOs operate? How do they contribute to the drug cost problem
for everyday Americans?
Mr. Levitt. So, every single manufacturer that wants to get
their drug onto a PBM's list of drugs that the PBM makes
available to their big plan sponsors, has to pay a rebate to
get on formulary. So PBMs use that, that formulary, as a tool
to extract dollars from manufacturers. Sometimes if a
manufacturer might resist, they might say that they do not want
to pay a rebate, the PBM says, ``We are not going to put you on
formulary. Or maybe we will, but we are going to make your
copay Tier 3, which means no one is going to want to buy your
drug. Or we might use step edits or prior authorization, so
that physicians have a very tough time getting your drug onto
formulary.''
So these rebate aggregators, no one knows how much money
they actually take out of the system. So, to be clear, these
rebates that are collected by PBMs are not fully turned over to
the plan sponsors, or maybe even to the government. They are
retained in the middle.
Senator Brown. Thank you.
The Chairman. I thank my colleague, and I appreciate the
fact we have been working on these issues for a long time. And
I would just say to my colleagues, these are complicated
issues. There are questions of transparency and accountability.
You always know whose side Senator Brown is on. Senator Brown
is always on the side of the working families and the senior
citizens.
I told the story the other day about how we got the price-
gouging penalties, finally, and we are already starting to see
breaks for consumers. We have the poster kids for these drugs
like Humira, and we are starting to see price reductions. I
thank my colleague for all his good work.
I understand Senator Whitehouse, in his usual magnanimous
way, is saying that he would like Senator Cortez Masto to go
first.
Senator Cortez Masto. Thank you; I appreciate that. First
of all, let me just reiterate what my colleagues have said.
This is a great panel, and I hope this is one of many
discussions we are having, because it takes more than 5 minutes
to really dive into the issues here. So I appreciate everyone
being here.
I also want to thank our chairman and Senator Crapo, not
only for holding this hearing, but really the work that we have
done historically in this committee together, to lower drug
prices for so many across the country, and continue to do.
Today, I am introducing legislation called the Lower Drug
Costs for Families Act, and what it will do is penalize
pharmaceutical companies for increasing the price of their
drugs faster than the rate of inflation, for patients in both
the private health insurance market as well as Medicare. I
think that is so important. It is what we are talking about
today.
We have heard PBMs often prefer higher-priced drugs to reap
in administrative fees--we have heard that today--on the
percentage of a drug's price. We know that health plans have
incentives to limit overall drug spending. We have seen that as
well, and we have also heard that PBMs get paid, both by their
health plan clients and by the drug companies they negotiate
with. This raises serious questions as to whether PBMs are
serving the best interest of their clients, including union
health funds.
Obviously, transparency is key. That is what we are hearing
about. But, Dr. Gibbs, let me ask you this, because you note in
your testimony that Capital Rx has both financially and
clinically aligned interests with its clients.
As a PBM working with union payers, I am curious about your
perspective here as well. How is your PBM model different, and
what does that mean for the patients?
Dr. Gibbs. Thank you, Senator, for your question. We work
off what is called a single ledger model. We do not have to
keep two separate sets of books, which have been referred to in
many different aspects here today. What we reimburse the
pharmacies is what we bill our clients. What we receive from
pharmaceutical contracts is passed back to our clients, 100
percent.
Where that can be validated is with the Consolidated
Appropriations Act. PBMs had to report their third-party margin
spread at retail. They had to report their rebates that were
retained on specific clients. So the data is now there as of
January 31st of this year.
I do not know what the Department of Labor or CMS intends
to do with that. But that will shine the first light on what
PBMs are making in this space, and I proudly put zeros in both
of those columns.
Senator Cortez Masto. Yes. And so, can I ask you, what else
should we be learning from your model that you have not heard
today, that we have not discussed, that we should be aware of?
Dr. Gibbs. I think first and foremost is the fact that the
supply chain is complex because the basis is wrong. The fact
that at wholesale acquisition cost, which is kind of the
starting point of drug pricing, when we actually serve a
pharmacy, their price is lower than that.
It does not make sense. The pharmacy does not buy lower
than the wholesaler. So that should tell us right away that we
are starting off at a place that is nonsensical, and until we
fix that, everything else we are talking about is gray noise.
We have to fix the cost basis of drug pricing in this country.
Everything ties to that. Rebates tie to WAC. Wholesaler
price ties to WAC. AWP goes to pharmacy sometimes. So, until
that is all defined and revealed and becomes transparent, the
rest of the fixes are going to continue to be on a spiral, in
my opinion.
Senator Cortez Masto. Thank you. And you know, it is true
in Nevada, like every other State, where I am hearing from
Nevadans, from our patients, from our pharmacies, all on the
same issue.
So it is not something that is unique to any one State. We
have to figure this out, and I so appreciate the conversation
today. I look forward to more of it so we can really address
this issue, and I am going to yield the remainder of my time to
my good colleague here.
Thank you.
Senator Crapo. Senator Whitehouse?
Senator Whitehouse. Thank you, Senator Crapo. Thank you,
Senator Cortez Masto, and thank you all for being here.
There is an obvious logic that Dr. Gibbs represents here,
of having PBMs as an organized counterweight to the power of
the pharmaceutical industry, which otherwise dominates. The
danger is that a pharmacy benefit manager, once they are
interposed between the pharmaceutical company and the customer,
can become just a toll taker, or just a self-dealer, and
extract more money out of the transactions than any market
principle would justify.
It gets a little bit worse than that, because if they are
going that way, there is also the prospect that either through
coordination or just through happy coexistence, the
pharmaceutical companies can artificially inflate their prices
to get paid more. That allows pharmacy benefit managers to get
a bigger share of the savings that are, at this point, fake
savings.
The pharmaceutical industry is happy because it is making
more money. The PBMs are happy because they are making more
money. Nobody is blowing the whistle on the initial price being
a phony, because the PBMs who are supposed to fight the initial
price are actually in on the economics of the transaction, and
the consumer once again takes it in the neck.
So I am very interested in following up on what more in the
way of transparency and guard rails we can do to prevent those
behaviors and highlight them when they happen. Mr. Levitt is a
lawyer. I am particularly interested in where you think some of
our agencies might have a more robust role than they are
presently exercising, like for instance our friends at the
Department of Justice. And I will ask you about that in a
minute, and give you the closing words.
But I also want to point out that--as I sort of step back
and observe this phenomenon of concern about pharmacy benefit
managers--while it is possible that big pharma and big PBMs are
orchestrating high prices that they can share, they are not
doing their jobs about proper pricing.
I think there is also a bit of competition going on here,
and that big pharma would like nothing more than to have the
American concern about their prices be diverted to concern
about PBM behavior, so that we take our eye off the ball of how
big pharma is pricing its products.
I think the window we created in the Inflation Reduction
Act to actually start real negotiations and get a bit of a
better look under the hood is going to help cure that problem.
But I urge all of my colleagues not to take our eye off the
ball of pharma pricing as we look into the question of PBM
behavior. And with that, Mr. Levitt, back to you on where you
think the executive branch of government could be operating
more effectively in this space, and how.
Mr. Levitt. I think PBMs, for one of the things they do--
they earn, it has been called an administrative fee and a data
fee--there is a safe harbor for those fees. There is a law
about that. In order to be safe in that harbor, these PBMs are
supposed to follow the rules, and they are not following the
rules, because these are
percentage-based fees that they are taking.
I also think the executive branch should take a look at the
Medicare bids submitted by these prescription drug plans. We
talked a lot here about the different pricing. There was a
cancer drug mentioned that was a couple of thousand dollars
versus a generic--a nonprofit company had a generic that was a
couple of hundred dollars.
I think that when you bid, when these prescription drug
plans bid Medicare, somebody should look at those bids. They
should compare to things like Mark Cuban's Cost Plus Drugs, or
this private company that has very cheap drugs.
So I think looking at safe harbors, looking at the bids,
and I think that DOJ absolutely should take a look at rebate
aggregators, to see just how much money is being pulled out,
especially when it relates to Medicare Part D.
Senator Whitehouse. When you say take a look at the
Medicare bids, you are meaning a very practical look comparing
what the bid is for this particular drug in isolation against
similar drugs or treatments--or perhaps other bids that they
have made in other places, just to give a reality check that it
is for real?
Mr. Levitt. Exactly.
Senator Whitehouse. Okay. Thank you very much.
Thanks, Chairman Crapo.
Senator Crapo. Thank you.
Senator Lankford?
Senator Lankford. Thanks. Thanks for the marathon that you
all are on at this point today. You are crossing the 2-hour
mark of us pummeling you with questions. Let me pummel you with
a few more on this.
Mr. Levitt, I am going to come back to you because you are
sufficiently warmed up there on it, and it is the issue of
tiering that has come in. This is an area that I have been
working on for a while. The drug companies complain about the
PBMs until they cooperate with them for tiering. When it is
time for a drug to go generic, once the generic is about to be
released, the PBM and the branded drug, they negotiate together
some way to get a higher rebate fee if they will put the
generic drug on the branded tier.
That means the copay for the consumer is more, and it also
is a higher cost for Medicare at that point. This has been an
issue. They are literally driving generic companies out and
driving the prices higher for the consumer. At the same time,
the PBM will come back and say, ``We are negotiating to get
better prices for the consumer,'' when they are actually not.
Where am I wrong on this?
Mr. Levitt. I can see no fault in any of that logic.
Senator Lankford. Okay. So how do we, how do we solve this?
Mr. Levitt. Earlier we talked about accountability. I am
not sure who is looking at these formularies. I mean, if it is
a Medicare formulary, I think CMS has outsourced Medicare to
these private companies--completely outsourced, with very
little oversight. So I think that CMS should look hard at this
tiering issue you talked about.
Also, honestly, in this self-funded plan space, I think big
employer groups need to more carefully examine what their
contracts say and what PBMs are doing.
Senator Lankford. Okay. I would also--let me add one more
element as well. There have been some studies and some
conversations about what PBMs do to independent pharmacies,
especially with the DIR fees, with the new quality basis that
they literally invent every month or quarter.
They will retroactively change all their requirements on
them. But it has been remarkable to me how many independent
pharmacists have told me the same crazy story, that they get a
change in quality, they get a drive-down in price, and then
within about 2 weeks, they will get a call from one of the PBM-
owned pharmacies saying, ``Hey, we are trying to expand into
your area. Would you like to merge into our pharmacy? Would you
like to become one of us?''
So my challenge is in a couple of ways. What PBMs are
doing, I believe, is actually driving our independent
pharmacies and our rural pharmacies into submission or gone
from there, and that is a real problem.
The second thing we have seen is, even VA recently
cooperating with a PBM to basically cut off thousands of rural
pharmacies around the country and say, ``You are no longer
going to do VA benefits. You have to do mail order through our
PBM to be able to do it,'' which will kill our pharmacies.
Have you seen this as just independent stories, or has
anyone seen this as an actual trend that is going on?
Mr. Levitt. The story told about PBMs aggressively auditing
an independent pharmacy and then offering to buy that pharmacy,
I have seen that for 10 years. I have seen that trend.
The irony also, Senator, is that when PBMs buy these
pharmacies, they are literally buying them with their own
money, because PBMs have the DIR fees that are pure profit, and
it has fueled this proliferation of PBMs buying up pharmacies.
The thing about the VA and TRICARE, I think--you know, I
looked at those. Whatever information is public about the
TRICARE bid I was able to see. There were two PBMs that bid for
the TRICARE business. That is one of the biggest contracts in
the country. I cannot figure that out, but someone has got to
look at that.
Senator Lankford. That is worth a follow-up from there. The
question is out there always. When we talk to any of the PBMs
and we say we need greater transparency--we need to know more
about the pharmacy reimbursement, the manufacturer rebates, we
need that--their response is always the same: ``Well, that is
going to hurt the consumer. If we give you greater
transparency, the consumer is going to be hurt.'' Now, we never
get an answer of what that really means. Where are they coming
from on that, and does it really hurt the consumer if there is
greater transparency in the PBMs? I will let anyone answer that
who wants to be able to answer that. Dr. Burns?
Dr. Burns. Well, there is plenty of research that shows
when you start mandating transparency, especially of prices,
there is always a danger of collusion among the people who are
revealing those prices. So you always have to watch out for
that.
And studies show that a lot of the transparency movement,
which has been going on for 20 years, has not really benefited
consumers, because most consumers do not know what to do with
the information.
Senator Lankford. Right. The challenge that we have is,
obviously, the consumer is paying a higher price, and we all
know it. The spread pricing is real; we all know it. The
percentages that are being paid is a very real issue. The
rebates are not going back to the consumer.
We all know all those things, and any time we try to step
in and say, ``Okay, so let us provide some transparency to find
out how many dollars are there,'' they are like, ``Oh, that is
going to hurt the consumer,'' as if everything they are already
doing is not hurting the consumer. But suddenly that piece
becomes oh, that is going to be bad for the consumer.
So this is an issue I am glad this committee is taking on.
I am glad you all are here. We have a lot more work to do. We
discussed this 4 years ago and have done nothing about it so
far. I am grateful to the Biden administration and CMS in some
of the things that they are currently doing on DIR fees to step
in, but it is not far enough.
And we have some additional work to do in this area. So I
appreciate all the preparation that you all made for this
hearing. I am grateful we are having it. Thank you all.
Senator Crapo. Thank you.
Senator Warren?
Senator Warren. Thank you, Mr. Acting Chair.
So last year, Congress passed the Inflation Reduction Act,
which finally gives HHS the authority to negotiate drug prices
for a select number of high-priced brand-name drugs. This is a
significant achievement, and one that drug companies paid their
lobbyists about $150 million to avoid. That is one of the
signals that it probably will have some effect.
Despite these wins, there is more that we need to do to
reduce exorbitant drug prices for all Americans, and that
includes taking a hard look at the pharmacy benefit managers
that we have been talking about, the PBMs that negotiate
discounts from manufacturers on behalf of insurance plans,
putting upward pressure on list prices.
But we also cannot lose sight of the ways that drug
companies continue to abuse our intellectual property laws to
drive out competition, to jack up prices, and to protect their
profits. So, in a competitive market, we would expect to see a
lot of patent applications for new drugs as companies race to
invent the next blockbuster product.
Professor Feldman, does that describe the patent landscape
for pharmaceuticals right now?
Ms. Feldman. Senator, that is not really what we are seeing
right now. Companies are largely recycling and repurposing
existing drugs today. To cite one study, 78 percent of the
drugs associated with new patents are not new drugs coming on
the market; they are existing ones.
Senator Warren. Wow.
Ms. Feldman. We are seeing a lot of churn.
Senator Warren. So, think about that. More than three out
of four new patent applications for pharmaceuticals are for
existing drugs, which means adding new patents for things like
new formulations or manufacturing methods, or even certain
restrictions on a drug, but not actually for new drug
compounds, new drugs into the field.
So let us say that a drug company manufactures a pill and
the patent for this pill is just about to expire. Instead of
facing competition, the company decides it will make the
delayed release version of the drug, so that it goes into
effect just a little while after the pill is ingested. Even
though it is the exact same drug, the company patents the new
formulation and then removes the original from the market. Ms.
Feldman, could that restart the clock on the drug's monopoly
protections?
Ms. Feldman. Yes. That would effectively restart the clock.
Senator Warren. Okay. So drug companies use these tricks,
and a lot of others, to keep their monopolies and keep pushing
prices higher and higher and higher. Now the Inflation
Reduction Act exempts drugs from Medicare negotiation for the
first 7 or 11 years, depending on the kind of drug, following
that initial approval.
Recognizing the potential for gaming, CMS has issued
guidance saying it will use the earliest approval of all the
formulations of a drug to determine its eligibility for the
program. Professor Feldman, without this step, could drug
companies use these patent tricks to ensure that their drugs
never become eligible for the Medicare negotiation provision in
the IRA?
Ms. Feldman. Product hopping is a serious concern with
regulations like that. The CMS guidance is a very important
step for ensuring that companies cannot evade the impact of the
law by simply changing the packaging of the drug or shifting
from 20 milligrams to 40 milligrams.
Senator Warren. Wow. Well, you know, we must ensure that
drug companies do not rely on tricks in order to avoid
competition. I support this step from CMS. I am glad to hear
that you do. But the administration can do more to limit patent
abuses without Congress, and they can do it for a wider range
of drugs than just the handful of drugs that are currently
subject to Medicare negotiations.
We need to scrutinize the PBMs, but using existing
administrative tools to end abusive drug company monopolies
would give patients faster, broader relief from high drug
prices.
Thank you.
The Chairman. Have you completed your time?
Senator Warren. I have.
The Chairman. All right.
Senator Blackburn?
Senator Blackburn. Thank you, Mr. Chairman, and thank you
all for being here today.
I want to return to this issue of patient steering. I think
that--and I know that Senator Lankford touched on that, and I
constantly hear from Tennesseans how frustrated they are with
the PBMs.
You know, in all transparency, I would do away with the
PBMs. I think they are unnecessary, and when patients are being
steered, when patients are not able to reap the benefit of that
reduced price and they continue to pay higher prices, it is
something that is very difficult.
I looked at the Ohio suit. I think, Mr. Levitt, your
testimony had referenced that, and I know Kroger's chief
medical officer lives in Nashville. You know, when they cannot
turn a profit and the PBMs have muddied the process and they
are pushing that business offshore, I think that it is
difficult.
Mr. Levitt, let me come to you on that. Let's talk for a
little bit on what this does to Medicare and Medicaid, when you
have this steering that is going on, because you have people in
rural Tennessee that this is happening to, and then they have
no access. So I would love to hear just a touch from you on
that. Time is limited.
Mr. Levitt. Under Medicare Part D, there is a Federal ``any
willing provider'' law, that is----
Senator Blackburn. That is my next question, so let's go
ahead and hit that, because you know, we have any willing
provider in Tennessee, which limits the PBMs. And so, should we
just blanket that federally?
Mr. Levitt. Yes. It is good Federal law, and Tennessee, you
have actually passed one of the strongest State any willing
provider laws in the country, which is phenomenal for practices
and pharmacies in your State. The steering is terrible,
particularly for sick patients, the sickest patients like
cancer patients.
We have examples in your State where a patient who has the
choice to go to the oncologist that they want to get the drug
from, is steered to a PBM-owned specialty pharmacy, and then
they just get this oral oncolytic, which is a dangerous drug,
in the mail. It is terrible for patient care.
Senator Blackburn. Well, we think it is too, and we think
that any willing provider has helped in so many instances.
Let us continue down this same chain, because with a lot of
our community health centers, what we hear is that the PBMs get
in here and it really compromises the availability of
pharmaceuticals and cramps the community health centers on
patient care, and I would love to hear you comment for a moment
on that.
Mr. Levitt. Are these Federally Qualified Health Centers?
Senator Blackburn. Yes, and community health centers in
rural areas, yes.
Mr. Levitt. I am not an expert on the Federally Qualified
Health Centers.
Senator Blackburn. Okay. Well, with our community health
centers in rural areas, does anybody else want to weigh in on
that because--go ahead, Ms. Feldman.
Ms. Feldman. Sure. I just want to talk about what is
happening with the community pharmacies.
Senator Blackburn. Yes.
Ms. Feldman. One of the techniques we have talked about in
the hearing is clawbacks; so with that, the PBM actually asks
for money back from the pharmacy. Sometimes the pharmacist
loses money on the transaction. Now if a PBM owns the pharmacy,
money is just going from one pocket into the other; it does not
matter. But for a community pharmacist, it can drive them out
of business. These are the types of techniques that are
reducing the number of community pharmacies we have and
limiting patient choice and access to medicine.
Senator Blackburn. Well, and also what we are seeing is
because PBMs have a role, what is happening is, we have
lessened the 340B programs. That is something that when you
have 230 health centers, community health centers, in your
State, and you have the PBMs stepping in, it hurts the 340B
programs that they have, because basically you are taking those
savings away.
I know there has been a lot of talk about vertical
integration today, and we have monitored that. I will tell you,
we are quite concerned about what we see there, because any
time you have another step in that vertical integration, what
you end up seeing is higher prices for consumers, and then you
have less access, and it convolutes the market.
So, thank you all for being here today.
Thank you, Mr. Chairman.
The Chairman. All right. I understand that Senator Johnson
is either on his way or he would like to have us to hold for
him. All right, let us--is Johnson's staff here? Is that the
desire of the Senator? Okay. Well then, I will kind of jump the
wrap-up and give you kind of my thoughts here about what we
would like to work with you all on, and put it this way.
I am heading back to Oregon in a few hours, and then over
the next 10 days or so I am going to be having town hall
meetings across my State, primarily in rural areas. We have
them open to all. You can ask anything you want. I have had
1,045 of them in my time in office. It is something I pledged
in every county every year, to throw open the doors.
People care a whole lot about this matter of getting mugged
at the pharmacy counter. They do not get it, and they look at
the prices around the world, and several of my colleagues
compared them to other countries, and they certainly do not get
all the medical lingo that we have been speaking about today.
Rebates, DIR fees, putting things in hoppers, or hopping around
or some such thing; people do not get that kind of thing. But
they do understand these examples where what you are seeing
just defies common sense and fairness. Whatever it was, a
couple of hours ago, I cited this example of Civica and how it
affects Part D, which is Medicare, you know.
I am one of the people who voted for Part D. I got a lot of
flak for voting for Part D. I thought it was important to get
started, because it covered people and helped people, but
clearly has not done enough for cost containment. What we were
told again a couple of hours ago is Civica, a nonprofit, sells
a generic prostate drug for $160.
The average price that PBMs charge Medicare Part D plans
for the exact same drug is over $3,000, and yet Civica cannot
get the big three PBMs to cover the drug. So that means that
people on Medicare and taxpayers are paying for medicine that
is marked up almost 2,000 percent.
So, I am going to take that home, and I am going to go into
these rural communities, bright red politically, and they are
going to want something done about this. They are going to want
something done about this. I think while I wait for my
colleague and I am wrapping this up, I would be interested--we
can go down the panel.
What do you think--if you could do one thing going forward,
just one thing to end something that is so unconscionable, you
know, taxpayers, seniors facing a 2,000-percent markup--and
this is not kind of some abstract theory, this is what we were
given as an example, to highlight today how Medicare Part D
gets hammered.
Medicare is our flagship health program, and we have a lot
of challenges in demographics, given the number of people who
turn 65 every day. So, we will wait for Senator Johnson, but I
think I would be interested----
We will start with Ms. Feldman, but everybody, as we wrap
up after 3 hours, everybody take a crack at your idea, because
I can tell you what we are going to do during our work period
at home. Our staffs, Democratic and Republican, are going to be
talking among themselves so we can see if we can go from the
constructive discussion with all of you and with the members,
and really come up with practical steps for what to do.
So why don't you all just go right down? You have one crack
at dealing with that outrageous example of the nonprofit versus
what PBMs charge Medicare, and then when Senator Johnson comes,
we will break for that. We will start with you, Ms. Feldman,
and we will go down the row.
Ms. Feldman. Sir, may I offer you one other example to take
back to your constituents?
The Chairman. Yes. But I think I would rather get----
Ms. Feldman. To the one.
The Chairman. Yes. I would rather get--here comes Senator
Johnson.
Ms. Feldman. Ahh.
The Chairman. And that gives you more time to think, okay?
Senator Johnson is going to use his time for questions, and
then I will not be doing any more speechifying, other than to
hear your response to what I asked.
Senator Johnson?
Senator Johnson. Thank you, Mr. Chairman. Thank you for
holding this hearing. This has been fascinating. I wish I could
have spent more time here, but I did hear the testimony.
Dr. Burns, I always like starting out with the macro, okay?
Let us take a look at the overall industry.
The latest information I have according to the AMA, in 2021
we spent about $4.3 trillion on health care. Is that----
Dr. Burns. We are over $4 trillion, that is correct.
Senator Johnson. And also, about $577 billion on
pharmaceuticals--gross total?
Dr. Burns. It depends on how you measure retail versus
institutional.
Senator Johnson. So what do you think the number is?
Dr. Burns. Well, if you look just at the retail numbers
that come out of CMS, people will say, well, it is about 10
percent, 11 percent of health-care spending. But if you throw
in the institutional side of it, the drugs that are used in
hospitals, you could get up to 15 or 16 percent of national
health care.
Senator Johnson. So about a half-trillion dollars or
somewhere in the ballpark. What do you think the after-tax
profitability in total of that amount is?
Dr. Burns. Well, it varies by sector. There are----
Senator Johnson. I understand. But I mean in total, would
you say--again, total industry after-tax profitability probably
averages about 5 percent. Well, let us say with drugs more,
maybe it might be 10 percent.
Dr. Burns. Why not? The pharmaceutical companies and the
medical device companies clean up.
Senator Johnson. Okay. So would it be----
Dr. Burns. They are in the low 20-percent range.
Senator Johnson. Okay. So again, I am talking about after
tax, because let us face it----
Dr. Burns. Sure.
Senator Johnson [continuing]. The tax the government
collects goes right back into our coffers as well.
Dr. Burns. Yes.
Senator Johnson. So, but let us say it is 20 percent on a
half-trillion dollars. That is about $100 billion on a total
spend in health care of about $4.3 trillion. So we are talking
somewhere 2, 2\1/2\ percent in terms of profitability of the
drugs, in terms of our overall health-care spending.
I make the point because it is easy for us to zero in on a
particular problem. Again, I think PBMs--this is a really
interesting hearing, okay? But if you eliminate all the
profitability and all the incentives for creating new drugs,
you have not really made a dent in our health-care spend. Is
that pretty accurate?
Dr. Burns. Well, the real issue now facing the Part D plans
and their beneficiaries is the high-cost specialty drugs, for
which there are no competitors, and that is where the elderly
are getting creamed----
Senator Johnson. Right.
Dr. Burns [continuing]. In terms of their out-of-pocket
cost. What we need there is more competition among those sorts
of manufacturers.
Senator Johnson. There you go. Do we not also need more
consumer involvement? I think, Dr. Gibbs, you were talking in
your testimony that unlike every other product--and that may be
a little bit too broad--but like almost every other product in
our economy, we do not know what things cost in drugs. And
again, I think that is a generally true statement, but I guess
I would argue that the reason for that is because of the third-
party payer system, where consumers pay about 10 percent of all
of our goods and services in health care--10 percent.
Nobody cares what any of this stuff costs. If they did, you
would have price transparency just through the marketplace;
correct? I mean, does anybody want to disagree with that? How
about the attorney who sues these guys?
Dr. Burns. I would totally agree with it, and if
everybody's covered by insurance--and more than 90 percent of
the population are--they do not really care about the cost.
Senator Johnson. So the solution, again--you know, I would
argue the biggest problem with PBMs is we have Medicare and
their formularies, and it makes it so unbelievably complex. I
am an accountant, okay? I actually understand numbers. I
understand. I have had people try to explain this to me like
Professor Burns. You have written books on this stuff, and you
are just sort of kind of getting your arms around this, okay?
Markets are complex. If you let in the competitive market
system with consumers participating in it, you will get price
transparency just as a natural part of it, as opposed to trying
to suss it out through government regulations, which we have
been trying to do, and it just does not work.
Dr. Burns. Well, as I wrote in the textbook I published 2
years ago, consumers and consumer literacy just have not shown
up yet.
Senator Johnson. So we do want drug companies to produce
new molecules to save lives. I mean, we want that R&D. So there
has to be a profit motive in there. One thing that I found out
during the pandemic is how completely unlevel the playing field
is between generics and the patentable drugs.
Part of the problem is, now it has to be random control
trials as the only standard. They will not accept observational
meta-analysis of that. So the playing field is totally tipped
towards patentable drugs.
So all these molecules that are there, doctors oftentimes
cannot use. And of course we found with some generic drugs
that, in my experience working with the doctors worked really
well in COVID, were not allowed, and I am highly concerned. I
have actually--I am the author of Right to Try. I have also
authored another bill now, Right to Treat.
It should not be necessary, but can I get just your opinion
in terms of allowing doctors to use their medical judgment?
Something like 20 percent of all drugs are prescribed off
label. That is how you get generic drugs more readily used,
more looked at by the medical profession, and hopefully with
more observational studies to prove their efficacy or if there
are problems with them.
I mean, we have got to produce research on generics and try
and use those as much as possible. Does anybody want to argue
with that?
Dr. Burns. I totally agree. The last thing you want to do
is
second-guess what the doctors are doing at the bedside or the
point of care. The thing I would have mentioned is that it is
not necessarily patentable versus generic drugs. We oftentimes
have a lot of biological drugs, specialty medicines that are
off patent, and the price increases continue there because
there are no effective competitors.
Senator Johnson. Yes. So again, I am a private-sector guy.
Competition solves an awful lot of problems, and we just do not
have the competition, and certainly not in the PBM markets.
So again, I really, really do appreciate all your testimony
here. This is very interesting. I wish it was a little bit
clearer than mud. Maybe I missed some stuff and maybe you
clarified this entire issue. But again, I will point out again
the marketplace, the third-party payer system, those are at
odds in terms of transparency, and that is what we really need
to move toward.
So thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Ms. Feldman, my apologies. I think I did not look down at
the name tags earlier. We are glad you are here.
Everybody, take one crack at what you would say to the fact
that there is nearly a 2,000-percent markup, a markup that hits
seniors, hits Part D, hits taxpayers, and ought to be a
symbol--and I can just tell you, I am going to go out and have
all these town hall meetings, and I am going to hold that up.
Because that is the real world today of people getting
clobbered. I have to hear all the lingo about, you know,
rebates and exotic fees and all the rest. It is about a markup
of 2,000 percent--2,000 percent--that hits seniors and hits
taxpayers, and it ought to be something that we use as kind of
a theme to get this thing fixed.
Ms. Feldman, right down the line. Everybody gets one idea
to put into this, and we are going to have to build a
coalition. Senator Johnson was not here when we talked about
it. Senator Crapo and I said we are going to take the best
ideas from both sides. Staffs are going to work on it over
these 2 weeks, and we are just going to keep our foot to the
pedal, because I think this is a good hearing.
I did not hear a bad question in the house, to tell you the
truth, from my colleagues; I thought your answers were
thoughtful. So we are going to dig in here.
Ms. Feldman, start us off. Your one answer to this
challenge.
Ms. Feldman. Perverse incentives happen when interests are
not aligned. The PBMs' interests are not aligned with the
patient, so make sure the duties are clear about what they have
to do.
The Chairman. Okay.
Dr. Van Nuys?
Dr. Van Nuys. I am going to go back to that Federal
benchmark of prices across different transaction points in the
supply chain. Like we have NADAC, make those public in other
places in the supply chain, so we can tell whether that 2,000-
percent markup is happening in the spread, or is it happening
in the specialty pharmacy.
The Chairman. Making it public?
Dr. Van Nuys. Yes.
The Chairman. The information in the supply chain.
Dr. Van Nuys. Yes, exactly.
The Chairman. Okay, good.
Dr. Burns?
Dr. Burns. Yes. I would fix Part D, two things in Part D.
One is, the prices that are paid ought to be pegged to net
prices, not list prices. Secondly, health plans need to have
more skin in the game, more fiscal responsibility in the
catastrophic phase.
The Chairman. Okay.
Mr. Levitt?
Mr. Levitt. More transparency for the PBMs, more
transparency for the rebate aggregators, on both the spread
pricing on the drug side, and the rebate side as well.
The Chairman. Okay.
Dr. Gibbs?
Dr. Gibbs. I agree with Dr. Van Nuys once again. The price
should be made public and everyone should be able to see it at
any time.
The Chairman. Okay. Here is what we are going to do. We are
going to--and by the way, it is a practice of the committee to
hold the record open for, it will be 5 days, I believe, and
Senators can--is that the correct number of days?
The Hearing Clerk. A business week, yes.
The Chairman. A business week. We will hold the record open
for members to offer their questions. Those of you who want to
submit additional information, please feel free to do so. This
has been a good hearing. I want us to look back and say that
today was the day that we started to get this fixed. I will
welcome your ideas and suggestions. The stakes are high, and I
thank you for participating.
And with that, the Finance Committee is adjourned.
[Whereupon, at 12:35 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Lawton Robert Burns, Ph.D., MBA, James Joo-Jin
Kim Professor, Professor of Health Care Management, Wharton School,
University of Pennsylvania
introduction
Good morning, Chairman Wyden, Ranking Member Crapo, and members of
the committee. Thank you for inviting me to address the role of PBMs in
the prescription drug supply chain. My name is Robert Burns, and I am a
management and strategy professor specializing in health care at the
University of Pennsylvania's Wharton School. My research and teaching
examine how the entire U.S. health-care ecosystem operates; I have
taught an Introductory Course on this material for nearly 4 decades at
three business schools. I have also recently written a textbook on the
topic.\1\ Another part of my research agenda examines how the
institutional and retail supply chains work in the health-care
ecosystem; I have examined these supply chains since the mid-1990s and
written two books on them.\2\, \3\
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\1\ Lawton Robert Burns. The U.S. Healthcare Ecosystem (New York:
McGraw-Hill, 2021).
\2\ Lawton Robert Burns. The Health Care Value Chain (San
Francisco, CA: Jossey-Bass, 2002).
\3\ Lawton Robert Burns. The Healthcare Value Chain: Demystifying
the Roles of GPOs and PBMs (Palgrave Macmillan, 2022).
To paraphrase Mark Antony in Shakespeare's Julius Caesar,\4\ I come
here today not to praise PBMs but to bury some concerns about them. My
testimony covers three topics. Part I explains the operations of
intermediaries (i.e., ``middlemen'') in health-care supply chains and
demystify their role. Part II explains why pharmacy benefit managers
(PBMs) are not the drivers of the rising prices of brand drugs, as many
allege. Part III explains the growing trend of vertical integration in
the retail pharmaceutical supply chain and explores its possible
impacts.
---------------------------------------------------------------------------
\4\ Act III, Scene 2. Just to be clear, we are not talking here
about Mark Anthony, J Lo's third husband. Their last names are spelled
differently. My students always get them confused.
My conclusions and opinions are based on my own research, teaching,
and first-hand experience with the health-care ecosystem since my
doctoral training in late 1970s. They do not necessarily represent the
views of the Wharton School.
part i: dark territory: lifting the veil on pbms \5\
---------------------------------------------------------------------------
\5\ This section draws on Chapter 14 of The Healthcare Value Chain:
Demystifying the Roles of GPOs and PBMs (Palgrave Macmillan, 2022). It
also draws on an article I recently wrote in The Hill, ``What History
Tells Us About Your Prescription Costs and the New `Bad Boys' of Health
Care'' (March 22, 2023).
``Dark Territory'' describes a section of railroad track not
controlled by any signals. There are safety concerns due to the absence
of train detection. There is a lessened ability to detect misalignment
in track switches, broken rails, or runaway rail cars. It is dark and
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mysterious.
Health care's version of dark territory consists of intermediaries
that connect buyers and sellers. Often, these intermediaries are widely
mistrusted and vilified. They seem out of control, lack transparency
and Federal regulation, act in ways that reportedly threaten patient
safety, make a lot of money without making anything, and are viewed
with suspicion. During the 1990s, health maintenance organizations
(HMOs) constituted the dark territory. The criticisms of the HMOs back
then pale in comparison with the invective leveled over the past 2
decades at two other intermediaries: group purchasing organizations
(GPOs) and pharmacy benefit managers (PBMs). Like the late comedian
Rodney Dangerfield, ``they get no respect.'' Worse yet, they serve as
the ``whipping boys'' of health care who take the rap for others.\6\
---------------------------------------------------------------------------
\6\ ``Whipping Boys'' is not a derogatory term. It refers to the
use of stand-ins who were punished for the wrongdoings of the princes
that were heir to the throne of the Tudor and Stuart kings of England.
It was bad optics to whip the heirs, so childhood friends who were
educated alongside them served as the substitutes. A synonym for
whipping boy is scapegoat.
Last year, I published a 650-page volume that takes readers through
this dark territory.\7\ Here, I focus my remarks on the PBMs. The
allegations against PBMs include: monopoly power, anticompetitive
behavior, collusion with manufacturers, exclusive contracts, financial
ties with suppliers that mitigate search for the best products at the
lowest cost, reduced provider discretion and patient access to needed
medicines, conflicts of interest, preoccupation with growing revenues,
excessive fees and profits, kickbacks, secret rebates, lack of full
disclosure, harms to patient quality, and higher consumer costs. Most
of these allegations can usually be found in just a single newspaper
story, book chapter, or industry report. Needless to say, the authors
of such stories rarely ``go deep'' into any of these allegations.
---------------------------------------------------------------------------
\7\ Lawton Robert Burns. The Healthcare Value Chain: Demystifying
the Roles of GPOs and PBMs (Palgrave Macmillan, 2022).
I approach these issues through the lens of ``critical thinking.''
I teach my undergraduate courses at Wharton using the Socratic Method:
I show students an argument that someone has proposed, and then get
them to first ask the question, ``Is What I Just Heard Really True?'' I
then spend the course training students to evaluate such proposed
arguments using published research evidence (both pro and con) to
---------------------------------------------------------------------------
thereby answer the question.
My book evaluates the claims advanced by GPO critics against
several bodies of evidence. These include (1) the historical PBM
chronicle, (2) the agency role that PBMs play on behalf of insurers,
(3) the documented tradeoffs that PBMs make regarding access, cost, and
quality while serving their insurer clients, (4) the growing
concentration in U.S. health care, and (5) the existential threat of
supplier consolidation. I conclude that PBMs are nowhere near the
villains their critics have painted them to be. They perhaps deserve a
bit more thanks for the roles they perform. One should remember that
the Kaiser Permanente health plans of today that policy-makers laud as
solutions to population health and the triple aim were the whipping
boys in earlier decades.\8\
---------------------------------------------------------------------------
\8\ For a positive view of Kaiser today, see: Donald Berwick,
Thomas Nolan, and John Whittington. ``The Triple Aim: Care, Health, and
Cost,'' Health Affairs 27(3) (2008): 759-769. Less than 100 years ago,
however, Kaiser and other prepaid health plans were viewed as
``dangerous deviations from accepted forms of practice.'' See Patricia
Spain Ward. ``United States versus American Medical Association et al.:
The Medical Antitrust Case of 1938-1943,'' American Studies 30(2)
(1989): 123-153.
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some history lessons
PBM critics rarely bother to examine their history. The narrative
has (until now) never been pulled together from archival and eyewitness
sources, which requires a lot of homework. As former President Harry
Truman said, ``the only thing new in the world is the history you don't
know.'' My recent book devotes two chapters and 115 pages to this
chronicle. The lessons from this narrative do not support the
allegations and conclusions of the critics.
Like GPOs, PBMs Have Historically Served the Interests of Local
Providers and Health Plans
The early PBMs began as local cooperatives providing medical and
pharmaceutical services to community members through prepaid groups on
a capitated basis. They were less health-care insurance and more
health-care assurance providers. They were typically organized around
HMOs that provided both medical and pharmacy benefits to cover the
total health-care needs of their enrollees under an affordable budget.
The early PBMs were thus tied to health insurers, just like they are
today.
Today, following the decline of HMOs, PBMs serve insurers and
providers of health services but neither supply these services nor
charge for them. They are at least one or more degrees of separation
from where health-care costs and quality are rendered. Efforts by
critics to lay the responsibility for rising health-care costs or harms
to patient quality at the feet of the PBMs are misguided.
PBM Leverage Over Product Suppliers
PBMs sought to amass purchasing volume to negotiate lower prices
from product manufacturers. HMO-PBMs combined the prescription orders
of scores (and then hundreds) of physicians on their medical staffs.
Both routed these orders through a centralized negotiating hub to
contract as ``one'' with manufacturers. The game has always been one of
``leverage'' over suppliers to exchange higher buyer volume for lower
unit price. This game became more important for survival and customer
service with intensification of input cost pressures and/or
reimbursement pressures. When squeezed downstream, PBMs sought to
squeeze drug manufacturers upstream.
PBMs Subject to Considerable Federal Oversight
Both GPO and PBM intermediaries have been subjected to considerable
scrutiny by the U.S. Congress (House and Senate hearings), the
Congressional Budget Office, and various Federal Agencies such as the
Federal Trade Commission (FTC) and the Office of The Inspector General
(OIG). Such scrutiny led to the development of ``codes of conduct'' for
both intermediaries during 2004 to 2005. None of this scrutiny has
since resulted in any subsequent change in legislation or regulatory
oversight of either intermediary. This latter point suggests that the
codes of conduct may have served their purpose, as some research
suggests.
PBMs Have Utilized Many of the Same Contracting Tools for Decades
Certain PBM (and GPO) practices have irritated their critics in the
new millennium. For PBMs, they include drug formularies, contract
administration fees (CAFs) paid by manufacturers, discounts and rebates
from manufacturers, narrow pharmacy networks, and spread pricing.
What critics fail to realize is that most of these contracting
tools have long been in place without causing an uproar. That is likely
because these tools served the economic interests of their sponsoring
organizations downstream (health plans), who developed them to deal
with competitive and reimbursement pressures. Just like many contracts
between buyers and sellers in the private sector, PBM contracts are
never publicly disclosed in order to encourage price discounting by
manufacturers (and inhibit any collusion among them).
PBM Business Models Have Changed Over Time
Finally, the historical narrative demonstrates that the business
models and revenue sources of these intermediaries have changed over
time. PBMs are now heavily focused on the dispensing of specialty
drugs, as are other players in the health-care ecosystem. Yet, PBM
critics continue to attack them regarding strategies heavily pursued in
the past, particularly manufacturer rebates and pharmacy network
management. Although still a sizeable portion of their revenues, such
strategies and revenue sources are on the wane.
pbms' agency role in serving health plans
PBMs seek to exert leverage over suppliers, not over their health
plan sponsors. Their actions are thus consistent with being ``agents.''
Surveys of health plans confirm this agency role via high satisfaction
levels and a concordance in their goals and interests. As further
evidence of this agency role:
Suppliers have been historically skeptical of intermediaries
like PBMs;
Suppliers have sought to render them ineffective;
Suppliers do not contract with PBMs when they do not have to
(due to lack of competition);
The relationships between suppliers and these intermediaries are
characterized as ``adversarial''; and
Suppliers raise prices unilaterally ``because they can,'' which
the PBM intermediaries seek to counteract.
PBMs believe that supplier competition is always in their
interest.
tradeoffs: the name of the game
Economics and the entire health-care ecosystem are all about
tradeoffs.\9\ For example, when one examines the different health plans
that employers offer workers, those plans that offer a wider choice of
providers (more open-network models such as preferred provider
organizations, or PPOs) come with higher premiums--that is, PPOs trade
off wider access for higher cost.
---------------------------------------------------------------------------
\9\ Lawton Robert Burns. The U.S. Healthcare Ecosystem (New York:
McGraw-Hill, 2021): Chapter 2.
The same tradeoffs factor into the strategies employed by PBMs.
PBMs (in partnership with health plans) have developed formulary tiers
that allow plan participants to access the drug(s) they prefer at the
cost they can afford. PBMs do not dictate the choice to their plan
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enrollees.
Product quality is, nevertheless, evident in the decisions made by
health plan pharmacy and therapeutics committees. Such committees are
heavily comprised of clinicians (physicians, nurses, pharmacists) who
focus primarily on product quality, not on product cost. In other
words, these committee mechanisms represent local-level decisions by
clinicians on the types of products they want. PBMs are not in the
business of telling doctors what they can or cannot order or prescribe.
To the extent the product choice set is limited, it usually reflects
committee (peer) assessments of what are comparable, therapeutically
equivalent products with no evidence base to differentiate them.
Another area where strategic tradeoffs are evident is national
versus local. The GPOs began as local cooperatives and developed
contracts for local membership. The proximity and small membership size
made it fairly easy to decide upon products and manufacturers to
contract with. As they grew, however, the regional and (then) national
GPOs faced increasing difficulty in developing contracts that all of
their members wanted. The GPOs therefore embarked on several strategies
that allowed members to customize contracts to suit local needs and
clinician preferences, including regional GPO affiliates, assistance
with custom contracting, contracting tiers, etc. The goal was to
balance the economic leverage of centralized buying with access to
desired products at the local level. PBMs have engaged in similar
tradeoffs. They, along with their health plan sponsors, have developed
national drug formularies than can be tailored or disregarded by health
plans at the local level.
consolidation
PBMs have come under fire for being concentrated sectors in which a
small number of intermediaries manage the vast bulk of sales. This
observation is correct. But then critics extrapolate to conclude that
these huge oligopolies raise costs, harm their own members, and engage
in anti-competitive practices that harm the public's welfare.
The evidence base refutes all of these charges. First, PBMs help
their health plan clients by negotiating lower input prices and serve
as their agents. Second, there has been no Federal antitrust
enforcement activity brought against these parties since the early
2000s. There has also been a vastly reduced number of lawsuits filed
against them since they adopted codes of conduct in the mid-2000s.
Third, the entire health-care ecosystem and nearly all the
intermediaries in the supply chain have grown more concentrated. For
some reason, however, critics do not usually complain about the
oligopolies among pharmacies, pharmaceutical wholesalers, and specialty
distributors. If one really wants to start pointing fingers at the
biggest culprits in consolidation and rising cost, one does not have to
look very far: large hospital systems (``Big Med'').\10\,
\11\
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\10\ David Dranove and Lawton R. Burns. Big Med: Megaproviders and
the High Cost of Health Care in America (Chicago, IL: University of
Chicago Press, 2021).
\11\ Lawton Robert Burns and Mark V. Pauly. ``Big Med's Spread,''
Milbank Quarterly (Spring 2023, forthcoming).
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existential threat of supplier consolidation, concentration, and
pricing
The greatest existential threat to intermediaries such as PBMs is
consolidation and/or concentration among the manufacturers upstream
with whom they contract. The immediate impact is (1) a reduction in the
number of suppliers available for customers to contract with, and (2)
the reduction in the competitive rivalry among these suppliers.
Research suggests that pharmaceutical mergers and acquisitions
(M&A) are sometimes motivated by the desire to limit competition.
Researchers have found that a company is 5-7 percent less likely to
complete the drug development project in its acquisition's pipeline if
those drugs would compete with the acquirer's existing product line
(i.e., ``killer acquisition'').\12\ Other research shows that M&A can
result in reduced R&D spending and patenting for several years;\13\
conversely, higher competition spurs R&D spending by
firms.\14\, \15\
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\12\ Colleen Cunningham, Florian Ederer, and Song Ma. ``Killer
Acquisitions,'' Journal of Political Economy 129(3) (2021): 649-702.
\13\ Government Accountability Office. ``Drug Industry: Profits,
Research and Development Spending, and Merger and Acquisition Deals,''
GAO-18-40 (Washington, DC: GAO, November 2017).
\14\ Richard Thakor and Andrew Lo. ``Competition and R&D Financing:
Evidence from the Biopharmaceutical Industry,'' Journal of Financial
and Quantitative Analysis (2021).
\15\ However, the threat is not always due to supplier mergers. M&A
activity among large pharmaceutical manufacturers has not resulted in a
more concentrated sector. In 2006, the top 10 firms accounted for 46
percent of total sales; 10 years later they accounted for only 41
percent of sales. Instead, in recent years, the threat has sometimes
come from generic drugs where either market demand is too small to
support more than one firm and/or all other suppliers have withdrawn
for various reasons. The result is a monopoly and egregious pricing
behavior. Two prominent examples are Turing Pharmaceuticals and its
drug Daraprim, and Mylan Pharmaceuticals and its EpiPen--firms which
continually hiked their prices because they could.
The threat of supplier concentration particularly resides in the
availability of specialty pharmaceuticals, many of which are off
patent. There are higher entry barriers in the biologics space due to
(among other reasons) the complexity of the science, uncertainty
regarding the regulatory process for biosimilars, and the guidelines
for ``interchangeability.'' The result is fewer competitors and little
generic threat to these newer biological products. Biologics as a
percentage of drug spending doubled between 2006 and 2016, from 13
percent to 27 percent. The wholesale acquisition cost of biologics is a
multiple of the cost of small molecules. The approval of biologic
license applications (BLAs) for new biological products has recently
overtaken the approval of new molecular entities (NMEs) for traditional
drugs. The threat facing payers is containing the cost of these drugs.
At the same time, the distribution of specialty pharmaceuticals has
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become a major revenue driver for the PBMs and others.
Moreover, specialty drugs are more buffered from the effects of
drug formularies and tiers. Formulary position is driven by competition
within the therapeutic area. Such competition is greater in some areas
(e.g., metabolic, cardiovascular, central nervous system,
gastrointestinal) than in others (oncology, infectious disease,
immunology, and respiratory). In the former areas, there is less
clinical differentiation among drug classes and more variation in
tiering; in the latter areas, there is more clinical differentiation
among drug classes and much less dispersion of formulary drugs across
price tiers. This reflects the considerable unmet clinical need and
variation in patient response to specialty (e.g., oncologic) drugs,
making it harder to restrict and/or channel physician choice among
products. Finally, drugs that treat widely prevalent conditions (e.g.,
diabetes) and thus incur high aggregate spending are more likely to be
targeted by formulary tiers than are specialty drugs that incur lower
aggregate spending which are more likely to attract payer strategies
such as step therapy.
summary
GPOs and PBMs occupy parallel roles in the institutional and retail
channels of the health-care value chain. There are multiple
similarities in their historical origin, product selection bodies, role
in the value chain, role as agents for downstream buyers, business
model, operating guidelines, transparency, rebates earned, cost
management efforts, tradeoffs managed, and directional influence in the
supply chain. These similarities are counter-balanced by their
differences in channel served (institutional versus retail), products
contracted for, customer served (hospital versus health plan), founding
period, owner/sponsor, number of firms, and industry financials.
Finally, they are both intermediaries. They do not buy, sell, or
price products conveyed through the supply chain. They are also not
providers of health-care services. Their impact on the cost and quality
of care rendered to patients is thus removed from the parties who play
the major roles here. The remarkable finding here is that these
intermediaries may nevertheless serve the public's welfare by
controlling the rise in health-care costs.
part ii: the brouhaha over rebates and the gross-to-net price disparity
\16\
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\16\ This section draws on Chapter 9 of The Healthcare Value Chain:
Demystifying the Roles of GPOs and PBMs (Palgrave Macmillan, 2022).
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Over the past few years, observers have noted not only the rise in
drug list prices but also the growing disparity between gross and net
prices for pharmaceutical products. As a percent of drug price growth,
rebates accounted for only 6-9 percent during 2011-2012 but then
accounted for 57-77 percent during 2013-2015.\17\ The disparity has
continued. More recent data published by IQVIA show that between 2015-
2018 branded drug invoice price grew between 5.5 percent and 11.2
percent, while branded drug net price grew between 0.3 percent and 2.9
percent; between 2018-2021, branded drug invoice price grew between 4.3
percent and 6.6 percent, while net price either fell or grew only
modestly (-2.9 percent to +1.7 percent).\18\ The latter data indicate
that net brand prices are growing less than the annual average growth
in the consumer price index, and that manufacturer rebates are partly
responsible. Some health economists argue that rebates roughly
constitute the difference between list price and net price.\19\
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\17\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.9.
\18\ IQVIA Institute. The Use of Medicines in the U.S. 2022.
Available online at: https://www.iqvia.com/-/media/iqvia/pdfs/
institute-reports/the-use-of-medicines-in-the-us-2022/iqvia-institute-
the-use-of-medicines-in-the-us-2022.pdf. Accessed on July 12, 2022.
\19\ Gerard Anderson. Remarks to ``Understanding the Role of
Rebates in Presciption Drug Pricing,'' conference sponsored by Alliance
for Health Policy (December 28, 2018). Available online at: https://
www.allhealthpolicy.org/11282018-publicbriefing-transcript/. Accesssed
on July 12, 2022.
Indeed, a recent report by a small, provider-owned PBM (Navitus
Health Solutions) shows that per-member-per-month (PMPM) drug spending
for its plan sponsor clients grew only 1.5 percent during 2021. This
(low) growth rate was driven by higher utilization (9.1 percent for
specialty drugs, 1.3 percent for nonspecialty drugs) and not by unit
cost (-4.8 percent for specialty drugs, -2.2 percent for nonspecialty
drugs).\20\ Another recent report by Milliman estimates that
manufacturer rebates reduced total per-capita health-care costs by 6
percent ($397) in 2022.\21\
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\20\ Adam Fein. ``Drug Channels News Roundup,'' Drug Channels (June
2022). Available online at: https://www.drugchannels.net/2022/06/drug-
channels-news-roundup-june-2022.html. Accessed on July 12, 2022.
\21\ Mike Gaal, Paul Houchens, Dave Liner et al. 2022 Milliman
Medical Index. Available online at: https://www.milliman.com/-/media/
milliman/pdfs/2022-articles/2022-milliman-medical-index.ashx. Accessed
on July 12, 2022.
Some observers allege that the rise in list prices is partly caused
by the higher rebates (and other payments made by manufacturers to
PBMs), which are represented by the gap between gross and net price. In
their view, the facts that (1) higher rebates and other fees account
for a higher percentage of the drug's list price increase and (2) the
rebate size increases with list price are evidence of causation. The
theory behind this presumed causality is that the PBMs benefit from
higher rebates, and that this may encourage manufacturers to hike their
list prices which leads to a win-win situation: the PBM earns more
rebates, and the higher rebates earn the manufacturer a more favorable
position on the formulary where they can achieve higher sales volume.
These observers nevertheless admit that the lack of granular data on
PBM rebates and drug prices (due to confidentiality clauses) renders
this causal assertion uncertain. As the great ``philosopher'' Yogi
Berra once said, ``In theory, theory and practice are the same. In
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practice, they are not.''
The flaw in this causal logic is shown by several pieces of
evidence. Drug manufacturers raise prices several times a year, whereas
PBMs negotiate contracts and rebates every 2 to 3 years, with the
rebates remaining constant during the duration of each contract.
Moreover, drug manufacturers raise prices in anticipation of losing
patent protection (and thus market share), in the event of filing
patent lawsuits against competitors (potentially gaining share), in
anticipation of a generic product entering the market (losing market
share), in anticipation of new competitors entering the market (and
thus losing market share), or in the event that an existing competitor
pulls their product from the market (gaining market share). In general,
drug manufacturers raise prices because they can--e.g., when they enjoy
more of a monopoly position in their therapeutic category, when they
have superior marketing, when their product is a physician preference
item (PPI), and when their product has brand preference among patients.
Most health economists acknowledge that drug manufacturers control list
price.
Multiple factors have contributed to the growing spread between
gross and net drug prices (known as the gross-to-net disparity). First
is the growing consolidation of the PBM sector. PBM consolidation was
legitimated by the Federal Trade Commission's (FTC) sign-off on Express
Scripts' (ESI) acquisition of WellPoint's Next Rx in-house PBM in 2009,
and the market valuation placed on Next Rx's business.\22\ This
consolidation accelerated in the 2012-2015 period, led by ESI's
acquisition of Medco (2012), Catamaran's acquisition of ReStat and
TPG's acquisition of EnvisionRx (both in 2013), and then Optum's
acquisition of Catamaran (2015).\23\ By 2017, the top three PBMs
commanded 71 percent of the market (measured in scrips): CVS (25
percent), ESI (24 percent), and Optum (22 percent). The top 7 PBMs
controlled 95 percent of the market. This market concentration of
buyers allows PBMs and health insurers to extract large discounts in
price from manufacturers in exchange for a drug's position on the
formulary. This is a major driver of drug rebates (discounts on list
price) paid to the PBMs.
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\22\ Andrew Ross Sorkin and Michael J. de la Merced. ``Drug Benefit
Unit in $4.7 Billion Deal'' (April 13, 2009). Available online at:
https://www.nytimes.com/2009/04/14/business/14deal.html. Accessed on
February 3, 2020.
\23\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.10.
Second, complementing the growing concentration on the buyer side
(PBM market), there can be growing competition on the supplier side in
the form of competing pharmaceutical products. This is also referred to
as ``crowded therapeutic categories.'' Such product competition gives
PBMs and health insurers leverage over manufacturers by virtue of
playing one manufacturer off another and threatening to move market
share to the manufacturer who offers better terms (including higher
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rebates).
Third, beginning around 2012, but picking up around 2014, PBMs
began to utilize the strategy of ``formulary exclusion'' whereby
manufacturers are threatened with product removal from the PBM's
national formulary.\24\ CVS/Caremark removed 34 brand-name drugs from
its standard national formulary in January 2012, and added another 17
drugs to the exclusion list in 2013; ESI followed CVS' example in 2014.
Both PBMs have added more drugs to the list over time. Optum, Prime
Therapeutics, Aetna, and Cigna embraced drug exclusions by 2016.
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\24\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.11.
Such a strategy works in the presence of therapeutically comparable
brand-name drugs. In 2016, more than 50 percent of the commercial
market was covered by plans with formulary exclusions. Note that
exclusions block access to specific products on a PBM's recommended
national formulary; they are, thus, suggestions rather than mandates.
ERISA Plan Sponsors and health insurers can ignore the PBM's national
formulary, but then face reduced rebates and/or higher plan costs.
They, thus, tradeoff higher access to drugs for higher costs incurred--
much in the way that formularies financially reward patients for
selecting generic and lower-tier drugs with lower costs, while allowing
access to additional drugs on higher tiers but requiring patients to
face higher costs via higher copays or coinsurance. Nevertheless, the
prospect of exclusion leads manufacturers to offer larger rebates. A
precipitating event here was the introduction of AbbVie's hepatitis C
drug Viekira Pak to compete with Gilead's Sovaldi and Harvoni. The
number of products on the formulary exclusion lists for two PBMs (CVS
and ESI) has grown steadily since 2012.\25\
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\25\ Drug Channels. The 2018 Economic Report on U.S. Pharmacies and
Pharmacy Benefit Managers. Exhibit 85: 127.
Fourth, statutory rebates are another large driver of gross-to-net
discounts. The Patient Protection and Affordable Care Act (PPACA 2010)
increased the mandatory rebates that pharmaceutical manufacturers must
pay under the Medicaid program. For single-source (non-generic) drugs,
the Unit Rebate Amount (URA) increased from 15.1 percent of a product's
average manufacturer price (AMP) to 23.1 percent of AMP. It also
required manufacturers to provide rebates in the Medicare Part D
coverage gap. The Bipartisan Budget Act, signed into law in February
2018, increased these discounts. Rebates and other channel discounts to
PBMs and pharmacies constitute ``direct and indirect remuneration''
(DIR) payments made to Part D Plan Sponsors. These payments were stable
from 2010-2012 but began to accelerate beginning in 2013. DIRs help to
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create a gap between list and net prices.
Fifth, the pharmaceutical industry experienced steep patent cliffs
in 2012 and 2015, and much higher level of patent expiries in the
period 2013-2019 compared to earlier levels (e.g., 2010).\26\ Attending
these patent expiries was a wave of new generic drugs entering the
market. The advent of biosimilars in the biotechnology market
constituted a parallel development, but on a smaller scale. Research
documents that drug prices decrease markedly after patent
expiration.\27\ In 2017, the generic dispensing rate--the percentage of
drug prescriptions dispensed with a generic drug instead of a branded
drug--was 90 percent. The rise in generics and generic dispensing rates
occasioned a slowdown in the price growth of branded drugs.
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\26\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.12.
\27\ Gerard Vondeling, Qi Cao, Maarten Postma et al. ``The Impact
of Patent Expiry on Drug Prices: A Systematic Literature Review,''
Applied Health Economics and Health Policy 16 (2018): 653-660.
Sixth, the same increase in rebates has been observed in Medicare
Part D. Between 2006 and 2020, Part D drug rebates as a percentage of
total drug costs rose from 8.6 percent to 27.0 percent.\28\ This is
relevant since PBMs, which administer the drug benefit, retain less
than 1 percent of these rebates and thus do not benefit. Instead,
analysts point out that the growing Part D rebates are tied to
competition among manufacturers within a given drug class to get on the
formulary.\29\ Research by Milliman shows that, among drugs with
rebates covered under Part D, rebates as a percentage of gross drug
costs reached 39 percent in the presence of direct brand competition.
Rebates reached 34 percent when there were 3+ competitors including a
direct generic substitute, 27 percent when there were 1-2 competitors
with a direct generic substitute, and only 23 percent in the absence of
direct brand competition or a generic substitute.\30\
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\28\ The 2022 Annual Report of the Boards of Trustees of the
Federal Hospital Insurance and Federal Supplementary Medical Insurance
Trust Funds. June 2022. Table IV.B8.
\29\ Jack Hoadley. Remarks to ``Understanding the Role of Rebates
in Prescription Drug Pricing,'' Conference sponsored by Alliance for
Health Policy (December 28, 2018). Available online at: https://
www.allhealthpolicy.org/11282018-publicbriefing-transcript/. Accessed
on July 12, 2022.
\30\ Nicholas Johnson, Charles Mill, and Matthew Kidgen.
Prescription Drug Rebates and Part D Drug Costs. Milliman Research
Report (July 16,2018).
Seventh, the growth in the gross-to-net difference observed over
time has been driven not by commercial rebates but instead by Medicare
Part D rebates and 340B discounts.\31\ According to Adam Fein, the
gross-to-net difference in the price of branded drugs reflects a
declining share in commercial rebates (22 percent of difference in
2021, down from 27 percent in 2017), a rising share in Part D rebates
(23 percent of difference in 2021, up from 19 percent in 2017), and a
sharply rising share in 340B discounts (20 percent in 2021, up from 10
percent in 2019).
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\31\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Chapter 11.
---------------------------------------------------------------------------
Considering the Arguments of GPO Critics: Critical Thinking Exercise
PBM critics counter by asserting that PBMs are not the only drug
channel parties with an incentive for higher prices under Medicare Part
D. Since 99 percent+ of the manufacturer rebates flow to the health
plans, there may be an incentive for the health plan sponsors to favor
higher list prices. The prescription drug plans (PDPs) which administer
the Part D benefit earn a portion of their profits from DIR payments.
Manufacturer rebates comprise the vast majority (92 percent) of DIR
payments, which are paid to plans to get favorable placement on their
formularies.\32\ Critics have expressed concern that this remuneration
structure may lead health plans to favor higher-priced brand drugs
(which come with rebates) on their formularies over lower-cost generics
(which do not come with rebates).
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\32\ William Feldman, Benjamin Rome, Veronique Raimond et al.
``Estimating Rebates and Other Discounts Received by Medicare Part D,''
JAMA Health Forum 2(6) (2021): e210626.
As evidence, researchers examined 57 unique drug formularies across
all 750 stand-alone PDPs in 2016, focusing on 935 drugs that were
``multi-source'' (brand and generic both available).\33\ They found
that 12.8 percent of multi-source drugs did not have generics covered
in any formulary; they also found that 72 percent of formularies placed
at least one branded product in a lower cost-sharing tier than the
generic. When they examined 222 multi-source drugs covered in all
formularies that had both brand and generic products covered in at
least one formulary, they found that brand products were placed in a
lower cost-sharing tier than the generic for only 5 percent of these
drugs. If there is a problem, the low percentages suggest it is limited
in scope. Additional evidence from other researchers confirms this.\34\
A recent analysis of Medicare Part D plans with matched pairs of brand
and generic drugs found that branded drugs are rarely covered when
generics are available. Most of the time (84 percent), only generics
were covered; some plans might cover both brand and generic products
(15 percent). In the few instances where branded drugs had preferential
formulary placement, beneficiary and Medicare prices were generally low
for both products.\35\
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\33\ Mariana Socal, Ge Bai, and Gerard Anderson. ``Favorable
Formulary Placement of Branded Drugs in Medicare Prescription Drug
Plans When Generics Are Available,'' JAMA Internal Medicine 179(6)
(2019): 832-833.
\34\ Stacie Dusetzina, Juliette Cubanski, Leonce Nshuti et al.
``Medicare Part D Plans Rarely Cover Brand-Name Drugs When Generics Are
Available,'' Health Affairs 39(8) (2020): 1326-1333.
\35\ I am not sure which side is right and which is wrong. Maybe I
have missed something. My colleagues are welcome to point out the error
in my ways. As Jalen Hurts, the quarterback of the Philadelphia Eagles
said after losing this year's Super Bowl, ``You either win or you
learn.'' Wise words to live by.
Eighth, there is correlational evidence of an association between
rebates and list prices, and an association between increases in
rebates and increases in list prices. However, the evidence here is not
consistent, and can oftentimes suggest no relationship at all.\36\
Moreover, the researchers who report these findings are somewhat
circumspect in their conclusions, arguing that to the degree that PBMs
retain rebates (rather then pass them along to health plans) ``a higher
list price might generate more revenue for PBMs'' [italics added].\37\
Some of my researcher friends similarly hedge their bets, stating that
rebates are ``probably at least partially responsible for the faster
increase in list prices than in the amounts received by drug
manufacturers (net prices)'' [italics added].\38\ They are also quite
clear in stating that rebates have moderated the growth in drug
prices.\39\
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\36\ Visante. No Correlation Between Increasing Drug Prices and
Manufacturer Rebates in Major Drug Categories (2017). Available online
at: https://www.pcmanet.org/wp-content/uploads/2017/04/Visante-Study-
on-Prices-vs.-Rebates-By-Category-FINAL.pdf. Accessed on March 24,
2023.
\37\ Ge Bai, Aditi Sen, and Gerard Anderson. ''Pharmacy Benefit
Managers, Brand Name Drug Prices, and Patient Cost Sharing,'' Annals of
Internal Medicine 168(6) (2018): 436-437. A similar admission regarding
the circumstantial evidence for causality is stated by Christine
Buttorff, Yifan Xu, and Geoffrey Joyce. ``Variation in Generic
Dispensing Rates in Medicare Part D,'' American Journal of Managed Care
26(11) (2020): e355-361.
\38\ Ge Bai, Aditi Sen, and Gerard Anderson. ''Pharmacy Benefit
Managers, Brand-Name Drug Prices, and Patient Cost-Sharing,'' Annals of
Internal Medicine 168(6) (2018): 436-437.
\39\ Erin Trish. Drug Rebates in Medicare Part D (Los Angeles:
University of Southern California, Leonard D. Schaeffer Center for
Health Policy and Economics, July 27, 2021).
Ninth, and finally, there is growing research evidence that a main
driver in the list prices of brand drugs is not PBM rebates but rather
Federal reimbursement policies. Economists suggest that Medicare Part D
dynamics encourage growth in list prices and thus in rebates. These
dynamics include Part D benefit design and beneficiary cost sharing.
The Federal Government is at greatest financial risk for high drug
spending in Part D by virtue of shouldering 80 percent of costs in the
catastrophic coverage phase, thereby encouraging higher list prices.
Via this mechanism, Part D cost-sharing and beneficiary out-of-pocket
costs are tied to list price.\40\
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\40\ Erin Trish. Drug Rebates in Medicare Part D (Los Angeles:
University of Southern California, Leonard D. Schaeffer Center for
Health Policy and Economics, July 27, 2021).
In a similar vein, the Congressional Budget Office (CBO) recently
concluded that Medicaid's statutory rebates provide incentives to
manufacturers to negotiate higher prices with commercial insurers as
well as employ higher market-wide launch prices. The CBO's causal
argument is as follows: more people covered by public insurance (such
as Medicaid) leads to more third-party (public) coverage of drug
spending which, in turn, means more patients less exposed to high drug
prices and more willing to buy high-priced drugs--all of which
alleviates pressure on manufacturers to restrain their price hikes.\41\
The cause is not PBM rebates, but rather moral hazard resulting from
public insurance coverage. This last point suggests that--to paraphrase
the old comic strip Pogo--we have met the enemy and the enemy is us.
Rising prices and out-of-pocket of costs may have been unwittingly
induced by Federal payment policy.\42\
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\41\ Congressional Budget Office. Prescription Drugs: Spending,
Use, and Prices (Washington, DC: CBO, January 2022).
\42\ Available online at: https://library.osu.edu/site/40stories/
2020/01/05/we-have-met-the-enemy/. Accessed on March 24, 2023.
All of these factors contribute to gross-to-net discounts. These
discounts accelerated from 2014 through 2019.\43\ The majority of these
gross-to-net discounts were not realized by PBMs and other drug channel
participants such as wholesalers and pharmacies, but rather were
realized by public and private payers (62 percent). Researchers
estimate that pharmacies capture the bulk (15 percent) of the
remainder, with PBMs (5 percent) and wholesalers (2 percent) capturing
much less.\44\, \45\
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\43\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.13.
\44\ Neeraj Sood, Tiffany Shih, Karen Van Nuys et al. The Flow of
Money Through the Pharmaceutical Distribution System (Los Angeles:
University of Southern California, Leonard D. Schaeffer Center for
Health Policy and Economics, 2017).
\45\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.15.
This means that ERISA Plan Sponsors and the health insurers they
contract with realized large discounts off of drug list prices, which
accounts for the majority of the growing gross-to-net disparity. This
is reflected in data for both small and large employers that capture
the rebates flowing back to the ERISA Plan Sponsors in 2021.\46\ The
data indicate that a growing percentage of both smaller and larger
employers are receiving 100 percent of the rebates negotiated by their
PBMs. Among larger employers, the 100 percent pass-through is by far
the most common rebate arrangement; a majority of smaller employers
also received 100 percent pass-throughs, but nearly one-quarter receive
a percentage share of rebates.
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\46\ Burns. The Healthcare Value Chain: Demystifying the Roles of
GPOs and PBMs, 2022: Figure 9.16.
The question is, what did ERISA Plan Sponsors and health insurers
do with the rebates (savings)? The rebates can be used in a number of
ways, according to insurance executives.\47\ First, they can be used to
offset the health-care costs generated by employees (or plan members)
and thereby reduce their insurance premiums; this approach benefits
everyone. Second, they can be used to fund employer wellness programs,
which also benefits all members. Third, they can be used to finance
patient engagement programs which extend enhanced benefits to those
choosing more cost-effective plans or those more compliant with their
medications. Alternatively, the rebates can be used to lower patient
copays for members using specific drugs or reduce the prices paid at
point-of-sale; this benefits specific members.
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\47\ Linda Etemad. Presentation to Understanding the Role of
Rebates in Prescription Drug Pricing Conference. Sponsored by Alliance
for Health Policy (December 28, 2018).
PBMI survey data suggest that the vast majority of employers (68
percent) use the rebates to offset the overall plan costs to the
employer, especially their own spending on drugs.\48\ By contrast, a
smaller percentage of employers (11 percent) use the discounts to
reduce the premiums of their employees (11 percent), a strategy that
benefits all workers. A small percentage of employers (15 percent)
split the savings with employees, or reduce employee out-of-pocket
costs at the point-of-sale (4 percent). This means that employers use
the discounts generated by their employees with more severe illnesses
that require expensive drugs (which earn higher rebates) to cover their
overall health expenditures rather than benefit the employees who
generate the rebates. The irony, according to industry analysts, is
that the employees' actual out-of-pocket costs are set by their insurer
and ERISA Plan Sponsor. It is not the PBMs, but rather the Plan
Sponsors and health insurers who elect not to share the rebates
directly with employees.\49\
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\48\ Pharmacy Benefit Management Institute. 2017 Trends in Drug
Benefit Design (Plano TX: PBMI, 2017).
\49\ Drug Channels. Employers are Getting More Rebates Than Ever--
But Sharing Little With Their Employees (January 18, 2018). Available
online at: https://www.drugchannels.net/2018/01/employers-are-getting-
more-rebates-than.html. Accessed on February 1, 2020.
Over time, employers' drug benefit designs have shifted out-of-
pocket spending from flat co-payments to deductibles and coinsurance
arrangements. By 2019, more than half of all consumer out-of-pocket
spending on prescription drugs was for coinsurance or deductibles, both
of which are tied to list price.\50\ Evidence shows the decline in cost
sharing using co-payments, the rise in cost sharing using coinsurance
when employer plans include high deductibles, by drug tier, and the
dollar amount of cost sharing by drug tier for both co-payment and
coinsurance. Moreover, over time, the percentage of ERISA Sponsor Plans
with pharmacy benefit deductibles has risen. These deductibles can be
separate from or combined with the medical deductible.\51\
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\50\ IQVIA. ``Patient Affordability Part One'' (May 18, 2018).
Available online at: https://www.iqvia.com/locations/united-states/
library/case-studies/patient-affordability-part-one. Accessed August 4,
2020.
\51\ Burns, 2022: Figures 9.17, 9.18, 9.19, and 9.20.
A recent survey of large employers by the National Business Group
on Health suggests some change in employer sentiment here. In 2019, 18
percent of employers reported having a point-of-sale rebate program in
place; 2 percent said they were implementing a program in 2020, and
another 40 percent were considering such a program for 2012-2022.\52\
Such programs pass the rebates directly to the employee at point of
purchase. Such point-of-sale programs are most appropriate when the
employee is filling a prescription during the deductible phase of
coverage or when paying a coinsurance. As industry analysts make clear,
this decision about point-of-sale programs is at the discretion of
ERISA Plan Sponsors and the health insurers they contract with. These
two parties choose the overall prescription drug benefit that is
offered to plan participants, which can include: which drugs are
covered, the different levels of cost sharing, the number of pharmacies
available to participants, and the incentives for using certain network
pharmacies.
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\52\ Drug Channels. Employers Slowly Warm to Point-of-Sale
Rebates--But Most Move Faster for Insulin (rerun) (September 19, 2019).
Available online at: https://www.drugchannels.net/2019/09/employers-
slowly-warm-to-point-of-sale.html. Accessed on February 1, 2020.
These choices reflect the tradeoffs that ERISA Plan Sponsors and
health insurers make between access, quality, and cost. These two
parties then contract with PBMs to administer their prescription drug
plans and implement the choices made by Plan Sponsors.
part iii: vertical integration along the retail pharmaceutical supply
chain \53\
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\53\ The section draws on Chapter 13 of The Healthcare Value Chain:
Demystifying the Roles of GPOs and PBMs (Palgrave Macmillan, 2022).
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Adam Fein at Drug Channels has continued to update researchers and
policy-makers on the growing consolidation of diverse players operating
in the retail pharmaceutical supply chain. The latest version from
Adam's 2023 report is reproduced below (with his permission).
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
We do not know whether the vertical chains in the Figure above
are pro-or anti-competitive. There are no data on the costs, prices, or
other performance metrics resulting from these combinations.
Researchers acknowledge that ``it is well known in antitrust economics
that assessing policies in industries with important vertical
relationships is challenging. . . . Even in the presence of reliable
data, how vertical relationships affect consumer welfare is generally
theoretically ambiguous, and under various models of supplier behavior,
stronger vertical relationships can greatly improve consumer welfare or
greatly harm it.''\54\
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\54\ Zarek Brot-Goldberg, Catherine Che, and Benjamin Handel.
``Pharmacy Benefit Managers and Vertical Relationships in Drug Supply:
State of Current Research,'' NBER Working Paper Series (April 2022).
Some observers look at this chart and quickly conclude that the
emergence of such behemoth, bureaucratic intermediaries may not be good
for the public. Even a seasoned analyst such as Adam Fein suggests,
``These organizations are poised to exert greater control over patient
access, sites of care/dispensing, and pricing.''\55\ At the same time,
Fein argues that whether they do or can exercise such control is pure
speculation. Other researchers go further, concluding that competing
value chains such as those depicted above might serve as the new basis
of competition in an ecosystem that is quickly consolidating.\56\ This
sounds like a great topic for critical thinking.
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\55\ Drug Channels. The 2023 Economic Report on U.S. Pharmacies and
Pharmacy Benefit Managers (Philadelphia, PA: Drug Channels Institute):
p. 366.
\56\ David Dranove and Lawton R. Burns. Big Med: Megaproviders and
the High Cost of Health Care in America (University of Chicago Press,
2021): Chapter 10.
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the key issue in vertical integration: make versus buy
The type of combinations depicted in the Figure above are known as
``vertical integration.'' Management researchers often argue that the
central decision in corporate strategy concerns ``make versus buy'':
i.e., make it in house or buy it in the marketplace. The choices are
also known as ``insource versus outsource.'' There are advantages to
each approach such as: use the company's managerial hierarchy versus
market forces to coordinate the two parties' behaviors, seek the
advantages of collaboration versus the benefits of specialization,
diversify versus focus, etc. With regard to pharmaceutical benefits,
the two approaches are known as ``carve-in'' versus ``carve-out.''\57\
There is no clearly defined calculus regarding which option to take in
the make-versus-buy decision. One has to calculate the costs and
benefits of each option--and be satisfied with the tradeoffs. In the
absence of data on costs and prices, no one that I know of has made
these calculations for the vertically integrated firms depicted here.
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\57\ This is covered in Chapter 9 of The Healthcare Value Chain:
Demystifying the Roles of GPOs and PBMs (Palgrave Macmillan, 2022).
It is important to note that, historically, the players in the
retail pharmaceutical supply chain have taken both approaches. For
example, the PBM sector began using a carve-in approach when staff
model HMOs served as their own pharmacy benefit managers working under
a capitated budget constraint.\58\ The objective was to provide
comprehensive coverage of both inpatient and outpatient services,
including prescription drugs, at an affordable cost (``assurance''
rather than insurance). Stand-alone PBMs that originally developed as
staff-model HMOs waxed and waned in popularity. Later PBMs evolved a
different set of benefits and services that attracted both employers
and health plans as clients; while some PBMs could be carved in, many
were carved out of the health plan. United's acquisition of Pacificare
in 2005 marked the beginning of the current trend to the carved-in
approach (a return to the roots). United's move was motivated by its
desire to acquire Pacificare's health plan operations; the PBM came
with the deal. By virtue of acquiring Pacificare's 3.3 million
enrollees, United increased its enrollment stature (25.7 million lives)
relative to its larger competitor Wellpoint (27.7 million lives),
diversified geographically into the West (where Pacificare was
located), gained traction in the Medicare risk market, and helped it to
prepare for the coming Medicare drug benefit. The deal was also part of
the M&A frenzy among health plans in the 2005-2006 era.\59\ Thus, the
sector has experimented with both approaches over time, oftentimes
based on historical circumstances, opportunities, or rationales
specific to that point in time--but not necessarily to get into the PBM
business.
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\58\ This is covered in Chapter 10 of The Healthcare Value Chain:
Demystifying the Roles of GPOs and PBMs (Palgrave Macmillan, 2022).
\59\ The historical M&A trend among PBMs is depicted in Chapter 11
of The Healthcare Value Chain: Demystifying the Roles of GPOs and PBMs
(Palgrave Macmillan, 2022).
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adversarial relationships
The historical lesson here is that the relationships between PBMs
and health plans can vary. It is also important to note that the
relationships between PBMs and their health plan clients are not always
cordial and productive but could instead be unwieldy and rather
adversarial. They can both wind and unwind.
Anthem-Express Scripts Litigation
In 2009, Express Scripts entered a 10-year contract with Anthem to
provide exclusive pharmacy benefits. In 2016, Anthem filed a lawsuit
arguing that its contract with Express Scripts guaranteed it
competitive prices for prescription drugs. Anthem or a third-party
consultant it retained would conduct a market analysis every 3 years to
determine how competitive the PBM's pricing was; if the pricing was not
competitive, then Anthem could renegotiate pricing terms with its PBM.
In 2011-2012, Anthem commenced the first round of these renegotiations,
which lasted for nearly 1 year and strained the relationship between
the two parties, before they reached an agreement. However, Anthem
concluded it was overcharged $3 billion a year for several years.
Anthem began a second round of renegotiations in 2014 by demanding $15
billion in price concessions from its PBM, and then notified it of
breach of contract. Express Scripts countered that the insurer was
responsible to produce a market analysis of drug prices that would
serve as the basis of negotiations. It also stated that it earned well
below than $3 billion annually from the PBM agreement and thus could
not meet Anthem's demand.
In 2017, Anthem announced it would not new its contract with
Express Scripts. This meant a loss of 20 percent of the PBM's revenue.
In early 2018, a U.S. District Court Judge dismissed Anthem's suit,
stating that its contract did not explicitly state that its PBM would
ensure competitive pricing; Express Scripts' only obligation was to
negotiate based on data the insurer provided.
Downstream Effects of the Litigation
The litigation had several downstream effects--for both insurers
and PBMs. First, Anthem had to replace its big-three PBM. In October
2017, Anthem announced its plan to launch its own in-house PBM,
IngenioRx, in collaboration with CVS Health; the latter would provide
Anthem with claims processing, point-of-sale engagement, and
prescription fulfillment services. In 2019, Anthem launched IngenioRx,
which reportedly accounted for one-fifth of Anthem's revenue, and
served as the insurer's PBM vehicle to target self-insured employers.
Second, Express Scripts faced the loss of its largest health plan
client (Anthem) and questions about its future as a stand-alone PBM in
an era of consolidation. In April 2017, Express Scripts reported in its
quarterly earnings announcement that it did not expect Anthem to renew
its contract; indeed, in January 2019, Anthem terminated the contract a
year earlier than scheduled. Express Scripts was soon courted by
another insurer, Cigna. Cigna was rebounding from its failed horizontal
merger with Anthem: on February 8, 2017, the District Court for the
District of Columbia sided with the Department of Justice in blocking
the horizontal merger of Cigna and Anthem. In March of 2018, Cigna
announced its plan to acquire Express Scripts for $67 billion and
pursue a vertical merger instead. The deal closed in early December.
The February 2017 District Court ruling also blocked the proposed
merger of Aetna and Humana. Within months of the decision, Aetna
likewise pursued a vertical merger with CVS Health. CVS Health
executives presented the merger to investors as a strategy to develop
health hubs for Aetna enrollees at CVS drugstores.
historical rationales for vertical integration
The combinations of (1) Cigna with Express Scripts and (2) Aetna
with CVS Health meant that all three major PBMs now had health plan
partners. UnitedHealth had previously formed Optum in 2011 by combining
its existing pharmacy benefit and care delivery services within the
company. Its PBM operations stemmed from its 2005 acquisition of
PacifiCare, a health plan which had a pharmacy benefit manager.
Indeed, there have been many rationales for such vertical
integration offered over the past decade. These rationales reflect the
period's Zeitgeist (spirit of the times): care coordination, manage the
continuum of care, disease management and chronic disease management,
use big data and data analytics to (a) stratify enrollees by their risk
level and then (b) identify and intervene for those at high risk.
Providers have offered similar rationales for the vertical integration
mergers they have undertaken.
Vertical integration has also been partly motivated by the growth
in spending on specialty drugs. Such spending is split between the
pharmacy benefit and the medical benefit. Patients taking specialty
medications tend to have more expensive conditions that health plans
need to manage. Health plans have argued that spending under both
benefits is large and roughly equal in level, thus requiring close
management of both. While there is some overlap, specialty drug spend
for different disease categories tends to dominate one benefit over the
other (e.g., multiple sclerosis on the pharmaceutical benefit side,
oncology on the medical benefit side).
The vertical integration strategies were also partly motivated by
Department of Justice's move to block Aetna's and Cigna's prior
horizontal merger efforts (with Humana and Anthem, respectively). The
latter observation suggests that, at least initially, one underlying
rationale for vertical integration was simply growth, not necessarily
the specific merger partner.
current rationales for vertical integration
Adam Fein (at Drug Channels) and Eric Percher (at Nephron Research)
have done perhaps the best job of articulating the current vertical
integration movement in the pharmaceutical supply chain. As noted
above, Fein suggests that the issue may be control over the drug
channel: ``vertically-integrated payers/PBMs/providers are poised to
restructure U.S. drug channels by exerting greater control over patient
access, sites of care/dispensing, and pricing. If they can effectively
coordinate their sprawling business operations, they will pose a
substantial threat of disruption to the existing commercial strategies
of pharma companies.''\60\ Such control could result from (1)
channeling of enrollees to the specialty pharmacies and providers
inside these vertical firms, (2) rewarding providers for formulary
compliance, and (3) greater management and utilization control over
provider-administered drugs and the buy-and-bill practices of in-house
physicians.\61\
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\60\ Adam Fein. ``Insurers + PBMs + Specialty Pharmacies +
Providers: Will Vertical Consolidation Disrupt Drug Channels in
2020?'', Drug Channels (December 12, 2019).
\61\ Here is what Adam Fein has to say. With regard to buy-and-bill
utilization management: ownership of clinics enables much greater
control over provider-administered drugs--including opportunities to
tighten utilization management, negotiate greater rebates from
manufacturers, and drive greater biosimilar adoption. For example,
Optum's MedExpress clinics currently offer infusion therapy in select
Florida and Indiana locations for people with UnitedHealthcare or
Humana insurance . . . commercial health plans try to move infusions to
lower-cost sites of care. This is typically achieved with utilization
management strategies that guide patients to lower-cost and/or better-
performing sites of care. But employed physicians and in-house clinics
make site-of-care management much easier. With regard to buy-and-bill
channel management. A physician office or clinic that is owned by a
vertically integrated organization can be required to obtain provider-
administered specialty pharmaceuticals from the company's own specialty
pharmacy. This practice is called white bagging. It has displaced buy-
and-bill for a significant share of provider-administered drugs in
commercial health plans. By owning the infusion site, the insurer
bypasses the challenge of getting hospitals to accept white bagging.
Adam Fein. ``Insurers + PBMs + Specialty Pharmacies + Providers: Will
Vertical Consolidation Disrupt Drug Channels in 2020?'', Drug Channels
(December 12, 2019).
In his 2022 Report,\62\ Fein summarized some additional specific
goals of vertical integration that are mentioned by Percher:\63\
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\62\ Drug Channels Institute. The 2022 Economic Report on U.S.
Pharmacies and Pharmacy Benefit Managers. Section 12.3.
\63\ Eric Percher. Optum Launches ``Emisar'' Contracting Entity;
Navitus Aligns with Ascent via Prime (Nephron Research, July 26, 2021).
Eric Percher. A Closer Look: Cigna/ESI Makes Waves with Ascent
Contracting and Econdisc Sourcing GPOs (Nephron Research, January 23,
2020).
Because health-care services (e.g., pharmacy) are not
subject to the same risk-based capital requirements or
profitability regulations as insurers, integration can allow
them to retain a greater share of revenues.
Patients who are on expensive specialty medications have
high overall medical spending which can benefit from the
combined pharmacy and medical benefit.
Vertical integration enables insurers to tap into the
growing market for specialty pharmaceuticals and perhaps
control downstream pharmacy assets.
challenges to vertical integration
In his 2022 and 2023 reports, Fein is also careful to point out the
challenges facing the strategy of vertical integrating insurers with
PBMs and pharmacies.
There is no guarantee that an insurer which owns its own PBM
and pharmacy operations is assured that prescribing physicians
are aware of any pharmacy network restrictions and can direct
their drug dispensing.
Employers may be skeptical about whether the savings from
combining the pharmaceutical and medical benefit will accrue to
them. This may slow down their adoption of such plans. Not all
health plan sponsors seem to be beating a path to such
integrated offerings. According to Drug Channels, 77 percent of
small employers (< 1,000 workers) contracted with a combined
health plan/PBM in 2021. By contrast, only 53 percent of mid-
sized employers (1,000-5,000 workers) and only 33 percent of
large employers (> 5,000 workers) did so; the latter two
categories were more likely to carve out the PBM.\64\
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\64\ Drug Channels Institute. The 2022 Economic Report on U.S.
Pharmacies and Pharmacy Benefit Managers. Exhibit 80.
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Hospitals have been entering the specialty pharmaceutical
business and acquiring oncologist practices. The market for
physician-administered drugs is thus shifting from physician
offices to hospital outpatient departments. Alternate sites of
care such as home infusion account for a portion of the medical
benefit spend as well as Medicare Part B spend. Hospitals may
enjoy a competitive advantage over integrated insurers in this
fragmented market.
Some prior insurer/PBM/pharmacy/provider joint ventures
(e.g., those involving Humana, Prime Therapeutics, Centene) and
prior insurer-PBM acquisitions (UnitedHealth and DPS) have
unwound.\65\ Humana has retrenched to focus on its core
Medicare business. In 2021, it began sourcing formulary rebates
for its commercial health plans via Cigna's Ascent Health
Services business; in 2022, it announced it would divest its
majority interest in Kindred at Home and Personal Care
Divisions. Prime Therapeutics sold its 49 percent stake in the
AllianceRx Walgreens Prime pharmacy; it also outsourced
significant portions of its PBM operations to Cigna's
Evernorth, including retail pharmacy network contracting,
formulary rebates, and mail and specialty pharmacy dispensing.
Centene announced plans to outsource PBM operations to Express
Scripts and has already sold other businesses (e.g., Magellan
Rx PBM, Rare specialty pharmacy). These vertical integration
formations are thus quite fluid.
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\65\ This section is taken from Drug Channels. The 2023 Economic
Report on U.S. Pharmacies and Pharmacy Benefit Managers (Philadelphia,
PA: Drug Channels Institute): pp. 367-368.
The overall goal of vertical integration may be the magic word,
``synergy''. Like Helen of Troy, synergy may be the strategy that
launched a thousand mergers.\66\ Synergy results when the whole is
greater than the sum of the parts (i.e., 1 + 1 = 3). There are two
types of synergies: cost synergies and revenue synergies. Following
Fein and Percher, revenue synergies seem to be front of mind in
combining the component parts depicted in the Figure above,. All of
this is speculative and theoretical at the moment. We have yet to see
whether these combinations can figure out how to coordinate the various
parts they acquire. Success will largely hinge on getting physicians
and patients to follow directives and ``do the right thing'': e.g., use
in-house pharmacies and providers (stay in network) when they are part
of different organizations. Success may be challenged by having to rely
on those outside, non-contracted organizations to attract needed
volume. As a result, each vertical integration combination may need
business from other similar combinations, who are their competitors.
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\66\ In his play, The Tragical History of the Life and Death of
Doctor Faustus, the 16th-century English playwright Christopher Marlowe
refers to Helen of Troy as ``the face that launched a thousand ships.''
Helen was the queen of Sparta and the wife of the king, Menelaus. When
Paris, son of the king of Troy, abducts Helen, Menelaus enlists the
help of his older brother Agamemnon, King of Athens, to launch the
Greek fleet (the 1,000 ships) to attack Troy. This is the start of the
Trojan Wat as depicted in Homer's The Iliad. I have to explain all of
this to my Penn students who (somehow, somewhere) neither read the book
nor took a course on Greek history. They do not know what face launched
a thousand ships, let alone who Menelaeus and Agamemnon were. When, in
disbelief, I push further to ask them what they know about the Trojan
War, I continue to get blank faces. Out of a class of 55 students one
year, only one raised his hand, answering in a questioning voice,
``Brad Pitt?''. Our educational system is in trouble.
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consequences of vertical integration
Vertical integration may have important, positive consequences for
competition. According to analysts, one outcome of this vertical
integration will be more aggressive price competition among health
plans and PBMs.\67\ This could come about by the merging parties'
bundling of medical and pharmacy benefits, which would entail a
diminution of carve-out contracts between employers and PBMs for just
the pharmacy benefit. This would put pressure on the margins of the
freestanding PBMs, because vertically integrated insurers would
discount their in-house PBM's services to win the combined business.
Any stand-alone PBM contracts would need to lower prices to remain
competitive.
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\67\ Drug Channels Institute. The 2022 Economic Report on U.S.
Pharmacies and Pharmacy Benefit Managers.
Such integration might also reduce heterogeneity in health plans'
approaches to strategic alignment with PBMs (which used to vary along
an outsourcing-insourcing continuum). Greater homogeneity in strategic
alignment across dyads of health plans and PBMs would increase their
competitive rivalry since downstream buyers discern fewer distinctive
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features of one vertical integration combination.
Such integration also potentially signals that PBMs may focus
increasingly more on the specialty pharmacy business for their
profitability and, conversely, focus increasingly less on retained
rebates. PBMs have passed along a much greater share of these rebates
to health plan sponsors over the past decade, from 75 percent in 2013
to 90 percent in 2018. According to some PBM industry presentations,
rebates apply to 70 percent of their branded pharmacy scripts, which in
turn account for only 10 percent of total scripts. Rebates have also
diminished in importance due to Medicare's growing share of retail
prescription drug spending (from 18 percent in 2006 to 30 percent in
2017) and the low amount of rebates retained by PBMs in Part D PDPs.
Finally, growing vertical integration between health plans and PBMs
will likely reduce the transparency of freestanding PBMs' financial
results.\68\ We have already confronted the opacity issue in trying to
assess the performance of vertical integration efforts by hospitals to
develop physician and health plan divisions.\69\
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\68\ Growing vertical integration between health plans and PBMs
will likely reduce the transparency of freestanding PBMs' financial
results. Consider UnitedHealth Group, which had revenues of $226.2
billion in 2018. For 2018, revenues at its OptumRx subsidiary were
$69.5 billion. Interpreting the OptumRx figure is challenging, because:
(1) it includes a combination of prescription revenues from its own
mail/specialty pharmacies plus external retail network pharmacies, (2)
it is reported net of rebates, (3) it excludes the value of members'
out-of-pocket payments from revenues from retail network dispensed
prescriptions, but includes the value of these member payments from
prescriptions dispensed by its in-house pharmacies, and (4) it includes
revenues of $39.4 billion (57 percent) from services provided to other
subsidiaries, e.g., UnitedHealthcare. Drug Channels Institute. The 2022
Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.
United's 10-K statement from 2021 includes a depiction of the
conglomerate's total revenues. The data indicate huge growth between
2018 and 2021 in the revenues of OptumRx (from $69.5 billion to $91.3
billion) and Optum Health (from $24.1 billion to $54.0 billion); they
appear to be the growth drivers in UnitedHealth's total revenues (from
$226.2 billion to $287.6 billion). United's biggest revenue source (60
percent) is the company's Medical and Retirement insurance segment.
OptumRx may become increasingly more or less dependent on enrollees
outside the parent company. It is difficult to determine the sources of
United's profits coming from internal versus external sources given the
conglomerate structure and the mix of customers.
\69\ Jeff Goldsmith, Lawton R. Burns, Aditi Sen, and Trevor
Goldsmith. Integrated Delivery Networks: In Search of Benefits and
Market Effects (Washington, DC: National Academy of Social Insurance,
2015).
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vertical integration: ride into the danger zone?
Vertical integration has become a popular strategy in the health-
care ecosystem. Many of the recent vertical integration efforts
depicted in the Figure above include providers (e.g., physicians,
ambulatory surgery centers or ASCs, retail clinics) as well as
insurers, pharmacies, and PBMs. A prominent illustration is
UnitedHealth Group which includes the insurer UnitedHealth, its in-
house PBM (OptumRx), and its Optum Health division, which employs or
contracts with roughly 70,000 physicians and owns a chain of ASCs and
urgent care centers. Another is CVS Health, which encompasses Aetna,
CVS pharmacies, and their retail clinics. Such provider markets are
typically more fragmented than the core pharmacy and PBM businesses,
offer another possible revenue stream, and can involve the key
prescriber.
The health-care sector is in the midst of its second or third
iteration of vertical integration involving hospitals, physicians,
insurers, and alternate care sites. The historical evidence among this
different set of players has already been published, weighed in the
balance, and found wanting.\70\ It is not a pretty picture. Most of the
vertical combinations fall into one of three categories--physicians
with insurers, hospitals with insurers, physicians with hospitals. They
have all suffered from disappointing financial performance and,
sometimes, huge losses. There are an estimated 50 different reasons why
combinations of providers with insurers do not work; worse yet, it may
only take one of those reasons to sink the deal.\71\
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\70\ David Dranove and Lawton R. Burns. Big Med: Megaproviders and
the High Cost of Healthcare in America (Chicago, IL: University of
Chicago Press, 2021). Jeff Goldsmith, Lawton R. Burns, Aditi Sen, and
Trevor Goldsmith. Integrated Delivery Networks: In Search of Benefits
and Market Effects (Washington, DC: National Academy of Social
Insurance, 2015). Lawton R. Burns, David Asch, and Ralph Muller.
``Vertical Integration of Physicians and Hospitals: Three Decades of
Futility?'', in Mark V. Pauly (ed.), Seemed Like a Good Idea: Alchemy
versus
Evidence-Based Approaches to Healthcare Management Innovation
(Cambridge, UK: Cambridge University Press, 2022). Lawton R. Burns and
Darrell P. Thorpe. ``Why Provider-Sponsored Health Plans Don't Work.''
Healthcare Financial Management: 2001 Resource Guide: 12-16. 2001.
\71\ Lawton R. Burns and Darrell P. Thorpe. ``Why Provider-
Sponsored Health Plans Don't Work.'' Healthcare Financial Management:
2001 Resource Guide: 12-16. 2001.
How should one evaluate vertical integration between firms in
adjacent stages in the health-care value chain? According to strategy
researchers, vertical integration (insourcing) makes more sense than
using the market (outsourcing) when the following general conditions
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hold:
There are few firms in the adjacent stage.
There is need to make transaction-specific investment in an
upstream/
downstream firm.
The integration ensures access to needed inputs.
There is a need for coordination between the firms in the
adjacent stages.
The adjacent stages are similar in their optimal scale.
The two stages are strategically similar.
There is high certainty in market demand.
There is low risk in the reliability of the trading partner.
There is low need to continually upgrade capabilities.
Moreover, the following specific conditions must also be met if the
vertical integration is to confer competitive advantage over rivals:
The integration achieves coordination and collaboration not
open to other firms.
The integration improves the joint performance of value
chain activities under one roof.
The integration leverages resources and capabilities across
the combined firm.
Ownership is needed to capture all of this value.
Culture clashes between the two firms can be avoided.
Executives can get the two firms to work together.
The bar is pretty high. Many firms may be challenged to clear it.
It is unclear whether executives consider the general market and
specific firm conditions needed to make vertical integration succeed.
Vertical integration is a specific type of corporate diversification.
The evidence base for the performance of diversified firms is not much
better than that for vertically integrated firms. Related
diversification outperforms unrelated diversification; but, focus may
outperform related diversification. The key question is how big is the
overlap between the value chains of the firms that are integrating; the
secondary question is whether the overlap occurs in the most important
stages of their value chains. This requires a comparison of the health
plan's value chain and the PBM's value chain.\72\ Another key issue is
that such an analysis needs to be conducted for each pair of components
in the vertical chain. A final issue which most strategists fail to
consider is this: given the popularity of vertical integration and the
large number of firms adopting this strategy, just where is the
competitive advantage?
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\72\ Compare Figures 11.14 and 13.5 in The Healthcare Value Chain:
Demystifying the Roles of GPOs and PBMs.
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conclusion regarding vertical integration
In sum, vertical integration is not a guaranteed success. When
pursued by hospitals and physicians, there has been a lot of red ink
and unwinding of the combinations. This is all documented evidence. At
the same time, hospitals have utilized vertical integration with
physicians to increase the prices they charge insurers in local
markets; this serves to increase their costs and total spending. This,
too, is well documented. Regulators need to closely monitor what
effects the combinations depicted in the Figure above exert on pricing
and costs. At this point, we simply do not know.
______
Questions Submitted for the Record to Lawton Robert Burns, Ph.D., MBA
Questions Submitted by Hon. Mike Crapo
pbm-owned group purchasing organizations/rebate aggregators
Question. Recent years have seen the emergence of a number of PBM-
owned or affiliated group purchasing organizations (GPOs), often known
as rebate aggregators, through which certain PBMs have reportedly
outsourced some of their functions, including with respect to
manufacturer negotiations.
How do these organizations differ from traditional GPOs, what are
their implications for the broader prescription drug supply chain (and
for patients), and what additional information should policymakers seek
to collect and/or monitor with respect to these entities?
Answer. The major PBMs have indeed set up their own GPOs. The PBM-
GPOs act like the group purchasing organizations found in the
institutional channel of the supply chain. They aggregate the drug
purchases for many health plans and their PBMs, extracting greater
savings from manufacturers and pharmacies based on a larger-volume-for-
lower-price discount. The larger PBM members in the PBM-GPO get some
additional price concessions due to the additional volume, while the
smaller PBM members in the PBM-GPO get more substantial price
concessions by virtue of pooling their drug buying with the larger
PBMs. Because they are usually based outside of the U.S., the PBM-GPOs
only operate in the commercial business.
The PBMs that own and operate these rebate aggregators prefer to
call them ``Contracting Entities'' rather than GPOs. Nevertheless,
their contracts are structured so as to allow these aggregators to
leverage the already-existing GPO safe harbor. This serves two
functions, according to Eric Percher. First, it enables rebate
aggregator to charge GPO administrative fees of up to 300bp, thereby
creating a potential new or substitutive fee for PBM members
(substitutive for admin fees with the added bonus that profits may be
transferred to lower-cost tax jurisdictions). Second, it ensures that
should legislative or administrative action undercut the pharmaceutical
rebate/discount safe harbor, the PBM owners will continue to have
access to a mechanism to collect and share administrative fees with
PBM-GPO aggregator members via the separate and distinct GPO safe
harbor. What the Senate might investigate is how large are the revenues
shifted to lower cost tax jurisdictions.
transparency
Question. As you noted during the March 30th hearing, transparency
measures can produce both benefits and risks, depending on their design
and context.
In designing appropriate transparency provisions in the context of
the prescription drug supply chain, what steps could Congress take to
improve stakeholder and patient line-of-sight into practices and
pricing dynamics while minimizing the risk of unintended consequences?
Answer. It is not clear that patients want/need a clear line of
sight into PBM practices. Research already shows that patients do not
customarily use the price and quality information on the providers they
utilize, even when such data are made transparent. It is also unclear
that patients use such information in choosing their health plans.
Since patient understanding of PBMs is likely a quantum degree lower
than their understanding of their providers and their health plans, it
is not clear there is much to be gained here in terms of patient
shopping behavior.
The major customers of the PBMs are (1) the health plans that PBMs
serve and (2) the employers whom the health plans serve. At this time,
there is nothing to prevent either PBM customer (health plan or
employer) from demanding more transparency and data visibility/
reporting from their agent PBMs. It is not entirely clear why the plans
and employers have not demanded greater access to such information. And
this is after they spend a boatload of money on benefits consultants,
contract consultants, and attorneys. Are the health plans and employers
really that helpless? To be sure, the PBMs have gotten really big and
may be good at moving fees around; and the plans and employers may have
trouble seeing their own data as well as they would like. But should
the Federal Government step in here? This seems like an area of
private-sector contracting, not public-sector regulation.
______
Questions Submitted by Hon. John Cornyn
Question. As part of your written testimony at the hearing, you
note that PBMs are the focus of many of the allegations in the
industry--including, monopoly power, anticompetitive behavior, and
reduced access to medication, to name a few. You also note how the
business model of this industry has changed over time.
Do you think more transparency in the PBM system--such as how
rebates are used, what portion is passed onto the consumer, is an
effective solution to understand the industry better?
Answer. The issue of what to do with rebates entails some
interesting tradeoffs. At present, the rebates flow to the health plans
and their ERISA plan sponsors, who utilize them in ways to spread the
benefits across all of their enrollees/employees. The rebates do not
flow to those sicker members who are using the expensive drugs that
generate the high rebates that flow to the plans. This means that the
sicker enrollees/employees are subsidizing the healthier enrollees/
employees; this is true for both commercial and Part D enrollees. The
conundrum is that the former group vastly outweighs the latter group in
sheer numbers--so more people actually benefit. Some employers have
taken steps to move toward ``point-of-service'' rebates in order to
help the latter, sicker enrollees. The problem is that this weakens the
competitive position of their employees and their health plans, since
their premiums are likely to rise.
In general, transparency has not worked in the U.S. health-care
system to date. A recent report issued by the Congressional Budget
Office confirms this. So does a boatload of academic research.
Question. Your written testimony indicates that many people are
still focused on the older practices of PBMs, such as manufacturer
rebates, whereas PBMs are more focused on specialty drugs now. Can you
elaborate on this comment?
Does this mean that the solutions and actions Congress may be
looked at should be focused differently?
How do PBMs make a profit off specialty drugs, and does this fit
into the overall pharmaceutical supply chain?
Answer. A crucial, new part of PBM profits derives from the
dispensing of specialty pharmaceuticals using their in-house
pharmacies, as well as non-rebate fees from pharmaceutical
manufacturers for a range of services (listed below). Conversely, PBMs
now derive a smaller portion of their profits from rebate contracting
with manufacturers and network management of retail pharmacies.
Congressional efforts to target manufacturer rebates is, thus,
misplaced and out of date.
How has this come about? Specialty pharmaceuticals now drive the
rising cost of drugs: they have few (if any) competitors, very high
launch prices, and very high list prices. Without any effective
competitors, the PBMs have very little bargaining power.
Congress should be looking at the launch/list prices of new
specialty drugs, including orphan drugs. That is where the money is
being spent. That is where consumers face high out-of-pocket costs at
the pharmacy (regardless of whether that pharmacy is owned by a PBM or
some other party). There is a lot of competition in the specialty
pharmacy space, but not much in specialty pharmaceutical manufacturing.
Academic Medical Centers who administer these expensive drugs are
starting their own specialty pharmacies.
Everyone makes money from the dispensing of specialty drugs. The
PBMs and others who operate specialty pharmacies are taking business
away from retail pharmacies. That is one reason the latter complain so
much about the PBMs: they are losing market share in the growing market
of dispensing these expensive drugs. According to Adam Fein of Drug
Channels, the gross margin of a specialty pharmacy consists of a
dispensing spread (reimbursement - acquisition cost) + fees from
manufacturers for a range of services provided. (However, there can
also be many hidden sources of profits such as 340B, copay maximizers,
and off-invoice discounts). These services can encompass disease
management, outcomes research, compliance and adherence services, side-
effect management services, and managing patient service hub programs.
Health plans develop small, preferred networks of specialty
pharmacies, partly because they help to increase patient adherence to
their medications, but also because they obtain lower prices in a
volume-for-price tradeoff. Specialty drugs can account for at least 50
percent of a health plan's net pharmacy benefit spending. That
represents an enormous rise from just 23 percent in 2013. Likewise,
drug manufacturers may limit the network of pharmacies that dispense
their specialty drugs. We do not know much about this side of the PBM's
business. Most companies do not report prescription revenues from
specialty drugs.
Question Submitted by Hon. Tim Scott
Question. I have seen a lot of information regarding the gross-to-
net bubble, the difference between a drug's list price and net price,
which can be quite sizeable when there are rebates paid by the
manufacturer. Reporting from many sources, including KPMG, Drug
Channels, and others, share that discounts from manufacturers are often
higher than 50 percent in Part D. Yet, patients who purchase those
medicines do not share in those rebates. The PBM business model today
has evolved to a point where they are now often owned by or own an
insurer, a large pharmacy chain, or both.
How do you think PBMs and related industry vertical integration and
consolidation impacts the prices that patients pay directly and how
might that impact the incentive to lower costs at the pharmacy counter?
Answer. The prices that patients pay at the pharmacy counter are
driven largely by what their health plans have (or have not) negotiated
with the manufacturers. In the commercial space, a lot of patients pay
high out-of-pocket costs because they have high-deductible health plans
(HDHPs) and they are still in the deductible phase of their coverage
that year. That means they are on the hook for all of a drug's cost,
and that cost (unfortunately) happens to be the manufacturer's list
price. This is driven by the employer; the PBM has nothing to do with
it.
On the Medicare Part D side, the health plans may not be
aggressively negotiating prices for really expensive specialty drugs
for the following reason. Part D beneficiaries pay the higher prices,
they quickly move through the various coverage phases in Part D, and
then reach the catastrophic coverage phase where the Federal Government
covers 80 percent of the cost of the drug, while the health plan's
share drops. This seems like a cost-shifting game, which Medicare Part
D planners inadvertently allowed back in 2006.
Medicaid beneficiaries do not pay much out of pocket for drugs.
They are, therefore, not as disadvantaged as the other two sets of
beneficiaries above.
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
I have long championed efforts to improve prescription drug access
and affordability for Americans, and I welcome the opportunity to
engage in this vitally important bipartisan hearing.
Whether at the pharmacy counter, the doctor's office, or the
hospital, some of the most lifesaving medications remain out of reach
for far too many working families and seniors, especially in the face
of persistent inflation. Congress took a critical step toward
addressing these challenges nearly 20 years ago, when we voted to enact
Medicare's prescription drug benefit, or Part D, leveraging market-
based competition to create and protect high-quality coverage options
for seniors.
In many ways, Medicare Part D reflects an unprecedented success
story, coming in massively under budget, with low and stable monthly
premiums--and with a generic drug dispensing rate of roughly 90
percent. Part D's resilient, market-oriented structure continues to
ensure low-cost drug access for most seniors, even as many other
medical costs have continued to skyrocket. Stakeholders across the
supply chain deserve credit for these figures and trends.
That said, much has changed in the past 2 decades, and we have an
obligation both to build on the aspects of Part D that work well and to
address access and affordability gaps where we find them. In weighing
and developing policy solutions, my priority is always the patient. We
need to identify avenues for lowering out-of-pocket costs, increasing
competition, and promoting access to lifesaving innovation--and we need
to do so in a fiscally responsible manner.
Given the tremendous common ground and shared goals around this
issue, I am confident we can fulfill these objectives and deliver real
results for seniors. A few major points regularly raised by Idahoans--
transparency, incentives, and out-of-pocket costs--are of key
importance as we hear today's testimony.
As anyone who has looked at a flow chart or diagram of the drug
supply chain can attest, the only clear thing about it is how unclear
and opaque it really is. We need an all-of-the-above approach to
transparency that empowers consumers, plans, providers, and pharmacies
to make informed, cost-effective, and clinically appropriate
decisions--as well as to practice meaningful oversight. Policymakers
also need more line of sight into the black box of drug pricing
relationships and transactions, especially as we look to pursue
productive reforms in the future.
We also need to assess the various incentives that operate within
the medication supply chain. Ideally, we should have frameworks, both
within Part D and in other markets, that encourage low prices through
meaningful competition. Unfortunately, in too many cases, certain
dynamics seem to drive list prices up, even as net prices, reflective
of rebates and discounts, decline.
The gap between list and net price has grown dramatically in recent
years, keeping premiums stable but exposing some consumers to
astronomical out-of-pocket costs at the pharmacy counter, particularly
for uninsured patients or families relying on high-deductible health
plans.
Misaligned incentives have also constrained biosimilar uptake in
Part D, driving manufacturers to launch products at multiple different
price points, with PBMs sometimes preferencing the option with the
higher sticker price. The incentive structures at play here clearly
warrant a hard look.
Americans face an out-of-pocket cost of less than $20 for 92
percent of prescriptions filled. For the remainder, however, costs can
run much higher, particularly for seniors enrolled in Part D. I look
forward to discussing targeted solutions to bridge this gap without
fueling premium hikes for older Americans.
With these priorities in mind, thank you to our witnesses for being
here today. I look forward to your testimonies.
Thank you, Mr. Chairman.
______
Prepared Statement of Robin Feldman, Arthur J. Goldberg Distinguished
Professor of Law, Albert Abramson '54 Distinguished Professor of Law
Chair, and Director of the Center for Innovation, University of
California Law
Thank you, Mr. Chairman and esteemed members of the committee. I am
honored to be here today to address an issue that is burdening
patients, taxpayers, and those trying to help them.
The supply chain for medicine is riddled with perverse incentives,
and marked by sky-rocketing prices. we see persistently rising prices
on the medications people depend on, day after day, to treat widespread
problems such as diabetes, high blood pressure, high cholesterol, and
opioid addiction.\1\ Key aspects of the problem can be traced to the
industry that lies at the center of drug pricing--pharmacy benefit
managers, or PBMs.\2\
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\1\ See Centers for Medicare and Medicaid Services, Drug Spending
Information Products Fact Sheet (2018), https://www.cms.gov/newsroom/
fact-sheets/drug-spending-information-products-fact-sheet (listing the
10 drugs with highest annual price increases from 2012 to 2016 covered
by Medicare); California Office of Statewide Health Planning and
Development, Prescription Drug Wholesale Acquisition Cost (WAC)
Increases (2019) (detailing wholesale price increases of more than 16
percent for hundreds of drugs between 2017 and Q2 of 2019); Feldman,
Devil, supra note 1, at 2.
\2\ For additional information on pharmacy benefit managers, see
Robin Feldman, ``Drugs, Money, and Secret Handshakes: The Unstoppable
Growth of Prescription Drug Prices'' (2019) (discussing the role of
PBMs in the pharmaceutical market); Robin Feldman, ``Perverse
Incentives: Why Everyone Prefers High Drug Prices--Except for Those Who
Pay the Bills,'' 57 Harv. J. on Leg. 303 (2020) (describing the
incentive structures that lead PBMs to contribute to rising drug
prices); Robin Feldman, ``The Devil in the Tiers,'' 8 J.L. and Biosci.
1 (2021) (analyzing the role PBMs play in distorting the organization
of drug formularies); Robin Feldman, ``Why prescription drug prices
have skyrocketed,'' Washington Post (November 26, 2018), https://
www.washingtonpost.com/outlook/2018/11/26/why-prescription-drug-prices-
have-skyrocketed/ (discussing the role PBMs play in the pharmaceutical
market). For a discussion of potential solutions, see Feldman, Devil,
at 31-41 (suggesting that drugs should be located on formulary tiers
based on list, rather than net, price to remove the incentive for
anticompetitive formulary manipulation); Feldman, Secret Handshakes, at
95-102 (describing the significance of transparency and potential State
and Federal level responses).
Historically, PBMs operated as claims processors, just handling the
paperwork.\3\ But 15 years ago, when Medicare coverage expanded to
include prescription drugs, PBMs offered to help health plans negotiate
with drug companies for better prices.
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\3\ Feldman, Washington Post, supra note 1.
But instead of prices coming down, prices of many drugs
dramatically increased. For example, the prices of 65 common medicines
have almost tripled, just during those 15 years.\4\ There are many
contributing factors, but PBMs have been in the middle of it.
---------------------------------------------------------------------------
\4\ Stephen W. Schondelmeyer and Leigh Purvis, AARP Public Policy
Institute, ``Trends in retail prices of brand name prescription drugs
widely used by older Americans, 2006 to 2020,'' 1-2 (2021).
So how did this happen? How did PBMs--which were supposed to help
negotiate lower prices--end up helping to inflate drug prices instead?
Rather than act as honest brokers for the health plans, PBMs have acted
in their own self-interest. And as it turns out, their own interests
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are not aligned with low prices.
Quite simply, higher prices put more dollars into a PBM's pockets.
When the starting price of a drug rises, and the PBM negotiates a
rebate, the PBM appears successful. It's like a store that raises the
price of a coat before putting it on sale. The markdown looks like a
great bargain; but it's not. In addition, the PBM often keeps a
percentage of the rebate, so it gets to pocket more.
All of this might not be so bad if no one actually paid that high
list price. But people do. Many consumers have what are called high-
deductible plans, in which they pay that high list price out of their
pockets until they reach a certain threshold;\5\ other plans require
that patients pay a percentage of the high list price for what is known
as co-insurance.\6\ And many Americans don't have coverage for
prescription drugs, even if they have health insurance.
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\5\ For an example of a plan requiring that the patient pay 100
percent of the costs of drugs up to a certain limit, see the Anthem
insurance plan described at First Am. Consolidated Class Action Compl.,
at para. 13, In re Express Scripts/Anthem ERISA Litigation, 2018 U.S.
Dist. LEXIS 3081 (S.D.N.Y. 2016) (No. 16-3399).
\6\ See Medicare Payment Advisory Commission, Report to the
Congress: Medicare Payment Policy, 408-09 (2017).
I mentioned raising the price of a coat before you put it on sale.
It gets worse. Imagine if the price jump is higher than the sale
discount. That's what's happening with medicine. Medicine prices are
rising faster than rebates. Between 2010 and 2017 in Medicare, prices
for particular drugs after rebate still rose 313 percent on average.\7\
We are buying the same coat, but it is costing us more and more. And a
significant portion of that price increase is going to PBMs.
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\7\ Feldman, Devil, supra note 1, at 19, 21-22.
A PBM may be brokering deals for a health plan, but it is a strange
relationship. PBMs refuse to tell the health plans--their own clients--
the details of the deals they are making. Neither health plans, nor the
government, nor the market has any disclosure.\8\ Given their monopoly
over pricing information, and the fact that just three PBMs control
most of the market,\9\ PBMs are setting the terms of almost every
arrangement. It is not a free or fair market.
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\8\ PBMs refuse to disclose net prices, the precise size of
rebates, or the details of the rebate terms, asserting that the
information is a trade secret. Even auditors and regulators are not
given full access. For an explanation of why prices and price terms
negotiated between PBMs and drug companies do not constitute trade
secrets, see Robin Feldman and Charles Tait Graves, ``Naked Price and
Pharmaceutical Trade Secret Overreach,'' 22 Yale J.L. and Tech 61
(2020).
\9\ Neeraj Sood, Dana P. Goldman, and Karen Van Nuys, ``Follow the
money to understand how drug profits flow,'' STAT (December 15, 2017),
https://www.statnews.com/2017/12/15/prescription-drug-profits-pbm/
(``The top three pharmacy benefit managers, which negotiate drug prices
on behalf of insurers and self-insured employers, dominate 85 percent
of their market.''). See also Neeraj Sood, Transcript of Understanding
Competition in Prescription Drug Markets: Entry and Supply Chain,
Dynamics Workshop (November 8, 2017), https://www.ftc.gov/system/files/
documents/videos/understanding-competition-prescription-drug-markets-
panel-2/ftc_understand
ing_competition_in_prescription_drug_markets_-
_transcript_segment_3.pdf.
And despite the fact that PBMs should be serving as honest brokers
for the health plans, PBMs also ask drug companies for side payments--
again, payments that rise when the price of the drug rises. And they
vigorously deny having a fiduciary or any other type of duty to act in
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the best interests of the health plan and its patients.
So, what so PBMs do to protect their income stream of rebates and
side payments? PBMs stand at the center. As well as negotiating prices,
PBMs help decide if patients will be reimbursed and how much they will
be reimbursed. So, when dealing with drug companies, PBMs can offer to
exclude a drug company's competitor or make it harder for patients to
get the competitor's medicine.\10\ As a result, less-expensive
medicines are disadvantaged, and patients are channeled into higher-
priced drugs.
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\10\ See generally Robin Feldman, ``Drugs, Money, and Secret
Handshakes: The Unstoppable Growth of Prescription Drug Prices''
(2019). For press reports and case allegations describing formulary
exclusion as a result of rebate deals, see, e.g., Charles Ornstein and
Katie Thomas, ``Take the Generic, Patients Are Told. Until They Are
Not,'' New York Times (August 6, 2017) (describing health plans forcing
patients to pay more for the generic version of a drug or declining to
reimburse for the generic at all, https://www.nytimes.com/2017/08/06/
health/prescription-drugs-brand-name-generic.html?mtrref=undefined
[https://perma.cc/U4JU-4P3X]; see also Complaint, Regeneron
Pharmaceuticals Inc. v. Amgen Inc., No. 1:22-cv-00697 (D.Del 2022)
(alleging bundled rebates for cholesterol medication induced health
plans to exclude competitor medication from formularies in order to
obtain rebates) case number 1:22-cv-00697, in the U.S. District Court
for the District of Delaware Complaint, Shire U.S., Inc. v. Allergan,
Inc., No. 17-7716 (D.N.J. 2017) (alleging bundled rebates for the eye
medication Restasis deterred health plan formularies from including
competitors); Complaint, Pfizer, Inc. v. Johnson & Johnson and Janssen
Biotech, Inc., 2018 U.S. Dist. LEXIS 31690 (E.D. Pa. 2018) (No. 17-
4180) (bundled rebates for the rheumatoid arthritis drug Remicade
resulted in hospitals and health plan formularies essentially excluding
the lower-priced biosimilar).
Although the pharmaceutical supply chain is complex, the overview
of these aspects of the problem can be summarized fairly simply: PBMs
are able to exploit their role at the center to extract dollars and
channel the system towards higher-priced drugs. Patients and taxpayers
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must pick up the bill.
______
Questions Submitted for the Record to Robin Feldman
Questions Submitted by Hon. Ron Wyden
Question. What specific data and information should PBMs share with
their health plan clients in order to mitigate possible conflicts of
interest?
Answer. For transparency aimed at reducing conflicts of interest,
PBMs should reveal to their health plan clients the terms of any
payment agreements with drug companies, along with the payment flows
resulting from those agreements. This can help make the markets more
fair, efficient, and transparent.
For the basic drug supply agreements, transparency should include
the terms of the agreements along with both the gross and net prices
that result. These should be described at the level of the individual
drug and dose, rather than in the aggregate. The information should
include whether the payment terms are based on conditions such as
filling a quantity of drugs or limiting competing drugs.
Transparency also should include terms and payment flows related to
any agreements PBMs have with drug companies, whether those are
administrative fees, data management fees, or other payments. This
follows the notion that if I'm negotiating on behalf of the health plan
and its patients, I shouldn't be receiving payments from the other
side. At the very least, the health plan should know what those
payments are.
Question. Please describe price protection clauses. What incentives
do these clauses create for PBMs and manufacturers?
Answer. I am aware of two types of price protection clauses. First,
there is a recent innovation in PBM contracting with health plans that
side-steps the issue of rebates paid by drug companies to PBMs and what
the PBMs are doing with the rebate moneys. Known as ``price
protection,'' this approach completely obscures payments from drug
companies to the PBM. If a large plan with some level of market clout
asks for access to contract terms and claims information, a PBM can
offer, as an alternative, that the overall prices won't rise more than
a certain amount. The PBM is essentially saying to the health plan,
``Why engage in examining all that grubby detail when what you care
about is the bottom line?'' Unfortunately, these price protection
agreements simply obscure the agreements that block cheaper entrants
from gaining a foothold in the market, entrants that could ultimately
bring prices down.
Second, some rebate agreements between drug companies and PBMs
include a clause ensuring a form of price protection or most-favored-
nation status for the drug company. These clauses ensure that patients
won't be given better access to the drug company's competitors in any
way, presumably even if the competitor offers a lower price. These
clauses encourage PBMs and manufacturers to maintain higher prices, at
the expense of patients and payers.
Questions Submitted by Hon. Thomas R. Carper
Question. Last year, Congress passed and President Biden signed
into law the Inflation Reduction Act--which capped insulin prices for
Medicare beneficiaries at $35 per month. Thanks to President Biden's
leadership, drug manufacturers like Eli Lilly have followed suit and
have voluntarily capped the price of insulin at $35 per month in the
commercial market as well.
What are your thoughts on expanding the insulin price cap to other
classes of drugs--for example, drugs that are older, highly rebated,
and/or treat chronic conditions? What are the key things that Congress
should think about when considering this type of policy? What are the
trade-offs and how can we prevent costs from ballooning in other parts
of our health-care system when designing such a policy?
Answer. Any relief to struggling patients is welcome relief. But
copay caps alone have a hidden trade-off. Patients have no reason to
choose a cost-effective drug over the expensive brand-name drug. Thus,
it buys customer loyalty by shielding them from out-of-pocket costs.
The plan, however, pays the lion's share of the price. If patients stay
with the pricier product when less-expensive alternatives enter the
market, that increases costs to the plan as a whole, which could flow
through to higher premiums for all patients.
Question. Thanks to the testimony of our witnesses and questions
from my colleagues, we heard a good amount of discussion about the
perverse incentives that exist in the market due to how PBMs make their
money. To summarize, a significant source of revenue for PBMs are
rebates and administrative fees that are often based on a drug's list
price. This creates bizarre and perverse incentives that have been
found to lead to increased drug list prices and higher-priced drugs on
formulary lists so that PBMs can bring in more revenue. That's bad for
patients and its bad for taxpayers. Dr. Gibbs in his testimony talked
about the transparent, flat-fee pricing model that Capital Rx has put
in place.
What can we as policymakers learn from Capital Rx's pricing model
and what proposals would you recommend we pursue to align pricing
incentives in the various parts of the drug supply chain?
Answer. I am not familiar with Capital Rx, so I cannot comment on
its model. Certainly, a transparent model that eliminates the perverse
incentives would be a great improvement. Of course, as I noted in
response to a question for the record from Chairman Wyden, a PBM
pricing model based on a simple fee would not, in itself, eliminate the
perverse incentives. Some of the price-protection agreements in place--
in which PBMs guarantee that the overall price for a health plan will
not rise more than a certain amount--may obscure agreements between the
PBM and drug companies that block cheaper entrants from gaining a
foothold in the market and ultimately bringing prices down. In that
case, the price-protection approach simply encourages the plan not to
ask too many questions, but leaves many of the problematic elements in
place.
______
Questions Submitted by Hon. Elizabeth Warren
Question. There is evidence that manufacturers may engage in
rebate-based negotiating strategies with PBMs to block competitors and
secure preferential formulary placement. These strategies may be used
in tandem and jointly result in distorted formulary designs that may
favor higher-cost and less effective products.
Please describe bundled rebates and rebate traps.
Answer. The PBM industry has evolved in a manner that puts upward
pressure on prices. The name of the game is volume. The more volume a
drug company has with a particular PBM, and the greater the drug
company's market share, the better the potential deal that the drug
company can offer as an inducement to disfavor rival drugs.
In simplified form, imagine a major drug company that sells 1
million doses of a medication to a plan's patients.\1\ The company
tells the PBM, ``we will give you a rebate of $1 per dose if you agree
to disfavor our new competitor.'' That deal is worth a million dollars
in rebates. A new entrant, selling a small number of doses, could never
offer enough off the price of the drug to compensate for the million-
dollar rebate offered by the major player. When a drug company has a
portfolio of drugs to bundle together in a rebate offer, the
opportunities for drug companies increase.
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\1\ For an expanded version of this hypothetical using beer bottles
as an analogy and citations to allegations in various drug industry
cases, see Robin Feldman, ``Drugs, Money and Secret Handshakes,'' 21-31
(Cambridge 2019).
Bundled rebates take different forms. A drug company could offer
the PBM an especially high rebate if the PBM's client accumulates a
certain volume of multiple different drugs the company makes. In that
case, a competitor that sells only one drug could never offer a
comparable volume and thus could never offer a similarly high rebate.
Or if a drug company is selling two drugs--one that is well-protected
by patents against competition and one that is vulnerable to
competition--the drug company could offer a break on the price of the
well-protected drug (because the company doesn't fear competition) in
exchange for a preferred formulary placement for the drug facing
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competition.
Real world examples abound. A suit against Allergan alleged that
the company used bundled rebates to preserve its market share for the
dry-eye medication Restasis. According to a Medicare plan administrator
quoted in the complaint, given the company's scheme, a competitor could
give the new drug away for free, and the numbers still wouldn't work--
meaning that the new drug still wouldn't get reasonable formulary
access and consumers still wouldn't end up switching to the new drug.
That is a striking comment, and it captures the raw power of bundled
rebates.\2\
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\2\ Compl., at 6-7, Shire U.S. Inc. v. Allergan, Inc., No. 17-7716
(D.N.J. 2017) (stating that Allergan's product portfolio, which
includes several popular glaucoma drugs, provides the company with the
``financial wherewithal to give . . . rebates that far exceed anything
that Shire could offer on [its own drug] Xiidra''); cf. Shire U.S. Inc.
v. Allergan, Inc., 375 F. Supp. 3d 538 (D.N.J. 2019) (granting motion
to dismiss complaint because alleged relevant product market was
defined so narrowly as to exclude entities that could have purchased
Shire's drug, and because Shire did not allege that it couldn't itself
offer bundled rebates or that bundled drugs generating Allergan's
bundled rebate included any drug over which Allergan had monopoly
power).
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Question. How might these practices influence formularies?
Answer. With volume and bundled rebates, more expensive drugs
receive preferred positions on formularies. And research suggests that
generic drugs are increasingly losing out on formulary placement.
Between 2010 and 2017, the percentage of generics on the most-preferred
tier dropped from 73 percent to 28 percent.\3\
---------------------------------------------------------------------------
\3\ See Robin Feldman, ``The Devil in the Tiers,'' Oxford J.L. and
Biosci. 1 (2021).
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Question. What effect might they have on patient drug costs?
Answer. When patients are channeled into higher-priced drugs, their
costs rise. For example, any co-insurance payments that are based on a
percentage of the drug's costs will be higher.
Considering only costs paid by patients and the Federal low-income
subsidy program, improper tiering conservatively resulted in $4.17
billion in wasted cost in 2017 alone.\4\
---------------------------------------------------------------------------
\4\ See Robin Feldman, ``The Devil in the Tiers,'' Oxford J.L. and
Biosci. 1 (2021).
---------------------------------------------------------------------------
Question. What effect might they have on overall drug spending?
Answer. These perverse incentives have caused dramatic increases in
spending on medicine throughout the health-care system. As one doctor
pointed out, it is ``Alice-in-Wonderland-time in the drug world.''\5\
And it's our money going down the rabbit hole.
---------------------------------------------------------------------------
\5\ Charles Ornstein and Katie Thomas, ``Take the Generic, Patients
Are Told. Until They Are Not,'' New York Times (August 6, 2017),
https://www.nytimes.com/2017/08/06/health/prescription-drugs-brand-
name-generic.html.
______
Prepared Statement of Matthew Gibbs, Pharm.D., President, Capital Rx
Inc.
My name is Matthew Aaron Gibbs, and I am a doctor of pharmacy, also
known as a Pharm.D. I have been in the pharmacy benefit management
(``PBM'') and managed care industry for over 20 years serving in
various roles, including managing clinical strategy, sales leadership,
negotiating contracts with pharmaceutical manufacturers, mail service
and specialty home delivery operations, and most recently serving as a
member of the executive team at Capital Rx, where I am the current
president of the company. I have been at Capital Rx for nearly 3 years,
and before joining Capital Rx, I served as president of another mid-
market PBM for 4 years. I have also managed two of the Nation's largest
pharmacy consulting groups advising Fortune 100 companies on their
procurement strategies for selecting PBM partners. Additionally, I have
pharmacy expertise in all the relevant lines of business: Medicare,
Medicaid, commercial insured plans, ACA/exchange, and self-funded
employers of all types.
I am honored and humbled to address this committee regarding
growing concerns around prescription drug pricing in the United States.
We must first take a step back to truly understand the problem and
think through solutions. Since PBMs emerged in the 1990s they have
played a critical role in the pharmacy and overall health care supply
chain. PBMs were at the forefront of technology, connecting all
pharmacies in the U.S. via a single and uniform communication logic
known as The National Council for Prescription Drug Programs (NCPDP).
This logic allows pharmacies, regardless of owner or chain name, to
communicate safety edits, drug-to-drug interactions, disease-to-drug
interactions, and patient payment information related to out-of-pocket
costs. This happens within milliseconds and is arguably the most
efficient transaction in all of health care. Through the early 2000s
PBMs gained in market share, but the business model was still simpler
than today-they generally collected a fair and equitable per-claim
transaction fee that was disclosed and understood by the payer. As PBMs
grew in scale and brand drug inflation increased, they began to
negotiate directly with pharmaceutical manufacturers on rebates for
preferred placement on the PBMs' formularies. While this approach
likely saved payers significant dollars initially, the dollars related
to rebates became the lifeblood of every PBM. Additionally, PBMs
created different definitions around what is considered a ``rebate.''
There were new terms such as administrative fees, market basket fees,
data aggregation fees, etc. With this development came a web of complex
layers of rebate payment terms and definitions, which created an opaque
matrix of financial terms that became impossible for any employer or
government entity to truly understand or track.
These rebate payments, or as I like to say, ``pharmaceutical
revenue,'' were not enough for the PBMs in terms of what they needed to
optimize revenue. The market shifted in an interesting and arguably
suspicious direction by choosing consolidation over innovation. It is
no secret to anyone on the committee that (1) around 70 percent to 80
percent of the PBM market share is controlled by three major
organizations; (2) each of these has either been purchased by an
insurance carrier or has purchased an insurance carrier themselves; and
(3) the major PBMs also own dispensing assets for mail service and
Specialty home delivery, and in certain circumstances a retail pharmacy
chain. This ``all-in-one'' option has narrowed the marketplace and
forced even more consolidation and fewer options for payers. I'll stop
there and leave the issue in the capable hands of the Federal Trade
Commission, which is presently reviewing these concerns.
Last and certainly not least is the fact that nearly all payers
utilize what I can only characterize as a ``less than ideal'' pricing
benchmark as the standard for all drug pricing in the United States.
This pricing benchmark, known as Average Wholesale Price (AWP), was the
primary source of a class action lawsuit that required one of the major
publishers of AWP to stop production of the benchmark no later than
September 2011. AWP is not related to the retail acquisition cost of a
pharmaceutical product. There was hope in the market at the time that a
new industry benchmark would emerge. Unfortunately, most PBMs migrated
to another publishing index available on the market, and AWP survived.
However, in response to many State Medicaid plans, the Centers for
Medicare and Medicaid Services (CMS) did something great and started
the process of creating and establishing the National Average Drug
Acquisition Cost (NADAC) index. This new benchmark was initially
published in draft form in 2012. It is based on voluntary survey data
from retail pharmacies that report their invoiced acquisition costs at
the drug level to CMS. This is performed as frequently as weekly and is
available on a free public website. It should be noted that AWP data,
by comparison, is a subscription-based service, and anyone wishing to
review and audit AWP may have to purchase a license to examine their
own drug cost benchmark data.
Founded in 2017, Capital Rx set out to change the way drugs are
priced and patients are cared for to create enduring social change. We
are over 1 million members strong across payers, including employers,
union trusts, municipalities, school districts, commercial health
plans, Medicare, and managed Medicaid clients. As a proud member of our
executive team, I can confidently say Capital Rx has both financially
and clinically aligned interests with its clients. In fact, Capital Rx
is the only full-service PBM serving all lines of business and one of
the relatively few health-care companies that have earned B CorpTM
certification, to my knowledge. This is the ultimate testament to
aligning the company's interests with the patient and committing to
``being a force for good'' for society.
Our pricing model abandons the traditional AWP model and utilizes
NADAC as the primary pricing benchmark. We have a Single-Ledger model
that aligns our ``books''--the drug manufacturer and pharmacy side of
the house always aligns with the accounting on the client side of the
house. We do not retain rebates or ``spread'' from any pharmacy or
manufacturer contract. We are paid a fair administrative fee which is
disclosed in our client contracts and appears as a line item on every
client invoice. In full transparency, we also receive disclosed fees
for additional clinical services that we may provide to a client as
well, but the point is that there's no gray area. Everyone can (1) see
the price of the drug; and (2) clients don't have to question if all
``other'' revenue is passed through to them or they paid a fair price.
The best way to describe what we do is to give a real-life example
to which everyone can relate. If you have a headache and go to a
pharmacy to pick up an over-the-counter option to get some relief,
you'll see quickly that your options--Tylenol, Advil, Aleve, the
generic options--have a price on the shelf, and you know what you are
going to pay when you go to the register. However, if you walk to the
back of the store to pick up a prescription, you're spinning a roulette
wheel and hoping for the best based on what you know about your
benefits; or, if you're uninsured or underinsured, what you've read
about the price online. You cannot see or know what you will have to
pay for that medication. That's because of AWP and the aforementioned
contract complexity. It doesn't have to be like that. Today's pricing
framework does not empower the pharmacist to explain why a drug costs
one amount one month and then costs something different the next month.
We have all been conditioned that ``this is how it is and has to be.''
It's simply not true.
In my opinion, the traditional PBMs have trained everyone to
believe that drug pricing is unstable, but they are utilizing complex
algorithms to minimize their contractual reimbursements to pharmacies
while at the same time not sharing the ``savings'' from this
reimbursement reduction with the patient or the payer. This spread
pricing game must stop. And while Medicare specifically prohibits this
practice, most commercial and some managed Medicaid contracts still
allow it to continue. One solution is to use NADAC as a publicly
available benchmark price as the source of truth for drug costs. Is it
perfect? No. Is it fundamentally better than the AWP industry standard?
Absolutely. Are there ways to make it even better? Again, absolutely.
My simple message is this: every drug should have a price that is
available for all to see and creates equity, thereby improving access
for all Americans. It should be reported by all pharmacies, including
retail, mail, and specialty home delivery, so patients and payers have
day-to-day transparency on drug costs.
I'll leave you with a final message. I have worked my entire career
to drive transparency into the pharmacy supply chain. We are at a
pivotal moment in history where we can finally change what is broken
and bring rational drug-level pricing to the American people. The fix
is simple because the mechanisms are in place to allow both sides of
the transaction--anywhere in the U.S.--to see the price of a drug.
Thank you, Chairman Wyden, Ranking Member Crapo, and this
committee, for your time on this crucial issue.
______
Questions Submitted for the Record to Matthew Gibbs, Pharm.D.
Questions Submitted by Hon. Ron Wyden
Question. What specific data and information should PBMs share with
their health plan clients in order to mitigate possible conflicts of
interest?
Answer. Capital Rx believes that the Consolidated Appropriations
Act (CAA) made great strides in increasing transparency in the PBM
market by mandating certain information be shared with plan sponsors
and ultimately the Centers for Medicare and Medicaid Services (CMS) and
Department of Labor (DOL) as well. In so doing, prescription drug data
collection (RxDC) allows CMS and other regulatory agencies to identify
potential sources of administrative inefficiencies. As such, CAA
promotes mitigating potential conflicts of interest in the market.
Further, Capital Rx anticipates that CAA will allow plan sponsors to
begin making better-informed, and more cost-effective purchasing
decisions.
Our organization posits expanding RxDC reporting elements will
further drive market alignment. We believe that true transparency in
the form of mandated disclosure of the following data elements will
allow lawmakers and regulators to meaningfully analyze the state of the
current PBM market:
PBM profit per prescription dispensed by PBM-owned assets at
mail order, specialty home delivery, and retail chain
pharmacies.
PBM retained rebates and other revenue received from
manufacturers either directly, or through affiliated Group
Purchasing Organizations (GPOs), and rebate aggregation
partners.
Revenue retained by brokerage firms as part of the
procurement process for plan sponsors. Currently, part of
section 202 of CAA however, we recommend that section 202 be
expanded to include PBMs.
As an extension of the above point, we believe that better plan
oversight is paramount in mitigating conflicts of interest. We also
encourage the adoption of more robust health plan procurement standards
to ensure financial alignment and mitigate conflicts of interest.
Question. Please detail the strengths and weaknesses of the
National Average Drug Acquisition Cost (NADAC) benchmark. How could
NADAC be enhanced?
Answer. Below please find an assessment of the strengths and
weaknesses of NADAC, as experienced through Capital Rx's use of NADAC
for our full book of business. Most proposed enhancements, also noted
below, focus on increasing participation in the CMS survey model.
strengths of nadac
Capital Rx's position is to remain conflict-free in setting pricing
benchmarks to protect our model's integrity and provide a fully aligned
arrangement to plan sponsors. First published in draft form in 2012,
NADAC has proven to be an effective pricing benchmark for fee-for-
service Medicaid plans. Moreover, NADAC is the closest national drug
pricing benchmark that calculates the true average acquisition cost for
retail pharmacies to purchase a medication. Provided at the NDC-11
level, all drugs reported to CMS under NADAC have an established retail
price. Capital Rx chose NADAC because it is the market's least
conflicted option available today.
In contrast, Average Wholesale Price (AWP) is derived from a
calculation of Wholesale Acquisition Cost (WAC) and is not generally
related to the actual ``cost'' of a medication across the supply chain.
According to a study Capital Rx developed in partnership with 3 Axis
Advisors in 2020, NADAC prices for generic drugs deflated by 44
percent, while the AWP price index inflated by 1 percent. This study
analyzed price fluctuations from 2015 to 2020 for the top 1,200 generic
drugs in our 2019 book of business.
By using NADAC, Capital Rx's Single-Ledger model:
Eliminates easily manipulated annual guarantees based on
average AWP discounts and Maximum Allowable Cost (MAC) lists.
Establishes a single, accurate price for nearly all NDCs,
pegged to acquisition costs.
Eliminates price variability across employer contracts.
Eliminates price volatility for patients at the point of
sale.
Provides fair reimbursement to pharmacies.
Empowers patients to understand drug prices and make
informed health-care decisions.
Allows Capital Rx to focus on improving plan performance and
patient outcomes.
weaknesses of nadac
NADAC is published through a CMS-administered survey, and
acquisition cost is voluntarily self-reported by some pharmacies.
Independent pharmacies and smaller chains most often respond to NADAC
surveys. As such, larger pharmacies and chains typically prefer not to
share certain information and rarely, if ever, fill out NADAC surveys.
Furthermore, NADAC represents an estimated ``blended average'' of
actual drug costs, not a precise measure at the chain level. As such, a
handful of drugs do not have an assigned NADAC price (usually <1
percent of a typical client's utilization). In such cases, PBMs like
Capital Rx, who primarily use NADAC, must rely upon AWP for the subset
of drugs without a NADAC price.
enhancements to the nadac survey
Given the weaknesses noted above, there are several areas where
NADAC could be improved. We suggest the following:
Mandate all retail pharmacies who participate in Medicare/
Medicaid programs to respond to the NADAC survey when requested
by CMS.\1\
---------------------------------------------------------------------------
\1\ This type of requirement is similar to Medicaid requirements
imposed on pharmaceutical manufacturers that participate in the
Medicaid program and are required to participate in the 340B program.
---------------------------------------------------------------------------
Mandatory reporting by all mail service pharmacies to create
a separate NADAC-mail index average.
Mandatory reporting by all specialty home delivery
pharmacies to create a separate NADAC-specialty drug index
average.
Inclusion of ``off invoice'' discounts as part of the net
cost invoice submission for NADAC reporting across all
dispensing channels.
Questions Submitted by Hon. John Cornyn
Question. Can you share some details about the way your current PBM
is structured, and how you think this can be implemented in the market
more broadly? Are these solutions scalable?
Answer. The following paragraphs describe the main differentiators
of Capital Rx's business model. To preface our description, it is
important for the committee to understand that as a health-care
technology company, our success and the scalability of our model is
partly dependent upon our next-generation technical solution, JUDI.
Through an investment of over $100 million in our platform, JUDI
delivers unequaled scale at the highest standard of operational
efficiency currently available in the industry. To put this in
perspective, JUDI can process all the prescription claim transactions
in the U.S. each year, with no change to our existing architecture or
infrastructure. In comparison, legacy PBMs continue to utilize
platforms which are inefficient and inflexible.
JUDI, coupled with our Single-Ledger model, aligns the financial
interest of the PBM with its clients. We have been able to scale our
business and allocate our resources to critical aspects of the supply
chain--thereby lowering costs for plan sponsors and patients while
advancing best-in-class clinical outcomes and driving high patient and
plan sponsor satisfaction.
Capital Rx's position is that competitors can adopt modern
technology and reinforce financial alignment to streamline manual
processes and reduce overall operational costs, thereby passing said
savings through to plan sponsors and their patients.
capital rx is financially aligned with plan sponsors and patients
Beyond our commitment to passing through 100 percent of all
received rebate revenue, Capital Rx takes the mystery out of
prescription drug pricing. The result is a fairer, fully aligned system
with the ability to deliver untapped value from the supply chain by
ensuring everyone knows exactly what they are getting and what it
costs:
We remain agnostic and allow patients to fill prescriptions
at any pharmacy in good standing. This allows Capital Rx to
serve as a truly objective strategic partner to our clients.
Free from this conflict of interest, we focus on the things
that matter--providing exemplary service, reducing costs, and
improving the health and well-being of our patients.
Capital Rx operates using a Single-Ledger model and passes
100 percent of manufacturer revenue to our clients. We do not
believe drug pricing is proprietary, and all patients should be
able to freely access and receive the lowest prescription price
available. Because we do not look to retain any rebates, or
other manufacturer-derived revenue, we are free from any
conflict and are able to apply formulary management strategies
that drive the most cost-
effective, clinically appropriate therapies to manage the
patients' health.
We do not inflate or manipulate drug prices at retail, mail,
and specialty fulfillment. The current prescription pricing
system looks like drug prices change every hour, of every day,
in every pharmacy. This artificial pricing volatility is
fiction, and unfortunately creates a system of winners and
losers in the U.S. health-care system. Our Single-Ledger model
ensures every patient receives the same low price for each
drug.
As such, we remain agile and unconflicted to support a framework
that focuses on cost-reduction strategies supported by advanced data
and analytics, improving patient outcomes and service excellence.
capital rx is driven by our mission
Capital Rx's mission is to change the way prescriptions are priced
and patients are cared for to create enduring social change. Each
individual of our company--from our CEO to our employees caring for
patients each and every day--is invested in this mission. By
transforming the conventional relationship between plan sponsors and
PBMs, we are leading the path toward reducing prescription drug costs
with greater efficiency and simplicity.
capital rx is committed to client satisfaction
As a core aspect of our client services model, we prioritize speed
and efficiency. We provide front-line clinical expertise, and each
account executive is a registered pharmacist. We find this model
improves efficiency, strengthens relationships, and yields a superior,
clinically focused experience. Our client services culture emphasizes
cross-functional collaboration, ensuring clear lines of communication
that prevent delays and avoidable errors.
From our state-of-the-art technology to our experienced and
innovative staff, Capital Rx's comprehensive suite of PBM services
delivers a new paradigm of service excellence, operational efficiency,
cost savings, and the highest standards of clinical care. Our approach
to client service is a key reason we have earned an unprecedented Net
Promoter Score (NPS) of 96, a measure of client satisfaction.
capital rx has received industry-leading patient satisfaction ratings
Capital Rx treats pharmacy benefits as an investment, encouraging a
holistic view of health care that focuses on achieving the highest
level of patient care. Capital Rx's Customer Care Center employs
representatives with distinct subject matter expertise who work to
understand each client's clinical requirements and recognize,
appreciate, and respect pharmacy, provider, and patient concerns.
In 2022, Capital Rx was presented with a Bronze Stevie Award in
the Customer Service Department of the Year--Healthcare,
Pharmaceuticals, and Related Industries category at the 16th Annual
Stevie Awards for Sales and Customer Service. The Stevie Awards for
Sales and Customer Service are the world's top honors for customer
service.
Our approach to patient care is why we have earned a current
overall satisfaction rating of 99 percent on post-call customer
satisfaction surveys.
capital rx uses next-generation technology to drive efficiencies and
improve the patient experience
JUDI unifies all pharmacy operations within one ecosystem. Through
the use of a fully serverless architecture, JUDI allows for
unprecedented scalability, instant rightsizing, and the unique
capability to handle clients of any size. In fact, one instance of JUDI
can process 3.6 billion claims per year. Our cloud-based architecture
provides limitless scale for Capital Rx to efficiently handle all the
prescription transactions in the U.S., at a fractional cost.
JUDI underlies our success in the industry--and enables a level of
efficiency never thought possible in health-care management. For
example, while it takes other PBMs 30-45 hours to implement a plan
design change, JUDI is able to make plan design changes in under 5
minutes.
capital rx is agnostic to drug dispensing
Since our only source of revenue is a flat administrative fee and
fully disclosed ancillary administrative fees, we have no financial
interest in where a prescription is filled. We believe a PBM should
focus on the administration of the pharmacy program, not the
fulfillment of prescriptions.
This approach allows Capital Rx to focus on meeting our clients'
unique needs, benefit designs, and pricing arrangements as they relate
to the administration and adjudication of claims.
Question. You specifically call out spread pricing as a practice
that should be prohibited, but are there other practices that you would
like to expand on that you think are detrimental to the currently
pharmaceutical supply chain structure?
Answer. Other than combating spread pricing practices, we believe
the following common industry practices create opacity in the current
supply chain:
Alignment with the Plan Sponsor: PBMs have an incredible
responsibility as the administrators of pharmacy benefit plans.
Among the hundreds of tasks required to run a prescription
benefit plan, a PBM develops client specific formularies
(access to specific drugs), conducts clinical review (patient
safety), and authorization (approval of high-cost medication).
Unfortunately, there is an inherent conflict of interest when a
PBM utilizes a spread-pricing model. Under a spread-pricing
model, the more expensive the drug, the more money a PBM makes.
Furthermore, the higher the price of a medication rises
(inflation), spread pricing yields greater revenue. Why else
would traditional PBMs (that use spread pricing) prefer high
rebate yield drugs on formularies, maintain abnormally high
approval rates on costly medication, and rarely intervene when
a patient is not responding to an expensive medication.
Quite simply, if a PBM does not make money on drugs (spread
pricing), the PBM is no longer conflicted and can consider
lower-priced medications, focus on patient outcomes, and adjust
treatment plans without financial consideration. To fix this
problem a PBM (including the parent organization and all
affiliates) should not be allowed to make money on drug spend.
If a company wants to make money on drug spend, the company
should be a manufacturer, wholesaler, or pharmacy. However, if
a company wants to administrate a pharmacy benefit plan on
behalf of an employer or a government entity, it should be
prohibited from making money on drug spend (spread pricing).
Data Sharing: As consolidation has been the primary growth
driver in the PBM marketplace, there have also been major
restrictions placed on payer data. For payers who utilize
different medical and PBM administrators there are often
obstacles created by vertically integrated organizations and
several large regional health plans, that restrict or
financially penalize the sharing of critical plan/patient data.
The data is utilized for payers who have integrated deductibles
or use a High Deductible Health Plan (HDHP) option for their
employees/members. Not having access to this plan/patient data
forces payers to continue using a limited number of PBM and
health plan providers. Payer data should be exchanged among all
PBMs and health plans in a unified format and at no cost to the
end payer. Capital Rx built JUDI with an open API architecture,
which enables payers to efficiently access and securely share
data without any restrictions.
______
Questions Submitted by Hon. Tim Scott
Question. I have seen a lot of information regarding the gross-to-
net bubble, the difference between a drug's list price and net price,
which can be quite sizeable when there are rebates paid by the
manufacturer. Reporting from many sources, including KPMG, Drug
Channels, and others, share that discounts from manufacturers are often
higher than 50 percent in Part D. Yet, patients who purchase those
medicines do not share in those rebates. The PBM business model today
has evolved to a point where they are now often owned by or own an
insurer, a large pharmacy chain, or both.
Can you discuss some of the innovative PBM models that are
springing up to address some of the pain points of the legacy market
using free market principals?
Answer. First, Capital Rx would posit that the current PBM market
does not adhere to free market principles. Artificial drug pricing--one
set of prices for pharmacy reimbursement and another set of prices for
each plan sponsor is flawed and allows PBMs to manipulate the price of
each prescription. In most other markets, clear prices for goods and
services are freely exchanged, which encourages competition and allows
consumers to make informed decisions. As such, Capital Rx's Single-
Ledger model solves two fundamental problems with the pharmaceutical
supply chain and the traditional PBM model by leveraging a single drug
price for plan sponsors, the PBM, and pharmacies.
Second, it is clear that the PBM industry, in general, needs to
focus on modernizing the way in which basic tasks are performed. Most
infrastructure utilized by PBMs is 20-30 years old. Literally hundreds
of human capital-intensive tasks associated with administering pharmacy
benefits are performed using human capital-
intensive, manual processes.
Moreover, our recently developed Enterprise Pharmacy Platform,
JUDI, helps our clients--including those focused on Medicare and
Medicaid populations--understand what's happening with their pharmacy
programs in real time. The level of transparency and visibility allows
health plans, for example, to better project costs. Ultimately,
innovation through technological enhancements will need to happen to
decrease costs for plan sponsors and patients in the United States.
Third, we would argue that traditional PBMs which own mail and
specialty home delivery assets deploy specific channel steerage
campaigns and pricing strategies to maximize their earnings while at
the same time limiting patient choice and potentially increasing cost.
Question. Where in the process can PBMs provide additional
meaningful data and transparency to understand how manufacturer rebates
are calculated and impact the cost of drugs for patients in addition to
utilization management requirements which may interfere with patients
receiving the optimal treatment selected in consultation with their
physicians?
Answer. Conventional PBMs enforce weak utilization management
criteria for a subset of high-cost drugs and thus have recorded higher
prior authorization approval ratings. We would encourage the committee
to analyze whether negotiated utilization management criteria drives
higher rebate yield or whether a pure low net cost, access-based rebate
approach with more stringent utilization management criteria would
decrease costs for plan sponsors and patients.
Capital Rx does not make money from the dispensing of high-cost
drugs and, as such, our clinical teams freely make prior authorization
(PA) decisions unbiased by the financial implications for Capital Rx.
To date, we have witnessed PA approval rates well below industry
averages, and we believe this has significantly decreased drug spend
for plan sponsors while ensuring that patients are receiving clinically
appropriate medications. While Capital Rx's approval rates for these
expensive medications is lower than the traditional market leading
PBMs, our member satisfaction remains at 99 percent, given the fact we
utilize pharmacists in every review and consult for critical
medications which require a PA. Having clinician to clinician
consultants on these critical medications is not the industry norm and
is often the source of patient and client frustration regarding
medication access. Capital Rx's clinical team guides each PA through a
white-glove process and engages the prescriber with viable alternatives
or appropriate first line therapies which are often more affordable for
the member and less costly for the payer.
Capital Rx would also recommend that the Finance Committee review
the latest submissions tied to the Consolidated Appropriations Act
(CAA) section 204 and review the ``spread'' margin being retained by
PBMs as well as any pharmaceutical manufacturer revenue retained by a
PBM from its clients.
______
Prepared Statement of Jonathan E. Levitt, Co-Founding Partner,
Frier Levitt Attorneys at Law
Chairman Wyden, Ranking Member Crapo, and members of the Senate
Committee on Finance, thank you for inviting me to testify today
regarding the role of pharmacy benefit managers in the drug supply
chain and their impact on taxpayers, patients, and other stakeholders.
My name is Jonathan Levitt. I'm not an economist or an academic. I
am a trial lawyer in the trenches within the drug space, and founder of
a healthcare and life sciences law firm called Frier Levitt. We
represent stakeholders in the drug supply chain, including
manufacturers, distributors, associations of providers, like community
oncologists, but, most relevant to this hearing, we serve independent
specialty pharmacies and retail pharmacies. I've been studying pharmacy
benefit managers for over 20 years.
We thank the U.S. Senate Committee on Finance for holding this
important hearing.
Testimony Summary:
The actions of the largest six pharmacy benefit managers (PBMs)--
that is six PBMs that control 96 percent of the Nation's prescription
drug market--have adversely impacted all stakeholders in the drug
supply chain, including patients, pharmacy providers, plan sponsors,
and taxpayers. Interested individuals and entities looking to
faithfully serve governmental programs such as Medicare and Medicaid
(and private plans) are at the mercy of PBMs and their vertically
integrated healthcare conglomerates.
The Centers for Medicare and Medicaid Services (CMS) have
outsourced the drug benefit to private PBMs, who have proven unable to
responsibly wield that massive industry power. Governmental programs
are only recently awakening to PBMs financial manipulation.
PBM-imposed direct and indirect remuneration (DIR) fees force our
sickest beneficiaries to pay artificially inflated copay and
coinsurance. Specialty pharmacies, often accredited in specialty
disease states to improve patient outcomes, face lower reimbursement
rates and higher DIR fees. PBMs force manufacturers to raise their list
price, in exchange for formulary placement. Drug manufacturers and
distributors fear retaliation by vertically integrated PBMs that own
our country's largest chain and specialty pharmacies and are
manufacturers' largest customers, the largest purchasers of the
manufacturers' drugs. The result is that PBM-owned pharmacies have a
materially lower acquisition cost on the ``buy side'' and better
reimbursement rates on the ``sell side'' when paid by their sister
PBMs.
Even PBMs theoretically competing with one another cut each other
special deals. Independent pharmacies are then forced to pay higher
acquisition costs while PBMs simultaneously reduce reimbursement rates
and then acquire the independent pharmacies causing further
consolidation.
Public scrutiny of PBMs is in its infancy while the PBMs' tactics
have been developed over several years. Previously left entirely
unchecked, PBMs have designed a system where most disputes are
``resolved'' in complete secrecy, cloaked behind gag clauses,
confidentiality agreements, and private arbitrations. In other
instances, PBMs avoid such disputes altogether through actual or
threatened retaliation.
PBMs' tactics are driving independent pharmacies out of business,
creating pharmacy ``deserts,'' especially in rural areas; fueling list
drug prices higher for all Americans; and delaying and denying
treatment for the sickest Americans, those with cancer and other
serious diseases. These are only a few of PBMs' adverse impacts.
Today, I implore the committee to end this era of the large PBM
stranglehold on the nation's healthcare system.
Detailed Testimony:
Pharmacy benefit managers or PBMs claim to lower the price of drugs
for consumers, taxpayers, large employer groups, and governmental
programs. But these claims are not supported by unbiased empirical
evidence and do not hold up when scrutinized. In fact, such scrutiny is
aggressively and effectively suppressed by PBMs. Medicare's Part D
Program is estimated to cost $119 billion in 2023. While CMS has sought
to form a public-private partnership between the Medicare Part D
program and Part D Plan Sponsors, CMS and such Part D Plan Sponsors
have outsourced the Medicare Part D Program to privately owned largely
unchecked PBMs who have amassed sister companies that profit from every
angle of the Medicare Program. PBMs utilize oppressive tactics, such as
direct and indirect remuneration--or DIR fees--to retroactively reduce
pharmacy providers' reimbursement rates, often times, below actual
acquisition costs for such drugs meaning that every time the provider
dispenses the drug, they take a loss. We know only through litigation
that CMS has not evaluated the methodology PBMs use to judge patient
medication adherence, which is the largest segment that determines the
pharmacy's oppressive DIR fee rate. Victims of PBMs' conduct include
the United States Government; Tricare and our military; specialty
pharmacies; retail pharmacies; oncology groups that dispense drugs to
cancer patients; and most importantly, numerous Americans: the
consumer, the taxpayer, and most importantly, the patient.
PBMs are directly--not theoretically--responsible for the increased
list price of drugs. I testify today with the hopes of reframing the
narrative. Drug manufacturers save lives. Of course, drug manufacturers
are in the business to make money and have responsibility in setting
drug prices. However, the gap between drug list prices and actual net
prices are due to PBMs' specific actions. PBMs, through their secret
sister companies, siphon a huge percentage of the list price of drugs
as profits to CVS Health, Cigna and UnitedHealth, all of whom own
little known companies called ``rebate aggregators.'' Often you won't
find PBMs' rebate aggregators in the United States. This is true for
Cigna and UnitedHealth; Cigna owns Express Scripts, one of the big
three PBMs, and also owns Ascent Health Services--its rebate
aggregator, which is located in Switzerland. UnitedHealth owns a PBM
called OptumRx and also a rebate aggregator called Emisar Pharma
Services, located in Ireland. CVS Health owns a PBM called CVS
Caremark, and a rebate aggregator called Zinc.
Consider the case of a manufacturer of oncology drugs that wants to
get their lifesaving cancer therapy into the hands of oncologists and
the oncologists' patients. How does the manufacturer accomplish that?
The manufacturer must pay tribute to the PBM-owned rebate aggregator to
get the drug placed onto a list of drugs that the PBM makes available
to government programs, large employer groups, and of course to
patients. This list is called a drug formulary.
On the topic of drug rebates, a staggering percentage of our
nation's drug spend is retained by these vertically integrated
companies. Manufacturers pay rebates and believe, wrongly, that the
full rebate is passed along to the plan sponsor. Manufacturers fear
auditing PBM-owned rebate aggregators. After all, PBM-owned chains and
specialty pharmacies are the largest buyers of the manufacturer's
drugs. PBMs decide which drugs get on formulary, which drugs will have
``higher tier copay'' or ``step therapy'' or prior authorization and
whether pharmacies will profit or lose money when dispensing drugs.
These processes are an artifice and merely a PBM tool to extract
rebates. PBMs wield this power to gain unfair advantages for each of
their vertically integrated companies. PBMs frequently make decisions
about which drugs will be on a specific formulary not based upon the
efficacy of the drug, but based upon how much of a rebate can be
negotiated and retained by the PBM.
The 340B program has come under substantial public scrutiny. But
few realize that PBMs have drained the system of a huge percentage of
benefit intended for patients and communities in need. Congress never
intended the 340B program to benefit large for-profit corporations that
provide little, if any, direct patient care for vulnerable populations.
Furthermore, PBMs siphon money from the 340B drug program by improperly
assessing DIR fees imposed on 340B prescriptions filled by independent
pharmacy providers, by exacting huge fees from covered entities. PBM-
owned pharmacies act as contract pharmacies, by imposing huge
percentage-based administrative fees when PBM-owned third party
administrators reconcile 340B claims on behalf of covered entities, and
by paying pharmacies substantially less for 340B claims for no reason
other than to retain profits which is money intended for the
underserved.
Rebate aggregators invite manufacturers to attend meetings to
discuss rebates, and manufacturers must bring their checkbooks. But
when rebates lead to higher ``list price of drugs,'' it's the patient,
big employer groups, and Federal and State governments that ultimately
pay the bill. In case you are wondering, all rebates are not fully
passed through to the plans.
Rebate aggregators tell manufacturers the following. The first
thing you must know is that you are going to pay a non-negotiable
administrative fee and data fee that equals 5 percent. To put that in
perspective, the United States total spend on retail drugs was $420
billion before rebates, with $301 billion dollars spent on specialty
drugs. That 5 percent combined administrative and data fee is likely
close to $20 billion. I want to emphasize how substantial in scope that
5 percent administrative fee is, in the context of the specialty drug
marketplace. That PBM fee and income does not even include the portion
of the drug rebate not passed along to plan sponsors. Consequently,
manufacturers must constantly increase the list price of drugs to
maintain the same margin.
The 5-percent administrative and data fee must also be analyzed in
the context of patient care. Specialty pharmacies are critical
providers that serve our Nation's sickest patients. They do so on
margins that are often less than 5 percent. In other words, PBM rebate
aggregators make far more money than our Nation's providers who
actually do the clinical work to serve our sickest patients. That is
perverse. Incredibly, CVS Health's ``Caremark Specialty Pharmacy''
controls nearly 30 percent of all specialty drugs dispensed in the
United States. Express Scripts and UnitedHealth's specialty pharmacies
control another 23 percent and 14 percent respectively. That is not
because of PBM-owned specialty pharmacies' clinical superiority, or
patient choice. It's because of vertical integration and
anticompetitive behavior.
I mentioned that I am a trial attorney and as a trial attorney, I
get to take depositions where PBM executives and insurance company
executives testify under oath. The transcripts of the testimony are
sealed by PBMs. I know answers to many questions you want to explore
today from the litigations and arbitrations I've handled, that are all
subject to confidentiality agreements. I get to ask questions like,
``What do you do with the $12.6 billion in DIR fees you collect from
pharmacies? Do you send any of the $12.6 billion annual DIR fee revenue
to CMS? Do you use any of that $12.6 billion to enhance the care of
Medicare beneficiaries? You say that DIR fees are based on the
pharmacies' performance--how do you measure adherence to specialty
drugs like oncology drugs?'' The answers to these questions are often
staggering.
Today, I am asking the committee to consider whether it is healthy
for PBMs to mandate highly confidential arbitrations. To impose strict
confidentiality requirements under the threat of a lawsuit for a
breach. And to prohibit class actions. These are the tools used by PBMs
to keep this information from the American people. PBMs operate in the
dark; they hate the light of transparency.
When making their mandatory filings with the Securities and
Exchange Commission (SEC), these companies do not disclose the profits
or revenues generated by their rebate aggregator subsidiaries or
through spread pricing. The SEC needs to compel better insurance
company revenue reporting. These insurance companies should break out
their revenue and profitability on rebates and spread pricing for
drugs.
The pharmacies from whom PBMs extract $12.6 billion annually in DIR
fees are trying to stay in business, but they are also victims. PBMs
will say that DIR fees lower Medicare beneficiaries' premiums. For
beneficiaries that do not use their drug benefit, who are not on any
prescription medications, a lower premium is indeed better. But most
beneficiaries use the drug benefit, and 75% of Medicare beneficiaries
worry about copay, coinsurance, and deductible. Low premiums are
outweighed by higher copay. Many Americans have dreadful diseases like
cancer, multiple sclerosis, and hepatitis and these Medicare
beneficiaries use their drug benefit and pay copays. Consumers, as they
are experiencing financial stress, are unaware that they are paying a
copay based on a false list price of the drug. Consumers do not know
that after they paid their copay, the PBM later recouped $12.6 billion
in DIR fees. How much would the copay of Medicare beneficiaries have
been reduced if there were no DIR fees?
More than 50 percent of DIR fees are paid by specialty pharmacies.
PBMs say they recoup DIR fees based on the specialty pharmacies'
performance. But PBMs do not publicly reveal their methodology. I have
deposed PBM executives and once we learn the details in discovery it
becomes clear PBMs measure performance dreadfully, and likely
intentionally, wrong. Retail and specialty pharmacies are victims of
PBM methodology that pays DIR fees based on these incorrect practices.
If PBMs continue to be left unchecked, the post-DIR fee world gets
worse, not better. In May 2022 CMS released a Final Rule reinterpreting
the term ``Negotiated Prices.'' The real impact of the Final Rule
essentially eliminates the profitability that Part D Plans and PBMs
enjoyed arising from pharmacy DIR fees. To make up for that lost DIR
profit, Part D Plans and PBMs have already started to amend contracts
to remove DIR fees and reimburse pharmacies at drastically lower rates
to retain their prior profitability. Some 2024 reimbursement rates have
become public. In 2024 Express Scripts will reimburse brand medications
at a standard benchmark of 26.3 percent off average wholesale price or
AWP-26.3%. Our research shows that virtually no pharmacies, other than
PBM-owned pharmacies, can acquire brand drugs at costs at or lower than
Express Scripts' new rate. If Express Scripts can get away with paying
only AWP-26.3%, often more than 3 percent less than the previous year's
rates, other PBMs will follow. The result of reimbursement below drug
acquisition costs will put independent pharmacies, and particularly
pharmacies dispensing predominantly brand drugs (such as specialty
pharmacies) out of business. These issues must be addressed before
these dire predictions become reality.
I have attached a comprehensive expose that my firm prepared on PBM
abuses as well as supplemental input for the Senate Committee on
Finance. Thank you for listening to me, and to the needs of the
American people. I am happy to answer any questions you may have.
______
Submission to the U.S. Senate Committee on Finance
How Pharmacy Benefit Managers Adversely Impact Patients, Taxpayers, and
Other Medicare Stakeholders
Contributors: Jonathan Levitt, A.J. Barbarito, Steven Bennet, Harini
Bupathi, Christopher Caltavuturo, Jesse Dresser, Adam Farkas, Dae Lee,
Conor McCabe, Todd Mizeski, and Lucas Morgan
March 30, 2023
I. Executive Summary
Pharmacy Benefit Managers (PBMs) use their marketplace dominance to
profit at the expense of nearly every other Medicare and Medicaid
stakeholder, including Medicare beneficiaries, taxpayers, pharmacies,
manufacturers, and distributors. Frier Levitt has advocated for
reasonable oversight of highly vertically integrated healthcare
conglomerates. When a single corporate entity combines an insurance
company, PBM, chain pharmacy, specialty pharmacy, rebate aggregator,
and healthcare providers under one giant corporate umbrella, it wields
immense power that cannot be responsibly managed. PBMs are becoming
more adept at extracting and siphoning profits from all other
stakeholders. Frier Levitt hopes to provide the United States Senate
Committee on Finance with more information on PBMs' impact on Medicare
and Medicaid stakeholders.
Based on the information detailed below, Frier Levitt recommends that
the Senate Committee on Finance take steps to:
(1) Rectify unreasonable reimbursement terms that PBMs pay to
retail and specialty pharmacies and investigate discriminatory
pricing in favor of PBM affiliated pharmacies. The Committee
should comprehensively study PBMs' contract terms and
reimbursement rates that PBMs unilaterally impose on providers.
The Committee should also develop standards for reasonable
contracting terms and reimbursement rates and instruct the
Centers for Medicare and Medicaid Services (CMS) to establish
enforcement measures where existing regulations are sufficient
and implement new rules where existing regulations are
insufficient. Today, we are calling for the Committee to
consider whether the reimbursement rates PBMs pay to specialty
pharmacies should take into account that PDPs are paid more to
manage sicker beneficiaries, resulting in a reimbursement to
specialty pharmacies that recognizes their important role.
(2) Bring PBMs into compliance with applicable laws including
Medicare's Any Willing Provider Law. PBMs have ignored key laws
such as Medicare's Any Willing Provider Law, having taken the
written position in confidential sealed briefs that the laws do
not apply to PBMs, or to narrowly interpreted such laws to the
detriment of pharmacy providers. CMS should provide clarity on
existing Medicare reimbursement rate guidance \1\ and Congress
should take steps to amend laws to correct for PBM abuses.
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\1\ E.g., Medicare Prescription Drug Benefit Manual, Chapter 5,
Section 50.3.
(3) Reduce the negative impact of vertical integration in the
healthcare marketplace. The government should investigate the
impact of consolidation, regulate these conglomerates, and
enforce the law to offset the negative impact of these
organizations.
II. The Big Picture: Understanding the Impact of PBMs on Medicare and
Medicaid Stakeholders
A. The Pharmacy Benefits Landscape
The current system of coverage and reimbursement for drug products
within the United States is complex and opaque. The profit PBMs earn on
spread pricing when they pay pharmacy providers and the amount of
profit PBMs earn on rebates demanded from manufacturers remains
unknown. The costs, extent of coverage, reimbursement rates, out-of-
pocket amounts and applicable rights may vary substantially depending
on the payor, the state, the type of drug, the method of
administration, the site of service and the site of care. To sift
through this morass, we begin by understanding the relevant
stakeholders, as well as their respective roles in benefits design and
the provision of care.
Plan Sponsors: Plan sponsors are the ultimate financial
guarantors and decision makers when it comes to creating a health care
benefits plan. Plan sponsors include a variety of public programs, such
as Medicare, Medicaid, and TRICARE programs, as well as private
entities, including employers, union groups, and retirement funds. Plan
sponsors, in turn, contract with several other entities for the
purposes of administering the plan. In the context of Medicare Part D,
the Federal government (through CMS) is arguably the plan sponsor, as
it contracts with and provides subsidies to private Part D Plan
Sponsors, known as Prescription Drug Plans (PDPs) to offer prescription
drug plans. CMS outsources the management of Medicare to private PDPs,
who retain PBMs to manage the drug benefit. In addition, when patients
exceed the catastrophic coverage threshold, CMS provides reinsurance
coverage to these plans. In the context of Medicaid programs, the state
Medicaid agencies are generally considered the plan sponsors, as they
contract with Medicaid managed care organizations or PBMs directly to
administer pharmacy benefit plans and provide direct and indirect
financial subsidies and funding for such programs. In the private
marketplace, large employer groups are also plan sponsors.
Health Insurance Companies: Health insurance companies create
and operate healthcare plans, managing healthcare claims submitted by
providers for care provided to patients who are employees,
beneficiaries and/or members of the plan, or their dependents. Health
insurance companies are private companies, and can operate in several
ways, including as a licensed health insurer, a managed care
organization (MCO), or a health maintenance organization (HMO). In the
context of Medicare Part D, health insurance companies are Part D Plan
Sponsors (PDPs), which are state-licensed insurance companies that
offer Medicare Part D prescription drug plans to Medicare
beneficiaries, and who have entered into a contract with CMS to provide
prescription drug coverage to Medicare beneficiaries. In the context of
Medicaid, health insurance companies are private state-licensed
insurance companies and MCOs who have contracted with state Medicaid
agencies to provide healthcare services to Medicaid beneficiaries.
Pharmacy Benefit Managers (PBMs): PBMs are third-party
administrators of prescription drug programs covered by a plan sponsor.
The PBM is primarily responsible for processing and paying prescription
drug claims submitted by participating providers on behalf of covered
patients. PBMs also provide bundled services related to the
administration of pharmaceutical benefits, including formulary design,
formulary management, negotiation of branded drug rebates, and
controlling network access of participating pharmacies. Although plan
sponsors may occasionally engage PBMs directly, in many cases, health
insurance companies procure PBMs' services on behalf of plan sponsors.
This is also true for Medicare Part D and Medicaid, where the
responsibility of contracting with PBMs falls on the Part D Plan
Sponsor and/or Medicaid MCO.
Rebate Aggregators: Also known as rebate group purchasing
organizations (GPOs), rebate aggregators negotiate and collect rebates
from manufacturers on behalf of their members, who include one or more
PBMs. While rebate aggregators may pass some portion of the rebates
collected to their members, rebate aggregators may also retain a
portion of the rebate, which is not always readily known.
Pharmacy Providers: On the frontline of providing care, pharmacy
providers include retail, specialty, health-system and mail-order
pharmacies, and dispensing physician practices. Pharmacy providers
contract with PBMs to dispense medications to plan members and
participate in PBM networks.
Prescribers: Prescribers include licensed healthcare
professionals, such as doctors and nurse practitioners, who are
authorized to prescribe medication to patients. Prescribers work with
pharmacy providers to ensure that patients receive the medication they
need.
Patients: Patients include beneficiaries of government-sponsored
health care programs, as well as the employees (and dependents) of
employers sponsoring health plans. They are also uninsured or
underinsured individuals who are left to find a way to cover drug costs
themselves. In the context of Medicare Part D, eligible patients (i.e.,
individuals who are 65 years of age or older, individuals with certain
disabilities, etc.) select a Part D Plan and pay premiums to receive
prescription drug coverage. In the context of Medicaid programs,
patients who are Medicaid-eligible (i.e., low-income individuals and
families, individuals with disabilities, etc.) select and enroll in
Medicaid managed care plans administered by MCOs or enroll directly in
a fee-for-service program administered by the State Medicaid agency.
Manufacturers: Manufacturers include both brand manufacturers,
who develop and produce innovative prescription drugs and biologics, or
generic manufacturers, who produce medications that are equivalent to
brand-name medications in terms of active ingredients, dosage,
strength, quality, and intended use. Manufacturers negotiate drug
prices with PBMs and are forced to pay PBMs administrative fees, data
fees and rebates in order to get their drugs on formularies and promote
their drugs to prescribers and patients.
Wholesalers: Wholesalers are companies that purchase
prescription drugs in bulk from pharmaceutical manufacturers and
distribute them to pharmacies, hospitals, and other healthcare
providers.
Each of these stakeholders plays a different and unique role in the
drug delivery process. Historically, each stakeholder has operated
separate but interconnected entities, working together to provide
different aspects of patient care. However, as discussed below,
horizontal and vertical integration has eroded many of the checks and
balances, particularly in the Medicare Part D context, and has allowed
a small cadre of multibillion dollar companies to control all the
levers of decision-making around drug benefits, reimbursement rates,
provider access and plan benefits design. Unfortunately, because of
conflicts of interest, patients, manufacturers and plan sponsors have
been harmed as PBM corporate profits have soared at the expense of
healthy competition.
B. Vertical Integration Stifles Competition and Limits
Patient Choice
PBMs traditionally have played a critical role in the administration of
prescription drug programs. However, over the past ten years, the PBM
marketplace has transformed considerably. Changes include both
horizontal and vertical integration among health insurance companies,
PBMs, chain pharmacies, specialty pharmacies, rebate aggregators, long-
term care pharmacies and more recently healthcare providers. As a
result, a smaller number of large companies wield nearly limitless
power and influence over the prescription drug market.
Within the PBM marketplace, over 80% of the covered lives are
controlled by only three PBMs.\2\ As a result, of this increasing
concentration (the same PBMs made up 75% of the market concentration
just three years prior \3\), a pharmacy's access to these three PBM
networks is critical.\4\ Being out of network with just one PBM (which
in some regions, could make up more than 85% of the market), and being
unable to bill that PBM for drug claims, would render it financially
unviable for any pharmacy provider to operate, period. The lack of
competition in the marketplace stems, in large part, from a series of
mergers, integrations and consolidations. These consolidations and
integrations are undoubtedly a factor in many abusive PBM practices,
ranging from seeking to exclude independent pharmacy providers,
retaliation against providers who challenge PBM abuse, to ``under
water'' reimbursement rates that force pharmacy providers to lose money
on each fill, to PBM diversion of patients from independent pharmacy
providers to the PBMs' wholly-owned or affiliated pharmacies. This
becomes possible due to the increased market power of the top PBMs
resulting from the consolidation.
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\2\ See https://www.hirc.com/PBM-market-landscape-and-imperatives;
https://www.managed
healthcareexecutive.com/view/beyond-the-big-three-pbms.
\3\ See https://www.latimes.com/business/hiltzik/la-fi-hiltzik-pbm-
drugs-20170611-story.html.
\4\ Of note, CVS Caremark's specialty now maintains a market share
of more than 30% in terms of in specialty drug revenue among specialty
pharmacies. Thus, this consolidation at the PBM level has had a direct
and proximate impact on CVS Caremark's ability to capture specialty
pharmacy prescriptions. See, https://www.beckershospitalreview.com/
pharmacy/top-15-specialty-pharmacies-by-revenue-2.html.
The breadth of PBM power did not occur suddenly. It initiated through a
series of vertical consolidations in which certain PBMs acquired large
specialty pharmacies, while others acquired insurance companies. In
2007, the shareholders of Caremark Rx, one of the nation's largest PBMs
at the time, approved a $26.5 billion takeover of CVS Pharmacy, which
effectively created the first vertically integrated retail pharmacy and
PBM.\5\ Vertical integration of the industry continued in 2011, as Blue
Cross Blue Shield of North Carolina, one of Medco's largest customers,
began shifting its PBM business away from Medco to Prime
Therapeutics,\6\ a PBM that is wholly owned by a group of thirteen Blue
Cross plans across the country. In 2012, UnitedHealthcare (United), the
nation's largest insurance company, began migrating the administration
of its plans from Medco Health Solutions to OptumRx, United's wholly-
owned PBM.\7\
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\5\ Evelyn M. Rusli, Caremark Approves CVS Merger, Forbes (March
16, 2007, 4:59 PM), http://www.forbes.com/2007/03/16/caremark-approves-
update-markets-equity-cx_er_0316
markets29.html.
\6\ Jon Kamp, Medco Faces Loss of Blue Cross Customer, Wall St. J.
(August 3, 2011, 6:04 PM), http://www.wsj.com/articles/
SB10001424053111903454504576486653127464070.
\7\ Anna Wilde Mathews, UnitedHealth's Answer to Express Scripts-
Medco Merger?, Wall St. J. (July 21, 2011, 8:34 AM), http://
blogs.wsj.com/deals/2011/07/21/unitedhealths-answer-to-express-scripts-
medco-merger/.
Consolidation of the PBM and payer space has not been limited to
vertical integration. In 2011, two of the nation's then-largest PBMs--
Medco Health Solutions, Inc. and Express Scripts, Inc.--announced a $29
billion merger. After a contentious regulatory approval process, the
Federal Trade Commission ultimately approved the merger in 2012.\8\
Thereafter, the industry continued consolidation both horizontally and
vertically. In 2013, a regional PBM--SXC Corporation--agreed to buy
another regional PBM--Catalyst, Inc.--for $4.4 billion to form a
national PBM, known as Catamaran Corp.\9\ In July 2015, Catamaran was
acquired by United, OptumRx's parent company, for $12.8 billion. The
two PBMs are now integrating operations and operate under one name,
OptumRx. In 2015, Rite Aid acquired the PBM EnvisionRx for
approximately $2 billion.\10\
---------------------------------------------------------------------------
\8\ Reed Abelson and Natasha Singer, F.T.C. Approves Merger of 2 of
the Biggest Pharmacy Benefit Managers, N.Y. Times (April 2, 2012),
http://www.nytimes.com/2012/04/03/business/ftc-approves-merger-of-
express-scripts-and-medco.html.
\9\ Michael J. De La Merced, SXC Health Solutions to Buy Catalyst
Health for $4.4 Billion, N.Y. Times (April 18, 2012, as updated 3:07
PM), http://dealbook.nytimes.com/2012/04/18/sxc-health-solutions-to-
buy-catalyst-for-4-4-billion/.
\10\ Rite Aid Completes Acquisition of Leading Independent Pharmacy
Benefit Manager EnvisionRx, Bus. Wire (June 24, 2015), http://
www.businesswire.com/news/home/20150624005906/en/Rite-Aid-Completes-
Acquisition-Leading-Independent-Pharmacy.
Unfortunately, in the last five years, the trend of consolidation and
integration has increased exponentially. In November 2018, CVS Health
completed a controversial $69 billion acquisition of Aetna, a managed
health care company specializing in selling traditional and consumer-
directed health insurance along with related services including dental,
vision, and disability plans. Not to be outdone, in December 2018,
health insurer Cigna acquired Express Scripts for $54 billion.\11\
Since then, Cigna and Express Scripts have continued to expand in
creative ways. In December 2019. Express Scripts and Prime Therapeutics
announced a three-year collaboration, whereby Express Scripts took over
the contracting and administration of the pharmacy benefits for Prime
Therapeutics' members.\12\ As a result, Express Scripts now manages the
prescription benefits for more than 100 million Americans.\13\
---------------------------------------------------------------------------
\11\ Bruce Japsen, Cigna-Express Scripts Merger's A Done Deal,
Forbes, December 19, 2018, https://www.forbes.com/sites/brucejapsen/
2018/12/19/cigna-express-scripts-merger-a-done-deal-by-thursday/
#261d98a55688).
\12\ See https://medcitynews.com/2019/12/express-scripts-strikes-
partnership-with-prime-therapeutics/.
\13\ See https://www.primetherapeutics.com/en/news/pressreleases/
2019/release-prime-express-scripts-collaboration.html.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
PBMs are extending vertical integration in new and unique ways.
First, as plan sponsors have become savvier with respect to the rebates
received by PBMs, several large PBMs created an additional layer
between themselves and manufacturers to effectively ``delegate'' the
collection of manufacturer rebates to ``rebate aggregators.''\14\
Sometimes referred to as rebate GPOs, these mysterious entities include
Ascent Health Services, a Switzerland-based GPO that Express Scripts
launched in 2019, Zinc, a contracting entity launched by CVS Health in
the summer of 2020, and Emisar Pharma Services, an Ireland-based entity
recently rolled out by OptumRx.\15\ Even some of the major PBMs (i.e.,
the ``Big Three'' PBMs) sometimes find themselves contracting with
other PBMs' rebate aggregators for the collection of manufacturer
rebates (for example, in the case of OptumRx contracting with Express
Scripts for purposes of rebate aggregation for public employee
plans).\16\ Worse yet, several such entities have claimed that they are
not subject to the federal GPO Safe Harbor,\17\ leading to a lack of
transparency, as well as few limits on the levels of profitability of
these companies.
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\14\ See Office of Broward County Auditor, ``Audit of Pharmacy
Benefit Management Services Agreement,'' 2017, accessible online:
https://www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%20Ser
vices%2
0by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf.
\15\ See, Alia Paavola, ``CVS Health reportedly launching a GPO
called Zinc,'' Becker's Hospital Review, June 30, 2020. Accessible at:
https://www.beckershospitalreview.com/pharmacy/cvs-health-reportedly-
launching-a-gpo-called-zinc.html; https://www.drugchannels.net/2021/08/
drug-channels-news-roundup-august-2021.html.
\16\ See Office of Broward County Auditor, ``Audit of Pharmacy
Benefit Management Services Agreement,'' 2017, accessible online:
https://www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%20Ser
vices%2
0by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf.
\17\ 42 CFR Sec. 1001.952(j).
Likewise, just as PBMs have moved up the chain of the drug supply
chain, they have also sought to integrate downward, and are
increasingly acquiring prescriber businesses, such as physicians'
practices, and expanding into primary care. For several years,
UnitedHealth Group's healthcare services division, Optum, has been
quietly buying up physician practices, and according to recent
estimates, Optum's physician network--comprising more than 70,000
physicians--is reported to make up over 5% of all U.S. physicians.\18\
Similarly, CVS Health--already known for its operation of in-store
Minute Clinics, as well as its $8 billion acquisition of Signify Health
\19\--recently acquired Oak Street Health, an operator of nearly 170
medical centers--for $10.6 billion.\20\ Possibly based on fear of
giving up territory, Evernorth, the health services arm of Cigna,
invested $2.5 billion in Walgreens-backed VillageMD's acquisition of
medical practice, Summit Health, for almost $9 billion,\21\
highlighting the veritable ``arms race'' for primary care providers
integrated within PBM businesses.\22\ In each instance of creative
consolidation or integration, medical providers that do not sell out
are weakened through reduced rates, pharmacies are harmed by reduced
reimbursement rates and network shut outs, consumers are harmed through
increased copays.\23\
---------------------------------------------------------------------------
\18\ See https://www.medpagetoday.com/special-reports/exclusives/
100531; https://www.becker
spayer.com/payer/meet-americas-largest-employer-of-physicians-
unitedhealth-group.html.
\19\ See https://www.healthcaredive.com/news/cvs-signify-amazon-
unitedhealth-acquisition-home-health/631200/
#::text=Dive%20Brief%3A,for%20the%20home%20healthcare%20company.
\20\ See https://www.costar.com/article/790165595/cvs-races-rivals-
in-expanding-primary-care-centers-with-106-billion-oak-street-health-
deal.
\21\ See https://www.healthcaredive.com/news/cigna-evernorth-
villagemd-investment-walgreens-summit-value-based-care/636116/.
\22\ See https://www.healthcaredive.com/news/cigna-merger-
acquisition-strategy-insurers/6357
09/.
\23\ Ibid.
Finally, each of the big three PBMs has equally sought to find other
areas of vertical integration to give themselves greater control of the
marketplace and drug supply chain. PBMs and their affiliated companies
use their influence over the marketplace to ensure their own specialty
pharmacies get access to many Exclusive or Limited Distribution Drugs
(EDDs/LDDs). EDDs/LDDs are sold by drug manufactures to a single or
limited number of specialty pharmacies. Those pharmacies able to buy
these EDDs/LDDs gain immediate benefits by way of exclusive or near
exclusive access to patients that require these unique medications.
PBMs assert their influence even on more commonly accessible
medications. For drugs distributed through a broader supply chain, PBMs
can demand lower price from manufacturers and distributors and then
distributors are forced to charge independent pharmacies more for the
---------------------------------------------------------------------------
same drugs sold to PBM-owned pharmacies.
Further, in a bid to corner the explosive 340B market, CVS Health
acquired the software provider and third-party administrator,
Wellpartner, in 2018, giving it direct insight and control into
millions of 340B reconciliations between covered entities and contract
pharmacies, even when CVS is not involved as a pharmacy or PBM.\24\
This has enabled CVS Health to dominate the 340B contract pharmacy and
third-party administrator (TPA) marketplace, to the point where State
Attorney Generals have begun to initiate enforcement actions against
the conglomerate over antitrust and anticompetition violations.\25\
Today, we are calling on the government and manufactures to investigate
just how much of 340B revenue is siphoned by PBMs and their wholly
owned TPAs.
---------------------------------------------------------------------------
\24\ See https://www.blueandco.com/cvs-health-has-acquired-340b-
software-provider-wellpartner
-inc/.
\25\ See https://ag.ny.gov/press-release/2022/attorney-general-
james-sues-cvs-harming-new-york
-safety-net-hospitals-and-clinics.
Likewise, in 2017, Express Scripts acquired eviCore Healthcare, a
utilization management and ``medical benefits manager,'' providing
Express Scripts visibility and access to millions of drug claims billed
and reimbursed under the medical benefit (as opposed to the pharmacy
benefit).\26\ Medical providers must take note. Lastly and perhaps most
concerningly is United HealthGroup's acquisition of Change Healthcare
for $13 billion, which was completed last year, despite a direct
(albeit, unsuccessful) legal challenge by the Department of
Justice.\27\ The Department of Justice had good reason to block this
transaction, as Change Healthcare operates a ``healthcare claims
clearinghouse,'' receiving, processing and transmitting claims data
from many different pharmacy providers and PBMs, and United's ownership
of the platform would give the company insight into virtually every
pharmacy claim processed in the country.\28\
---------------------------------------------------------------------------
\26\ See https://www.prnewswire.com/news-releases/express-scripts-
closes-acquisition-of-evicore-companies-unite-to-improve-healthcare-
for-100-million-americans-300572207.html.
\27\ See https://www.forbes.com/sites/brucejapsen/2022/10/03/
unitedhealth-closes-optums-13-billion-change-healthcare-deal/
?sh=593f7ee7ccc9.
\28\ See https://www.justice.gov/opa/pr/justice-department-sues-
block-unitedhealth-group-s-acquisition-change-healthcare; https://
www.fiercehealthcare.com/payers/doj-appeal-unitedhealth-change-
healthcare-merger-challenge.
This rapid evolution of the PBM and health insurance industry shows how
a limited number of corporations wield an outsized level of power in
the prescription drug coverage marketplace. Fewer payers harms
patients, especially those requiring specialty medications. Powerful
payers, when integrated with PBMs, chain pharmacies and PBM-owned
specialty pharmacies, present unique challenges to drug wholesalers and
manufacturers. These integrated companies have greater abilities to
control the nature and direction of patients' care, drug formularies,
including what type of care/drugs patients receive, from whom they
---------------------------------------------------------------------------
receive it, and in what setting they are treated.
Fewer payers means that a provider is not able to survive without
network access to each PBM. Exclusion from one PBM with a market share
of 35% means that the provider loses out on a major portion of the
patient population.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
As illustrated in the figure above, consolidation has created
merged entities that have oppressive power over many stakeholders in
the supply chain. This creates a virtual chokehold note only on
independent pharmacy providers, but on pharmacy services administrative
organizations (PSAOs), plan sponsors, manufacturers, distributors and
patients alike. Market dominance has allowed PBMs to get away with
abusive practices. Challenges are met with retaliation, actual,
threatened or perceived.
\29\ Exhibit 87 in The 2022 Economic Report on U.S. Pharmacies and
Pharmacy Benefit Managers, Drug Channels Institute. Available at http:/
/drugchannelsinstitute.com/products/industry-reports/.
Whether it is outsized manufacturer rebates PBMs demand from
manufacturers or direct and indirect remuneration (DIR) fees extracted
from pharmacies, PBM practices fuel drug prices. Whether it is
unreasonable barriers to entry such as requiring specialty pharmacies
to have multiple ``accreditations'', network exclusions or mandatory
``white bagging''\30\ forcing patients to receive inferior service at
higher costs. Whether it is employing insidious copay maximizer
programs \31\ or deceptive pricing and reimbursement techniques. Or
worse yet, whether it is essentially practicing medicine, through
``fail first'' step therapy, prior authorization requirements, or
formulary exclusions, many of which favor not the least expensive
medication, but the most profitable one for the PBM. Through vertical
integration, PBMs have become both the ``arsonists and firefighters''
of drug prices.\32\ Each tactic is made possible by the PBMs' sheer
levels of dominance at all levels of the health care continuum. This
consolidation has hurt medical care, made independent pharmacy
unprofitable, while fueling both drug prices and costs to patients and
plan sponsors alike.
---------------------------------------------------------------------------
\30\ White bagging is a practice involving healthcare providers
(such as doctors, clinics, and hospitals) and pharmacies, whereby a
patient's medication to be used in a procedure is sent directly by the
pharmacy to the provider at which the patient is receiving care. Many
payers, primarily large national insurers, have recently begun to
mandate white bagging by requiring that in-
office administered medications be purchased and dispensed through the
payers' pharmacies, as opposed to being sourced and provided by the
administering provider. Healthcare providers are then expected to
receive and administer this medication filled and dispensed by the
payer-owned pharmacy.
\31\ Copay maximizers are programs instituted to ensure that the
maximum value of a manufacturer's copay coupon is realized by the PBM,
even if normal plan design would yield a lower copay amount. Copay
maximizer programs often intentionally ``increase'' the patient's out-
of-pocket costs to reflect the maximum availability of support offered
by a manufacturer copay coupon program. This aims to ensure that the
full value of the manufacturer's copay savings program is extracted for
the benefit of the plan.
\32\ See https://www.healio.com/news/rheumatology/20220214/
vertical-integration-secures-pbms-as-arsonists-and-firefighters-of-
drug-prices.
C. Who Chooses PBMs?
This level of horizontal consolidation, combined with vertical
integration, leaves little choice for patients, pharmacy providers and
plan sponsors in trying to escape PBM abuses. Because of vertical
integration, no patient, no plan sponsor, and no pharmacy provider can
choose a PBM.
As noted above, PBMs are typically contracted directly with plan
sponsors, or through health insurance companies. But PBMs have
structured the system to their benefit through consolidation. For
example, PDPs often give no bid contracts to their wholly-owned PBM
subsidiaries, i.e., SilverScript/Aetna selects Caremark at its PBM;
Cigna selects Express Scripts as its PBM; and UnitedHealthcare selects
OptumRx as its PBM. Why is this practice a cause for concern? When
these relationships are structured in a vertically integrated manner
with affiliated entities participating in every aspect of the process,
it diminishes accountability. For example, PBMs can hide rebates and
manipulate the drug expense/medical loss ratio. This consolidation also
has an impact on the quality of patient care. Consider a scenario where
a patient has received subpar care or been compelled to pay higher
prices as a result of a PBM's actions. What meaningful choice does that
patient have in selecting another PBM? If the patient receives
prescription drug coverage through their job, it is the patient's
employer (or more likely, the employer's benefits broker) who selects
the PBM. The patient's only option at that point would be to look for
another job. Patients' ability to meaningfully select a new PBM does
not improve if they are a Medicare Part D beneficiary. Patients select
among Part D Plan Sponsors, not PBMs. When Part D Plan Sponsors are
owned directly by PBMs, patients are locked into a particular PBM.
Moreover, the number of standalone Part D Plans has steadily decreased
since 2006, and geographic market share concentration often result in
no real choice for patients to switch PBMs.\33\
---------------------------------------------------------------------------
\33\ See https://www.kff.org/medicare/issue-brief/medicare-part-d-
a-first-look-at-medicare-prescription-drug-plans-in-2022/; https://
www.cms.gov/medicare/prescription-drug-coverage/pre
scriptiondrugcovgenin.
This concept is even more pronounced in the context of Medicaid managed
care. For example, in Bronx County, New York, eight of the thirteen
Medicaid MCO plans utilized Caremark as the processing PBM, nearly
guaranteeing that a Medicaid-eligible patient will have benefits
processed by Caremark, regardless of the insurance plan selected.\34\
---------------------------------------------------------------------------
\34\ See https://www.health.ny.gov/health_care/managed_care/plans/
mcp_dir_by_cnty.htm.
---------------------------------------------------------------------------
D. Ripe Conditions for PBM Profiteering
As a result of this control over the marketplace, PBMs have created
truly ripe conditions to profit at the expense of patients, plan
sponsors, manufacturers, taxpayers and other pharmacy providers. For
example, PBMs have used this leverage and vertical integration to pay
their own pharmacies more money than the PBM pays independent pharmacy
providers, allowing PBMs to squeeze out competition.\35\ At the same
time, PBMs continually charge plan sponsors more than what they are
paying pharmacy providers through a tactic known as ``spread pricing.''
Dozens of states have filed suit against numerous PBMs over spread
pricing in state Medicaid programs.\36\ In addition to increasing
profits by spread pricing, PBMs actively reduce coverage of potentially
lower cost products in favor of highly reimbursable products.\37\ In
particularly egregious examples of this, PBMs have taken to deceptively
including prescription discount card programs into their benefit,
literally deceiving Medicare Part D patients into believing that their
low-cost generic medications are being covered, when in reality, they
have been processed through a prescription discount card. Thus, rather
than simply cover a lower cost generic where the patient could pay
little to no copay, the PBM excludes coverage for the generic
altogether in favor of a highly-rebated brand, forcing the patient to
unknowingly pay the entire amount of the generic medication.\38\
---------------------------------------------------------------------------
\35\ 3 Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis, 1, 3-4,
January 30, 2020.
\36\ See, 3 Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis, 1, 3-4,
January 30, 2020; 46 Brooklyn, New Pricing Analysis Reveals Where PBMs
and Pharmacies Make Their Money, April 21, 2019, https://
www.46brooklyn.com/research/2019/4/21/new-pricing-data-reveals-where-
pbms-and-pharmacies-make-their-money (observing that despite lower
payouts to pharmacies and a deflating generic market, Ohio's generic
drug unit costs increased 1.8% in SFY 2017 and, of the total state
spending on generic drugs, 31.4% went to PBMs via spread pricing);
https://www.
paauditor.gov/Media/Default/Reports/RPT_PBMs_FINAL.pdf.
\37\ Federal Trade Commission, Policy Statement of the Federal
Trade Commission on Rebates and Fees in Exchange for Excluding Lower-
Cost Drug Products at 1 (June 16, 2022).
\38\ See, United States ex rel. Ellsworth Associates, LLP v. CVS.
Health Corp., et al., 2:19-cv-02553, Dkt 18 (2022); https://
www.fiercehealthcare.com/payers/whistleblower-suit-cvs-prevented-part-
d-members-accessing-generics.
The level of PBM profiteering only expands when considering other lines
of business operated by PBMs. For example, in the context of 340B, in
addition to fees taken by contract pharmacies owned and operated by
PBMs, third-party administrators, such as CVS-owned Wellpartner, assess
additional fees on every 340B eligible claim, which are ``percentage[s]
of margin,'' and can be as high as 15% of the cost of the drug,
destroying the intended purpose of 340B.\39\
---------------------------------------------------------------------------
\39\ See, RxStrategies, Inc. v. CVS Pharmacy, Inc. and Wellpartner,
LLC, 8:18-cv-01087, Dkt 1 (2018); https://news.bloomberglaw.com/health-
law-and-business/cvs-facing-twin-lawsuits-over-conduct-in-drug-market.
This all begs the question: just how much do PBMs siphon off? Between
spread pricing and pharmacy direct and indirect remuneration (DIR)
fees,\40\ rebates and transaction fees, 340B third party administrative
fees, for every dollar spend towards a prescription medication, it can
be estimated that PBMs (or their affiliates) retain more than $0.50.
This is illustrated in Figure 3.
---------------------------------------------------------------------------
\40\ ``DIR'' stands for ``Direct and Indirect Remuneration,'' and
describes any kind of remuneration Part D Plan Sponsors (PDPs) or their
Pharmacy Benefit Managers (PBMs) may receive from any source that
offsets the PDP's costs. ``DIR'' is a colloquial term generally used by
the pharmacy industry that has been adopted by most stakeholders, and
even legislators, to describe a particular kind of DIR that CMS
typically refers to as ``pharmacy price concessions.'' https://
www.frierlevitt.com/articles/what-are-dir-fees-and-clawbacks/.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Thus, vertical integration and horizontal consolidation has harmed
patients, plan sponsors, manufacturers, taxpayers and providers, alike.
III. Top Barriers Erected by PBMs
Alongside consolidation, PBMs and their affiliated entities leverage
their increasing influence over the marketplace to force manufacturers
to increase the list price of drugs, increase PBM profits, reduce
patient drug coverage, and decrease the viability of independent
pharmacy competitors. Below is a discussion of the top barriers erected
by PBMs.\41\
---------------------------------------------------------------------------
\41\ Redactions are made in the remainder of this submission
because of PBM requirements that certain contract documents, disputes,
and facts learned in arbitration are required to remain confidential.
With respect to specialty medications, which make up an ever-increasing
segment of the drug spend, the Department of Health and Human Services
Assistant Secretary for Planning and Evaluation, Office of Science &
Data Policy released a report \42\ on ``Trends in Prescription Drug
Spending, 2016-2021'' in September 2022 detailing the impact of
specialty medications. The report identified that the U.S. health care
system spent $421 billion for drugs filled in an outpatient setting,
including standalone pharmacies and mail order prescriptions. The
report specified, ``[d]rug spending is heavily driven by a relatively
small number of high-cost products.'' Following the 80/20 rule, 80% of
prescriptions that Americans fill are for less costly generic drugs,
yet the 20% brand name prescriptions represent 80% of the cost of drugs
dispensed. The report also highlighted that ``the top 10% of drugs by
price make up fewer than 1% of all prescriptions.'' Expensive specialty
drugs represent about more than 50% of drug spend.\43\ In short, a
relative few expensive specialty drugs drive a significant portion of
the drug spend in the United States.
---------------------------------------------------------------------------
\42\ The Department of Health and Human Services Assistant
Secretary for Planning and Evaluation, Office of Science and Data
Policy, Trends in Prescription Drug Spending, 2016-2021 (September
2022). Available at https://aspe.hhs.gov/sites/default/files/documents/
88c547c976
e915fc31fe2c6903ac0bc9/sdp-trends-prescription-drug-spending.pdf.
\43\ https://www.drugchannelsinstitute.com/files/Fein-Long-Asembia-
03May2022.pdf.
---------------------------------------------------------------------------
A. PBMs Set Unreasonably Low Specialty Drug Reimbursement
Hurting Independent Competition In Violation of the
Law
PBMs know the unique considerations surrounding specialty medications,
and routinely pay an unreasonably low reimbursement for specialty
medications dispensed by independent pharmacy providers. The impact of
this unreasonable reimbursement is acutely targeted to only a few--yet
critical--specialty pharmacies. According to PBMs' own analyses, less
than 1% of pharmacies dispense more than 25% of their claims as
specialty medications.\44\ The most insidious PBM tactic to effectuate
unreasonable reimbursement is DIR Fees. PBMs assess DIR Fees only after
the pharmacy is it will be paid a higher price by PBM. Specialty
pharmacies \45\ pay more than one-half of the total DIR Fees that PBMs
collect from pharmacy providers.\46\ Incredibly, even CMS found that
pharmacy DIR fees ``grew more than 107,400 percent between 2010 and
2020.''\47\ Medicare Payment Advisory Commission (MedPAC), an
independent congressional agency established to advise Congress on
issues affecting the Medicare program, estimated that in 2021 pharmacy
DIR Fees totaled $12.6 billion, or 6% of gross Medicare Part D
spending.\48\ Making matters worse, specialty pharmacies have
incredibly small profit margins as a proportion of revenue after the
cost of acquiring expensive specialty medications. The single digit
gross profit margins after the cost of drug acquisition are easily
eclipsed by the percentage-based DIR fees now prevalent in the Medicare
Part D marketplace. Currently, specialty pharmacies regularly
experience DIR Fees in excess of 10% with the true range of up to 31%
of ingredient cost. The DIR Fees PBMs charge to specialty pharmacies
has increased at exponential rates. The below chart plots out the
exponential increase in DIR Fees experienced by a single provider in a
PBM network from 2016 through 2022.
---------------------------------------------------------------------------
\44\ See, e.g., CVS Health/Caremark, Performance Network Program,
Specialty Strategy 2017/2018.
\45\ There are only 1,123 ACHC accredited pharmacies offering
specialty services in the United States. See https://www.achc.org/find-
a-provider/.
\46\ Id.
\47\ 87 FR 1842, 1910.
\48\ Medicare Payment Policy Report to Congress, Medicare Payment
Advisory Commission, March 2023. https://www.medpac.gov/wp-content/
uploads/2023/03/Mar23_MedPAC_Report_
To_Congress_SEC.pdf.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
New York Cancer and Blood Specialists, LLC v Caremark, LLC et al.,
AAA Case No. 01-21-0016-4612, Expert Report of Laura E. Coe (December
30, 2022). DIR Fees of this magnitude simply cannot be justified and
lead directly to unreasonable reimbursement rates notwithstanding the
clear law, regulation, and guidance that terms and conditions must be
reasonable and relevant.
B. Federal Law, Regulation and Guidance Requires that
Medicare Part D Terms and Conditions be
``Reasonable and Relevant''--DIR Fees and
Unreasonably Low Reimbursement Terms Violate the
Law
The law creates obligations on PBMs and plan sponsors to not only offer
standard terms and conditions that allow participation in Medicare Part
D network, but also require those terms and conditions to be both
reasonable and relevant, with reimbursement that is not unreasonably
low. Congress enacted the federal ``Any Willing Provider'' law (AWPL)
as part of the Social Security Act applicable to Medicare Part D. 42
U.S.C. Sec. 1395w-104(b)(1)(A) states that ``[a] prescription drug plan
shall permit the participation of any pharmacy that meets the terms and
conditions under the plan.'' CMS has enacted additional regulations and
guidance documents to enforce the AWPL. In doing so, CMS enacted
regulations to ensure the ``terms and conditions for participation'' in
Medicare Part D networks are ``reasonable and relevant,'' so that
providers, themselves, are not only willing to participate, but able to
do so under objectively reasonable terms. DIR fees violate that
standard because they are not ``reasonable'' and are also not
``relevant.'' Congress permits agencies like CMS to clarify statutes by
enacting regulations that expand upon--but cannot be inconsistent
with--federal statutes. CMS codified the meaning of the AWPL in
guidance documents contained in the Code of Federal Regulations (CFR).
CMS codified the AWPL to require that Part D plan sponsors must agree
to have ``a standard contract with reasonable and relevant terms and
conditions of participation whereby any willing pharmacy may access the
standard contract and participate as a network pharmacy.'' 42 C.F.R.
Sec. 423.505(b)(18) (emphasis added). To further clarify the
aforementioned statutes and regulations applicable to the Medicare
Program, CMS has issued guidance in the form of the Medicare
Prescription Drug Benefit Manual (the ``Med D Manual''). CMS is
cognizant that one of, if not the most important term and condition for
a provider to effectively participate in the Part D network, is the
reimbursement rate. To ensure that Plan Sponsors offer a ``standard
contract with reasonable and relevant terms and conditions of
participation'' CMS has explicitly stated that:
Offering pharmacies unreasonably low reimbursement rates for
certain ``specialty'' drugs may not be used to subvert the
convenient access standards. In other words, Part D sponsors
must offer reasonable and relevant reimbursement terms for all
Part D drugs as required by [the Medicare AWPL].\49\
---------------------------------------------------------------------------
\49\ Medicare Prescription Drug Benefit Manual, Chapter 5, Section
50.3.
Unreasonable reimbursement impacts not only specialty pharmacies, but
also patients. CMS has found that DIR Fees negatively impact patients
because these fees are ``not reflected in lower drug prices at the
point-of-sale and are instead used to reduce plan liability,'' and
``beneficiaries who utilize drugs end up paying a larger share of the
actual cost of a drug.''\50\ More broadly, though, is that unreasonably
low reimbursement rates results in significant pharmacy consolidation,
exacerbating the impact of broader consolidation in the healthcare
marketplace. Unreasonable low reimbursement rates increase PBM
acquisition of independent pharmacy providers because the same entities
that set unreasonable low reimbursement rates (health insurance
companies and their PBMs) are the entities profiting from DIR and then
purchasing independent pharmacy providers. After the PBM purchases the
independent pharmacy provider, the pharmacy will likely receive a
higher reimbursement. This is because of preferential reimbursement
agreements between PBMs and their wholly owned pharmacies.
---------------------------------------------------------------------------
\50\ 87 FR 1842, 1911.
To illustrate this consolidation in real-world terms, consider the
changes in the largest specialty providers from 2015 to 2022. In 2015,
the total specialty drug spend equaled $98.3 billion. Fifty-six percent
of the specialty drug spend was channeled through specialty pharmacies
owned by the same parent company as Caremark, ESI, OptumRx and Humana.
By 2021 those figures ballooned to total $191.6 billion with $127.1
billion, or 66.5% of the specialty market captured by specialty
pharmacies owned by the same parent company as Caremark, ESI, OptumRx
and Humana. Perhaps even more telling is a comparison between the
specialty pharmacy market share in 2015 to 2021, below. In short, the
largest independent specialty pharmacies in 2015 have been acquired by
---------------------------------------------------------------------------
PBMs.
Figure 5. Pharmacy Revenue and Market Share from Specialty Pharmacies
in 2015:
Pharmacy Revenues and Market Share from Specialty Pharmaceuticals, by
Company, 2015
------------------------------------------------------------------------
Estimated 2015
Dispensing
Pharmacy Name Parent Revenues from Share of
Organization Specialty Drugs Revenues
($ billions)
------------------------------------------------------------------------
CVS Caremark CVS Health $29.6 30%
Specialty
Pharmacy/ CVS
drugstores \1\
------------------------------------------------------------------------
Accredo Express Scripts $17.2 18%
------------------------------------------------------------------------
Walgreens Walgreens Boots $9.8 10%
Specialty Alliance
Pharmacy/
Walgreens
drugstores \2\
------------------------------------------------------------------------
BriovaRx \3\ UnitedHealth $6.5 7%
Group (OptumRx)
------------------------------------------------------------------------
Diplomat n/a $3.4 3%
Pharmacy \4\
------------------------------------------------------------------------
Prime Prime $2.5 3%
Therapeutics Therapeutics
Specialty
Pharmacy
------------------------------------------------------------------------
Humana Humana $1.7 2%
Specialty
Pharmacy
------------------------------------------------------------------------
Avella n/a $1.1 1%
Specialty
Pharmacy
------------------------------------------------------------------------
Cigna Specialty Cigna $0.9 1%
Pharmacy
------------------------------------------------------------------------
BioPlus n/a $0.8 1%
Specialty
Pharmacy
Services
------------------------------------------------------------------------
All other n/a $24.9 25%
retail, mail,
and specialty
pharmacies
========================================================================
Total $98.3 100%
------------------------------------------------------------------------
Includes revenues from retail, specialty, and mail pharmacies. Excludes
revenues from network pharmacies of PBM-owned specialty pharmacies and
infusion services covered by medical benefit. Totals may not sum due
to rounding.
\1\ Includes CVS/Caremark Specialty Pharmacy and CVS/retail drugstores.
Includes Aetna specialty pharmacy volume. Includes pro forma full-year
estimated revenues from Omnicare's specialty pharmacy (Adanvced Care
Scripts). Excludes estimated infusion services covered by medical
benefit and specialty revenues from Target pharmacies.
\2\ North American revenues only.
\3\ Includes pro forma full-year estimated specialty dispensing revenues
from Catamaran.
\4\ Includes pro forma full-year revenues from BioRx and Burman's
Specialty Pharmacy.
Source: Pembroke Consulting research and estimates. This table appears
as Exhibit 41 in: Fein, Adam J., The 2016 Ecomomic Report on Retail,
Mail, and Specialty Pharmacies, Drug Channels Institute, January 2016.
Available at http://drugchannelsinstitute.com/products/industry_report/
pharmacy/.
By 2021, Avella Specialty Pharmacy and Diplomat Pharmacy, two of the
largest at the time, were both bought by OptumRx's owner United
Healthcare in 2018 \51\ and 2019 \52\ respectively. Further, Prime
Therapeutics and Walgreens entered a joint venture to form
AllianceRx,\53\ and later Prime Therapeutics entered a joint venture
with Express Scripts \54\ whereby Prime Therapeutics utilizes Express
Scripts' PBM services as a significant portion of Prime Therapeutics'
claims adjudication.
---------------------------------------------------------------------------
\51\ UnitedHealthcare, Inc., (2018), Form 10-Q. U.S. Securities and
Exchange Commission. https://www.unitedhealthgroup.com/content/dam/UHG/
PDF/investors/2018/UNH-Q3-2018-Release.pdf.
\52\ UnitedHealthcare, Inc. (December 9, 2019), Diplomat, OptumRx
Combining to Advance Access to Specialty Pharmacy Care and Infusion
Services, Improve Health Outcomes. https://www.unitedhealthgroup.com/
newsroom/2019/2019-12-9-optumrx-diplomat-combination.html.
\53\ See https://www.alliancerxwp.com/contents/press-releases/
alliancerx-walgreens-prime-begin.html.
\54\ See https://medcitynews.com/2019/12/express-scripts-strikes-
partnership-with-prime-therapeutics/.
Figure 6. Pharmacy Revenue and Market Share from Specialty Pharmacies
in 2021:
Prescription Revenues and Market Share from Specialty Pharmaceuticals,
By Company, 2021
------------------------------------------------------------------------
Estimated 2021
U.S. Prescription Share of
Pharmacy Name Parent Revenues from Prescription
Organization Specialty Drugs Revenues from
($ billions) Specialty Drugs
------------------------------------------------------------------------
CVS Specialty CVS Health $52.9 28%
\1\
------------------------------------------------------------------------
Accredo/ Cigna (Evernorth/ $43.5 23%
Freedom Express Scripts)
Fertility
------------------------------------------------------------------------
Optum UnitedHealth Group $25.8 14%
Specialty (OptumRx)
Pharmacy \2\
------------------------------------------------------------------------
AllianceRx Walgreens Boots $19.2 10%
Walgreens Alliance \3\
Prime/
Walgreens
stores
------------------------------------------------------------------------
Humana Humana $4.9 3%
Specialty
Pharmacy
------------------------------------------------------------------------
Acaria Health Centene (Envolve $4.7 2%
\4\ Health)
------------------------------------------------------------------------
Kroger Kroger $4.0 2%
Specialty
Pharmacy/
Kroger stores
------------------------------------------------------------------------
CarePathRx \5\ n/a $2.0 1%
------------------------------------------------------------------------
Specialty McKesson $1.8 1%
Pharmacy
Solutions \6\
------------------------------------------------------------------------
AHF Pharmacy AIDS Healthcare $1.7 1%
Foundation
------------------------------------------------------------------------
US Bioservices AmerisourceBergen $1.6 1%
------------------------------------------------------------------------
SenderraRx n/a $1.3 1%
------------------------------------------------------------------------
Walmart Walmart $1.1 1%
Specialty
Pharmacy/
Walmart
stores
------------------------------------------------------------------------
Elixir Rite Aid $0.8 0%
Specialty/
Rite Aid
stores
------------------------------------------------------------------------
Amber Pharmacy/ Hy-Vee $0.6 0%
Hy-Vee stores
------------------------------------------------------------------------
All other n/a $25.7 13%
retail, mail,
long-term
care, and
specialty
pharmacies
------------------------------------------------------------------------
Total $191.6 100%
------------------------------------------------------------------------
Source: The 2022 Economic Report on U.S. Pharmacies and Pharmacy Benefit
Managers, Drug Channels Institute, 2022, Exhibit 48. Includes revenues
from retail, specialty, and mail pharmacies. Includes specialty
revenues from retail locations, where relevant. Excludes revenues from
network pharmacies of PBM-owned specialty pharmacies and infusion
services covered by medical benefit. Totals may not sum due to
rounding.
\1\ Includes CVS Caremark Specialty pharmacies and CVS retail
pharmacies.
\2\ Formerly known as BriovaRx.
\3\ On December 31, 2021, Walgreens purchased Prime Therapeutics' 45%
ownership interest in AllianceRx Walgreens Prime, so this business has
no PBM ownership in 2022. Effective June 2022, the company will be
known as AllianceRx Walgreens Pharmacy.
\4\ Includes Drug Channels Institute estimated revenues from
AcariaHealth, Exactus Pharmacy Solutions, Foundation Care, and
PANTHERx Rare Pharmacy.
\5\ Includes Drug Channels Institute estimated revenues from BioPlus
Specialty Pharmacy, ExactCare Pharmacy, and the management services
organization of Chartwell Pennsylvania.
\6\ Includes Biologics by McKesson and the Patient Assistance Pharmacy
(formerly known as Care Advantage).
Already in 2023, there have been additional consolidations. For
example, in February, CarepathRx sold its specialty pharmacy, BioPlus,
to Elevance \55\ (previously known as Anthem), a plan sponsor that
utilizes CVS Health's PBM, Caremark. Independent reports by 3 Axis
Advisors found that PBMs are overpricing medications when dispensed at
PBM affiliated pharmacies, illustrating one way in which consolidation
increases costs.\56\
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\55\ See https://www.elevancehealth.com/newsroom/elevance-health-
announces-closing-of-bioplus-acquisition.
\56\ Sunshine in the Black Box of Pharmacy Benefits Management:
Florida Medicaid Pharmacy Claims Analysis, annuary 30, 2020. https://
static1.squarespace.com/static/5c326d5596e76f58
ee234632/t/5e384f26fc490b221da7ced1/1580748598035/
FL+Master+Final+Download.pdf.
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C. The Post-DIR Fee World Does Not Improve Pharmacy
Reimbursement
In May 2022 CMS released a Final Rule reinterpreting the term
``Negotiated Prices.''\57\ Effective January 1, 2024, CMS removed an
exception where contingent pharmacy payment adjustments that ``cannot
reasonably be determined at the point-of-sale'' (aka DIR fees) were not
included in the Negotiated Price upon which PDPs submit bids. The real
impact of the Final Rule essentially eliminates the profitability that
Part D Plans and PBMs enjoyed arising from pharmacy DIR fees, because
when DIR fees can be excluded from the Negotiated Price, nearly all DIR
fee revenue goes right to Part D Plan profits. To make up for that lost
DIR profit, Part D Plans and PBMs have already started to amend
contracts to reimburse pharmacies at drastically lower rates to keep
their past profitability.\58\ Some 2024 reimbursement rates have become
public. In 2024 Express Scripts (ESI) will reimburse brand medications
at AWP-26.3%. Our research shows that virtually no pharmacies, other
than PBM-owned pharmacies or 340B Covered Entities are able to acquire
brand drugs at rates at or lower than ESI's new rate.\59\ If ESI can
get away with AWP-26.30%, often more than 3% lower than the previous
year's rates, more than other PBMs are sure to follow. The result of
reimbursement below drug wholesale costs will put pharmacies, and
particularly pharmacies dispensing predominantly brand drugs such as
specialty pharmacies out of business.
---------------------------------------------------------------------------
\57\ See https://www.frierlevitt.com/articles/pharmacy-alert-cms-
proposes-rule-that-may-end-dir-fees-but-whether-pharmacies-will-
benefit-is-questionable-comments-on-new-rule-due-by-march-7-2022/.
\58\ See https://www.frierlevitt.com/articles/a-new-world-order-of-
drastically-lower-pharmacy-reimbursement-series-part-1-lower-net-
pharmacy-reimbursement-following-cms-final-rule-on-dir-fees/.
\59\ See https://www.frierlevitt.com/articles/a-new-world-order-of-
drastically-lower-pharmacy-reimbursement-part-2-the-threatened-future-
of-independent-pharmacies/.
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D. Even as PBMs Reimburse Specialty Pharmacy Less,
Affiliated Plan Sponsors are Paid More For the
Sicker Beneficiaries Specialty Pharmacies Serve
In the capitated Medicare Part D space, explained below, Medicare Plan
Sponsors are paid more per member per month for sicker patients, such
as when a Medicare beneficiary has cancer. Medicare Part D Plan
Sponsors are paid better for managing patients receiving specialty
medications.
Medicare Part D is funded using federal monies drawn from the
government's Supplementary Medical Insurance trust fund. The
Supplementary Medical Insurance trust fund's chief revenue sources are
contributions from the federal general fund (74%), beneficiary premium
payments (15%), and state contributions (11%). The monthly premium paid
by enrollees is set to cover 25.5% of the cost of standard prescription
drug coverage, with the Medicare program subsidizing the remining 74.5%
based on bids submitting by PDPs.\60\
---------------------------------------------------------------------------
\60\ See https://www.kff.org/medicare/fact-sheet/an-overview-of-
the-medicare-part-d-prescription-drug-benefit/.
Medicare Part D is a capitated model, meaning that CMS will make a
capitated, or fixed, per member per month, payment to the PDP to cover
the prescription drug benefits for each of the PDP's beneficiaries.
PDPs base their capitated payments to PDPs based on bids submitted to
CMS on an annual basis and through a process referred to as ``risk
adjustment.'' In other words, the amount CMS pays a PDP to manage the
prescription drug benefits for Part D beneficiaries is not always
uniform. Rather, CMS' per member per month capitated payments to PDPs
reflect anticipated costs of providing care to beneficiaries under the
PDP. Risk adjustment is thus an important process to ensuring adequate
payments to PDPs.\61\ Without it, PDPs may be incentivized to attract
healthier patient pools, and discourage sicker (costlier) patients from
enrolling.
---------------------------------------------------------------------------
\61\ See https://www.americanactionforum.org/research/primer-
medicare-risk-adjustment/.
Through the ``risk adjustment'' process, CMS adjusts the per member per
month payments to PDPs to account for cost differences associated with
various diseases and demographic factors. PDPs are paid based on
average rates, adjusted, for specific ailments and population base.\62\
In other words, the sicker a PDPs beneficiary base is, the higher CMS'
pays PDP per member per month. Today, we are calling for the Government
to consider whether the reimbursement rates PBM pay to specialty
pharmacies should take into account that PDPs are paid more to manage
these sicker beneficiaries, resulting in a reimbursement to specialty
pharmacies that recognizes their important role.
---------------------------------------------------------------------------
\62\ See generally Medicare Managed Care Manual, Chapter 7--Risk
Adjustment.
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E. PBMs Argue Federal AWPL and Other Laws are not
Applicable to PBMs
Medicare's AWPL guides all Medicare stakeholders. The importance of the
AWPL to curb PBM abuses, which impacts all stakeholders, cannot be
overstated. But when independent pharmacy providers or other
stakeholders attempt to leverage the AWPL to gain access to restricted
networks, challenge DIR fees, or obtain reasonable reimbursement rates,
PBMs craft legal arguments designed to limit the AWPL. These arguments
include: (1) the AWPL does not apply to PBMs and only applies to
separate entities, (i.e., insurance companies and Part D Plan
Sponsors); (2) even if the AWPL does apply to PBMs, the AWPL does not
contain an expressed private right of action, cannot be enforced by
private parties, and only CMS can enforce the AWPL; and (3) even if the
AWPL applies to PBMs and could be enforced by private parties, the
scope of the AWPL is narrow and only requires the PBM and Part D Plan
Sponsors to provide sufficient access for patients (which, in theory,
could be satisfied solely through the PBMs' wholly-owned pharmacies
without independent providers). These arguments have consistently been
successful for PBMs in public venues (court proceedings) and private
venues (arbitration). Examples can be found in the Eighth Circuit.\63\
Emboldened by the lack of expressed private right of action in the
AWPL, PBMs rely heavily on these arguments and consistently
discriminate against independent pharmacy providers.
---------------------------------------------------------------------------
\63\ See, e.g., United/Xcel-RX, LLC v. Express Scripts, Inc., No.
4:19-CV-00221-SRC, 2019 WL 5536806, at *4-5 (E.D. Mo. October 25, 2019)
(dismissing plaintiff pharmacy's breach of contract claim because the
AWPL did not confer a private right of action to private parties or
entities); see also Heartland Med., LLC v. Express Scripts, Inc., No.
4:17-CV-02873 JAR, 2018 WL 6831164, at *2 (E.D. Mo. December 27, 2018)
(dismissing plaintiff's complaint entirely because AWPL does not have a
private right of action). The reason this is prominent in the Eighth
Circuit is a venue provision in Express Scripts' PBM-pharmacy contract
mandating all disputes be resolved exclusively by litigation in the
Eastern District of Missouri.
The PBMs' arguments are crafty but ignore governing federal law. The
regulatory ``Flow Down'' provisions of the AWPL unequivocally require
Medicare Part D Plan Sponsors to incorporate the AWPL into the
contractual agreements with ``first tier''\64\ and ``downstream''\65\
entities. Congress enacted the AWPL to govern the administration of
Medicare Part D benefits. CMS requires that Part D sponsors (e.g.,
Aetna, Blue Cross Blue Shield, Centene, Humana, SilverScript, and
United Healthcare), the ``First Tier'' entities (e.g., PBMs like
Caremark, Express Scripts, Humana, OptumRx, and Prime Therapeutics) and
other ``downstream'' entities (e.g., pharmacy providers), to
incorporate all Part D Rules (including the AWPL), into all contracts.
In fact, Congress could not have more clearly articulated the
requirement that ``each and every contract must specify that first,
downstream, and related entities must comply with all applicable
federal laws, regulations, and CMS guidance.''\66\ PBMs cannot
seriously dispute that, as a ``first tier entity'' like a PBM must
comply with the AWPL. This conclusion is in accord with other publicly
disclosed arbitrations against PBMs, including Senderra v. Caremark,
LLC, et al.,\67\ and Mission Wellness v. Caremark, LLC, et al.\68\
Tellingly, in briefing this issue, after year of litigation, Caremark
was all but forced to admit that the AWPL governs Caremark's contract
with pharmacy providers as part of an ultimately unsuccessful effort to
vacate an arbitrator's award.\69\
---------------------------------------------------------------------------
\64\ First tier entity is defined as ``any party that enters into a
written arrangement, acceptable to CMS, with a Part D plan sponsor or
applicant to provide administrative services or health care services
for a Medicare eligible individual under Part D.'' 42 CFR Sec. 423.501.
\65\ Downstream entity is defined as ``any party that enters into a
written arrangement, acceptable to CMS, below the level of the
arrangement between a Part D plan sponsor (or applicant) and a first
tier entity. These written arrangements continue down to the level of
the ultimate provider of both health and administrative services.'' Id.
\66\ 42 CFR Sec. 423.505(i)(3)(iii).
\67\ The Final Order explaining in Footnote 1 that ``the arbitrator
has already determined that the AWPL applies to Caremark as a first-
tier downstream entity.''
\68\ The Final Award concluding that Caremark breached the
``Compliance with Laws'' provision by violating the AWPL.
\69\ Caremark LLC v. AIDS Healthcare Foundation, 2022 WL 4267791
(D. Ariz. Sept. 15, 2022) (Wherein Caremark's Post-Hearing Brief
wherein Respondents admit the Any Willing Provider Law governs
Caremark's standardized contract with pharmacies).
PBMs posit that the Medicare Part D Prescription Drug Benefits Manual,
Chapter 5, Section 50.5.3, comes under the title of ``Convenient Access
to LTC Pharmacies.'' PBMs argue that this only means there needs to be
a pharmacy within a certain geographic range of patients. To PBMs, the
AWPL is only designed to ensure network ``access'' even if that means
patients only have access to PBM-owned pharmacies, ignoring the clear
regulations and CMS guidance. By virtue of vertical consolidation there
are few areas where a PBM-owned chain or specialty pharmacy does not
have a physical location. CVS Pharmacy alone has over 9,600 locations.
Further, if mail order services are considered, CVS Specialty Pharmacy
already processes approximately 29% of all specialty drug claims. If
geographic access alone is the only metric to trigger Medicare's AWPL,
then Medicare's AWPL would only apply to an incredibly rural area like
Craig, Alaska (population less than 2,000 people), serviced by Whale
Tail Pharmacy, where the next closest pharmacy is 2,000 miles away.
Thus, PBMs take the position that if there is a PBM-owned pharmacy
across the street from an independent pharmacy, that independent
---------------------------------------------------------------------------
pharmacy can seek no refuge in the AWPL.
CMS is clear that the AWPL is not to be read this narrow. CMS guidance
states that ``[o]ffering pharmacies unreasonably low reimbursement
rates for certain `specialty' drugs may not be used to subvert the
convenient access standards. In other words, Part D Plan Sponsors must
offer reasonable and relevant reimbursement terms for all Part D drugs
as required by [the Medicare AWPL].''\70\ We ask that the Senate direct
CMS to reenforce this clear guidance that reimbursement terms must be
reasonable and relevant and investigate instances where PBMs are
forcing competitors out of the market simply to maintain their own
profit margins.
---------------------------------------------------------------------------
\70\ Medicare Prescription Drug Benefit Manual, Chapter 5, Section
50.3.
---------------------------------------------------------------------------
F. Unconscionable PBM Contracts Restrain Pharmacy
Providers Which Further Stifles Healthy Competition
Unconscionable PBM contract provisions impose unreasonable restraints
on providers who attempt to vindicate their contractual rights.
However, both arbitrators and courts have agreed that provisions of
Caremark and OptumRx contract are unconscionable.\71\ Generally, a
contract or provision must be procedurally and substantively
unconscionable before a court or arbitrator will decline to enforce it.
Procedural unconscionability occurs when there is a defect in the
bargaining process where one party lacks bargaining power or
competitive advantage to negotiate the contract.\72\ Additional factors
include who drafted the contract, whether the terms were explained to
the weaker party, and whether negotiations were possible.\73\
Substantive unconscionability occurs when the terms of the contract
areoverly harsh or one-sided, which can result from procedural
unconscionability (i.e., lack of bargaining power).\74\
---------------------------------------------------------------------------
\71\ See Caremark, LLC, et al. v. AIDS Healthcare Found., 2022 WL
4267791 (D. Ariz., September 15, 2022) (public confirmation of
Arbitration award in favor of AHF that found terms of Caremark's
contract were unconscionable); See also Platt, LLC v. OptumRx, Inc.,
2023 WL 2507259 at *4 (Cal. Ct. App. March 15, 2023).
\72\ See Clark v. Renaissance West, L.L.C., 232 Ariz. 510, 8
(2013); Cicle v. Chase Bank USA, 583 F.3d 549, 554 (8th Cir. 2009);
Armendariz v. Found. Health Psychare Servs., Inc., 6 P. 3d 669, 690
(Cal. Sup. Ct. 2000).
\73\ Longnecker v. American Exp. Co., 23 F. Supp.3d 1099, 1109 (D.
Ariz. 2014); Cicle, 583 F.3d at 554 (8th Cir. 2009); Armendariz, 6 P.3d
at 767 (2000).
\74\ Id.
In one of the few public results against CVS Caremark, the Arbitrator
in Aids Healthcare Foundation v. Caremark (``AHF'') determined that the
terms and conditions of Caremark's DIR fee program could not be
enforced because they were unconscionable due to Caremark's
considerable bargaining power, lack of alternative options, and
unilaterally imposed contractual terms.\75\ Similarly, the California
Court of Appeals held that provisions of Optum's contract are
unconscionable, noting the lack of bargaining power for pharmacies,
Optum's ability to unilaterally impose new contract terms at will, and
that Optum can and has denied pharmacies the same remedies that Optum
has reserved for itself.\76\
---------------------------------------------------------------------------
\75\ AHF Award, p. 57 4-5.
\76\ See Platt, LLC v. OptumRx, Inc., 2023 WL 2507259 at *4 (Cal.
Ct. App. March 15, 2023).
These unconscionable terms are unilaterally imposed upon providers all
with the purpose of preventing PBMs practices from being challenged.
The lack of bargaining power, PBM's ability to unilaterally impose new
contract terms at will, and the fact that PBMs deny pharmacy providers
the same remedies that they reserve for themselves is a shocking
standard that is pervasive throughout the industry.
1. PBMs Impose Contract Revisions and Updates
Unilaterally Without Negotiations or Even
Signatures by Contracting Providers
Pharmacies are not able to negotiate PBM contract terms and conditions.
PBMs regularly issue and unilaterally impose contract updates and
addenda to their Provider Manuals, which are a core contract document
that govern the relationship between the PBM and pharmacy provider. See
Trial Testimony of Stephanie Harris, Infinity Pharmacy, LLC et al. v.
CVS Caremark, LLC et al., AAA Case No. 01-02-0001-1835 T44:18 to 46:16
(August 3, 2022). Pharmacy providers typically learn that the terms of
their contract have been altered once a new document is received
electronically, via facsimile, or sometimes through mail. Most often,
and contrary to the basic tenets of contract law, a signature is often
not required for these contract addenda to take effect. Caremark's
network enrollment forms typically advise that ``[y]ou will be enrolled
as a Provider [. . .] under the terms detailed in the attached Network
Enrollment Forms unless you notify CVS Caremark in writing (via
facsimile) [. . .] that you do not want to enroll.'' See Infinity
Pharmacy, LLC et al. v. CVS Caremark, LLC et al., AAA Case No. 01-02-
0001-1835 Exhibit J-8, August 17, 2020 Communication.
PBMs also regularly issue Network Enrollment Forms (``NEFs''), which
are considered part of the contract between the parties but do not
require providers to sign them. These NEFs contain terms for
reimbursement and are typically presented to providers without any
opportunity to negotiate Unfortunately, if a provider opts out of a
particular network, that provider is typically unable to re-enter that
network until the next year as illustrated in the figure below:
See Infinity Pharmacy, LLC, Exhibit J-8, August 17, 2020
Communication.
Further, providers are required by PBMs to opt-out before they know
which plans will be participating in which network making it impossible
for providers to ``model out'' reimbursement because it doesn't know
which claims will process through which networks. However, providers
cannot simply opt out of a network because physicians will simply cease
sending prescriptions to a pharmacy provider unless it is member of
every major PBM due to administrative costs. See Tri Pharmacy Corp. D/
b/a Hartley Pharmacy v. Caremark, L.L.C. et al., AAA Case No. 01-22-
0005-2609, Verified Statement of Claims, 51. Thus, choosing not to
participate in a particular network has dire consequences for an
independent pharmacy provider.
2. PBMs Impose Unreasonable Dispute Resolution
Procedures
PBMs impose unreasonable dispute resolution procedures and limitations
in an attempt to curtail pharmacy providers from filing claims against
them. For example, Caremark requires that disputes be filed ``within
six (6) months from the date of the final audit findings; (b) for
termination related disputes, within six (6) months from the date of
the notification of termination; and (c) for all other disputes, within
six (6) months from the date on which the facts giving rise to the
dispute first arose.'' See 2022 Caremark Provider Manual,
Sec. 15.09.07. Further, OptumRx requires that such notice ``shall be
provided [. . .] within one year of the facts giving rise to the
Dispute.'' See 2023 OptumRx Provider Manual, p. 128. Thus, a pharmacy
provider's claim will be barred entirely if it is asserted outside of
this contractually imposed period. PBMs also impose a short statute of
limitations between dispute notice and filing of an arbitration demand.
Caremark requires that ``any demand for arbitration must be filed
within six (6) months from the date of the issuance of the Dispute
Notice.'' See 2022 Caremark Provider Manual, Sec. 15.09.07.
3. PBMs Impose Unilateral Escrow Requirements on
Independent Pharmacies wishing to Initiate
Arbitration or Litigation
Additional barrier to dispute resolution, PBMs impose unilateral escrow
requirements for providers seeking to initiate arbitration or
litigation. Providers are required to escrow money in an amount
contemplated to cover the estimated amount in controversy, including
attorneys' fees. But smaller stakeholders often cannot escrow large
sums of money prior to filing for arbitration and are often dissuaded
from filing suit on this reason alone, or in conjunction with the
reasons detailed below.
4. PBM Contracts with Providers Contain Fee Shifting
Clauses Which Serves as an Additional Barrier for
Providers to Initiate Litigation.
PBM contracts shift fees and costs of the arbitration to the
unsuccessful party. See 2022 Caremark Provider Manual, Sec. 15.09.02;
see also 2023 OptumRx Provider Manual, p. 130. However, because PBMs
unilaterally draft and impose their contracts, the ``deck'' is stacked
in their favor. As a result, many providers are unwilling to take such
considerable risk to challenge a PBM's unreasonable conduct, have to
escrow money, pay their attorneys' fees and arbitration costs, and
potentially have to pay for the PBM's fees and costs as well.
5. As a Further Deterrent to Provider Litigation, PBMs
Often Require a Panel of Three Arbitrators Which
Increases Costs Exponentially
As a further deterrent, PBMs often require a panel of three arbitrators
which increases costs exponentially. Under the Commercial Rules of
Arbitration for the American Arbitration Association, unless the
parties can agree otherwise, ``three arbitrators shall hear and
determine the case'' where the amount in dispute exceeds $3,000,000.
Commercial Arbitration Rules, L-2(a). Perhaps recognizing that the cost
is more prohibitive for providers than it is for PBMs, PBMs simply
refuse to consent to cases being heard by a single arbitrator, opting
for a panel of three instead. See Tennessee Oncology, PLLC v. Caremark,
L.L.C., et al., AAA Case No. 01-20-0001-7548; New York Cancer and Blood
Specialists v. Caremark, L.L.C., et al., AAA Case No. 01-21-0016-4612.
Coupled with fee shifting clauses, providers are heavily dissuaded from
pursuing their rights against PBMs because of these exorbitant costs.
See Also 2023 OptumRx Provider Manual, Sec. L, p. 128.
6. PBMs Require Waiver of Class Action, Multiple Party
Arbitrations, and Consolidated Actions, Preventing
Providers and the Public from Identifying
Widespread Abuses
As a significant bar to litigation and arbitration, PBMs prevent
providers from engaging in disputes as part of a class, mass, or
consolidated action. This further prevents providers and the public
from identifying widespread PBM abuses.\77\ The limitation on class,
mass, and consolidated actions also prevents pooling of resources to
challenge PBM abuses that otherwise go unchallenged because it is not
cost effective to do so. Further, restrictive confidentiality
provisions prevent providers from talking about PBM abuses and
determining whether they could be experiencing the same or similar
legal issues, and disclosing those issues publicly.
---------------------------------------------------------------------------
\77\ See 2023 OptumRx Provider Manual, p. 129. See 2022 Caremark
Provider Manual, Sec. 15.09.03. See 2022 Express Scripts Provider
Manual, p. 127 2.
---------------------------------------------------------------------------
7. Due to Confidentiality, PBM Contracts are Shrouded
in Secrecy and Prevent Their Abusive Tactics from
Becoming Public
PBM contracts with providers are highly confidential, and they take
great steps to prohibit providers from discussing any information
obtained during the course of the PBM relationship with any other
parties outside that relationship, including patients, physicians, plan
sponsors, and even the general public.\78\ Thus, providers are
prohibited from communicating with each other, plans, patients, and
even government entities absent a lawful reason to do so, such as a
lawful government request or subpoena. As a result, many of the PBM's
abusive tactics simply never become public because of strict
confidentiality requirements.
---------------------------------------------------------------------------
\78\ See 2022 Caremark Provider Manual, Sec. 14.03-14.04. See 2022
Express Scripts Provider Manual, p. 123, Confidentiality; See 2023
OptumRx Provider Manual, p. 130, Sec. M; See 2022 Caremark Provider
Manual, Sec. 14; See 2022 Prime Therapeutics Provider Manual, p. 34.
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G. DIR Performance Measurements Are Incorrect and not
Reasonable or Relevant, and Therefore Violate the
Federal Any Willing Provider Law
Each major PBM has a Medicare Part D Performance Network ostensibly
designed to measure pharmacies' performance in certain categories, most
often focused on patient adherence to medication (See, e.g., Caremark
2021 Medicare Part D Program Overview; Express Scripts Performance
Network Protocol; Humana Rx Quality Program; OptumRx UHC M&R Specialty
Network Amendment). If a pharmacy does not meet performance goals, the
pharmacy is penalized with higher DIR fees, thus greatly reducing
reimbursement for Part D drugs, and enriching Plans and PBMs.\79\
---------------------------------------------------------------------------
\79\ See 87 FR 89 at 27850.
PBMs employ secretive, often unreasonable, and simply incorrect metrics
that are not relevant to pharmacies' clinical goals--especially as the
metrics are applied to specialty pharmacies and physician dispensing
practices. Specialty pharmacies often do not dispense the retail drugs
that PBMs measure. Aside from medication adherence, these programs
often include metrics focused on other metrics that are not reasonable
or relevant to some or all pharmacies.\80\ Some of the most egregious
examples include PBMs focusing on adherence metrics for typical
``maintenance'' medications--that is, medications that patients are
expected to take regularly and with few, if any, interruptions,
typically including drugs treating high cholesterol, high blood
pressure, and diabetes. Caremark 2021 Medicare Part D Program Overview.
Most specialty pharmacies do not dispense these drugs, instead focusing
on specialty disease states.\81\ For some, this means that they are
subjected to alternative adherence metrics that are equally
inapplicable to their business, like Generic Dispense Rate (GDR).
OptumRx 2022 M&R Network Amendment To The Medicare Part D Addendum To
The Pharmacy Network Agreement. For others, it means they are assigned
mysterious and un-auditable average scores from other pharmacies in the
network that actually dispense these products, or a default score.
Caremark 2021 Medicare Part D Program Overview, Express Scripts
Performance Network Protocol. Ultimately, these metrics are not
reasonable or relevant to specialty pharmacies and dispensing practices
and serve merely as a means to extract DIR fees from pharmacies without
a benefit to patients and, indeed, often increasing patient co-
insurance.\82\
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\80\ 42 CFR 423.505(b)(18) requires Part D Plans to offer
``reasonable and relevant terms and conditions'' in all contracts for
participation in their Part D networks.
\81\ Frier Levitt, LLC, Pharmacy Benefit Manager Expose: How PBMs
Adversely Impact Cancer Care While Profiting at the Expense of
Patients, Providers, Employers, and Taxpayers, 26, February 2022,
https://communityoncology.org/wp-content/uploads/2022/02/COA_FL_PBM_
Expose_2-2022.pdf.
\82\ 87 FR 89 at 27834.
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1. PBMs Use Incorrect Methods to Calculate Specialty
Pharmacy Medication Possession Ratio
Medication Possession Ratio (``MPR'') is a method some PBMs use to
calculate a Medicare beneficiary's adherence to a specialty drug, and
examines whether a patient had her prescribed medication in her
possession during the entire period during which she was directed by
her prescriber to take that medication. However, MPR is a poor measure
for assessing patient adherence specialty drugs, especially because the
PBM will incorrectly treat specialty drugs as though they are
``maintenance'' medications, expecting the patient to remain on the
therapy indefinitely. Deposition of David Hutchins, New York Cancer &
Blood Specialists v. Caremark, LLC et al., AAA case 01-21-0016-4612,
T201:17-203:9.
MPR is problematic in specialty settings like oncology ``because
adverse events experienced by oncology medications often call for a
temporary discontinuation of therapy until the patient's status returns
to an acceptable level.''\83\ Even though a patient has fully complied
with the physician's order, PBMs will not account for holds in therapy,
disease progression, referrals to palliative care, or even death in
their MPR calculation. Tennessee Oncology v. Caremark, Transcript of
Final Hearing, Volume 1, T179:4-22. This measurement is wholly unfair
to specialty pharmacies and dispensing practices.
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\83\ Hassett and Willyard, The DIR Labyrinth: How Conflicting
Adherence Rules Hamper MID Clinics, Oncolytics Today at 2, Spring 2021.
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2. Some PBMs Incorrectly Use Mean Imputation to Score
Specialty Pharmacies in DIR Fee Programs because
the Specialty Pharmacies have no Relevant
Experience in the Categories that the PBMs Measure
Because PBMs designed DIR fee programs for retail pharmacies, PBMs have
had difficulty rationally applying adherence metrics to specialty
pharmacies. Another method employed by PBMs to extract DIR fees from
specialty pharmacies and dispensing practices is the use of ``Mean
Imputation,'' in which the average score of all pharmacies in a network
are ``imputed'' to a pharmacy that has no volume for a particular
metric. 2022 CVS Caremark Trimester 1 Report for NCPDP 3360271 at 15.
In other words, specialty pharmacies that do not dispense retail drugs
are nonetheless assigned a score as though they had an average
performance in the network, meaning that the pharmacy can never achieve
the highest score in the network and therefore be assigned the lowest
possible DIR fees, despite the PBM's assurance that the pharmacy will
not be ``disadvantaged'' in this process. Ibid. The PBM believes this
is appropriate because, in their words, specialty pharmacies ``self-
niche . . . [o]r limit their own dispensing[.]'' Deposition of Steven
McCall, New York Cancer & Blood Specialists v. Caremark, LLC et al.,
AAA case 01-21-0016-4612, 2T122:4-12.
PBMs minimize the importance of specialty dispensing and penalize these
providers for their focus on these vulnerable populations. This is
especially egregious where a dispensing oncology practice is legally
prohibited from dispensing any drugs except for those pursuant to an
oncological protocol, as is the case in New York.\84\ Thus, even where
a dispensing practice is legally prohibited from dispensing retail
drugs, PBMs paradoxically insist that they should dispense those drugs,
and penalize oncology practices for not doing so. 2022 CVS Caremark
Trimester 1 Report for NCPDP 3360271 (demonstrating the mean imputed
assessment of non-specialty DIR fees against a New York dispensing
practice where that practice was legally prohibited from dispensing
those drugs). Thus, applying the AWPL regulation at 42 CFR
423.505(b)(18), mean imputation is not reasonable or relevant to
specialty providers, and is simply another means by which PBMs assess
DIR fees.
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\84\ N.Y. Educ. Law Sec. 1A6807 (``no prescriber who is not the
owner of a pharmacy or who is not in the employ of such owner, may
dispense more than a 72 hour supply of drugs, except for: . . . the
dispensing of drugs pursuant to an oncological or AIDS protocol.'').
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3. Formulary Compliance
PBMs also assess DIR fees based on formulary compliance. 2022 CVS
Caremark Trimester 1 Report for NCPDP 3360271. This metric is measured
by taking all the claims that were submitted by the pharmacy during the
measured time period, then dividing that number by the formulary
medications that were filled in the period, without accounting for
whether the medication was prescribed for patient health reasons or
subject to prior authorization by the PBM. Deposition of Steven McCall,
New York Cancer & Blood Specialists v. Caremark, LLC et al., AAA case
01-21-0016-4612 T310:9-311:12. This practice harms all pharmacies
because pharmacies are often not permitted to dispense a different drug
than prescribed by a physician. Moreover, this metric is particularly
burdensome for oncology practices. Such practices often use genetic
testing to identify the oral oncolytic that will provide the greatest
chance of survival.\85\ These tests may indicate a drug that is not on
formulary, but is nevertheless the clinically appropriate drug for the
patient. Regardless, PBMs will penalize this ``off formulary''
prescription when the provider dispenses the drug.
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\85\ National Cancer Institute, https://www.cancer.gov/about-
cancer/treatment/types/biomarker-testing-cancer-treatment.
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4. PBMs Maintain a Lack of Transparency that Prevents
Providers from Verifying Accuracy in Performance
Networks, and Requires Providers to Resort to
Arbitration/Litigation Discovery to Properly Audit
DIR Programs
As they assess DIR fees against pharmacy providers, PBMs lack
transparency, prevent pharmacies from performing any PBM audit absent
arbitration or litigation. Pharmacies have brought claims in
arbitration against Caremark over DIR fees multiple times, with some of
these cases being made public.\86\ Each time pharmacies are forced to
confirm awards against Caremark, as shown above, Caremark has
assiduously attempted to hide the results from the public, despite the
high bar for sealing these matters.\87\ In the Mission Wellness case,
the now public Award revealed Caremark refused to produce calculations
related to its assessment of DIR fees, such that the arbitrator applied
an adverse inference to Caremark for the lack of transparency.\88\
Other PBMs are no different, with PBMs refusing to provide such
information on a regular basis. Biologics, Inc. v. OptumRx, Inc., AAA
Case 01-20-0007-3159, Order on Claimant's Motion to Compel Documents
(granting the pharmacy's request for the underlying surveys supporting
OptumRx's NPS scores for the pharmacy). A lack of transparency makes it
impossible for pharmacies to truly understand the manner in which they
are assessed DIR fees, and serves only to advantage the PBMs, who are
in a better position to afford the expense of litigation.
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\86\ See Senderra Rx Partners LLC v. CVS Health Corporation, et
al., 2:19-cv-05816-SPL; Mission Wellness Pharmacy LLC v. Caremark LLC,
No. CV-22-00967-PHX-GMS, 2022 WL 2488817 (D. Ariz. June 16, 2022);
Caremark LLC v. AIDS Healthcare Found., No. CV-21-01913-PHX-DJH, 2022
WL 4267791 (D. Ariz. September 15, 2022).
\87\ Ibid.
\88\ Mission Wellness v. Caremark, LLC et al, AAA case 01-19-0000-
3552, Final Award at 6.
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H. Patient Steering to PBM-Owned Pharmacy
Patient-steering is a practice where PBMs utilize their position and
control over (1) plan development and (2) the ``network'' of pharmacy
providers to direct patients away from non-affiliated providers to
affiliated providers. PBMs use various methods of steering with the
ultimate goal of directing patients to the PBM affiliated pharmacy.\89\
Examples of patient steering include incentives to plan sponsors and/or
patients for using affiliated pharmacy operations including lower
copays. Id. Pharmacies learn of patient steering in different ways but
often will find that in adjudicating a claim, the PBM requires the
prescription to be transferred to a PBM owned pharmacy operation. Id.
There are valid concerns with patient steering including (1)
eliminating fair competition thus promoting further consolidation and
(2) interference with patient choice of provider. Id.
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\89\ See, e.g., Frier Levitt, LLC, Pharmacy Benefit Manager Expose:
How PBMs Adversely Impact Cancer Care While Profiting at the Expense of
Patients, Providers, Employers, and Taxpayers, 40-47, February 2022,
https://communityoncology.org/wp-content/uploads/2022/02/
COA_FL_PBM_Expose_2-2022.pdf.
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I. PBMs Utilize Unfair Audit Practices and Policies
Against Network Providers to Increase Profits and
Create Narrow Networks
PBMs have employed several unfair audit practices and policies to levy
significant and unnecessary chargebacks against pharmacies on
prescription drug claims. As a result of such aggressive auditing
practices and associated chargebacks, often in violation of State
Pharmacy Fair Audit Laws, pharmacies are often subjected to further
network action (i.e., termination) or are forced to close down.
1. Unreasonable Audit Fees Cause Significant Financial
Harm to Providers
In addition to seeking a full chargeback of the claims identified as
discrepant during an audit, PBMs will also assess audit fees, claiming
that they need to cover the cost of an audit. As a result, not only are
pharmacies required to remit the full reimbursement of the claim back
to the PBM, they are often also required to pay an additional fee up to
20% of the total audit amount, causing their total chargeback to be
exponentially higher. It is even more concerning that in some
instances, PBMs are essentially ``double-dipping'' to cover the cost of
an audit through audit fees from pharmacies despite already being
compensated from their Plan Sponsor clients for the cost of conducting
audits.
2. PBMs Seek Additional Network Sanctions Without
Procedural Due Process
Often, even before audit results are issued and before the pharmacy has
an opportunity to defend against audit results, PBMs will place
pharmacies on payment suspension. Pharmacies that are placed on payment
suspension even before they receive any audit results are faced with an
impossible position because they do not know the amount at issue in the
audit and have not been given an opportunity to resolve the basis of
suspension. OptumRx Pharmacy Provider Manual 2023 Second Edition
Version 2.1. PBMs will even go so far as to prevent pharmacies from
adjudicating claims, which means that pharmacies cannot service their
patients, causing an interruption and harm to patient care. Elixir
Solutions Pharmacy Manual 2022. Similarly, PBMs will take unilateral
decisions to terminate pharmacies over audit results that are minor and
do not otherwise justify termination and even before pharmacies have an
opportunity to appeal or dispute the results. PBMs have guised
terminations to be justifiable based on audit results even though the
results might be inaccurate and importantly, do not amount to a
pharmacy's network termination that in turn impacts patient care.
3. Unreasonable Limitations on Third-Party Copay
Processors and Bulk Purchases Create Challenges for
Pharmacies
PBMs also place onerous contractual limitations on pharmacies despite
there being no similar prohibition under relevant State and Federal
rules and regulations. For example, PBMs limit the way pharmacies may
collect copayment from their patients. Similarly, PBMs will also limit
the window of purchase information to consider when conducting invoice
reconciliation audits, and by doing so, PBMs ignore standard pharmacy
practices under which a pharmacy makes continuous, if not bulk,
purchases based on anticipated patient need. This limitation directly
conflicts with many PBMs' requirement that pharmacies need to maintain
``adequate inventory'' of prescription drugs and supplies. OptumRx
Pharmacy Provider Manual 2023 Second Edition Version 2.1. Though
pharmacies must maintain sufficient quantities of drugs, they are faced
with chargebacks when PBMs do not consider their purchases information
during an audit. A violation of these unreasonable contract terms
results in significant chargebacks and often network termination.
4. PBMs Unreasonably Terminate Pharmacies Despite
Having Sufficient Documentation to Resolve Audit
Discrepancies
During audits, PBMs will identify certain documentation they will
accept to resolve a discrepancy. However, even though pharmacies
closely adhere to these documentation guidelines when appealing an
audit and obtaining the required documentation, PBMs often still deny
their appeal efforts. For example, a pharmacy may get an attestation
from the patient to confirm a prescription, but if the PBM cannot later
get in touch with the same patient to validate the attestation, the
pharmacy will still be subject to a full chargeback of the claim and
potential network termination. As a result, PBMs will subject
pharmacies to chargeback and potential termination for the failure to
produce medical records, despite the unreasonable requirement that
pharmacies maintain this information.
IV. PBM Retaliation and Silencing Opposition: The Medicare Part D
Program Protects Providers with Anti-retaliation
regulation, but PBMs still Retaliate Against
Providers Who Bring Meritorious Claims
PBM and Payor consolidation has resulted in a marketplace in which
network participation with all PBMs is necessary to remain in
operation. Consequently, network termination is the worst fear of many
providers. When discussing litigation or arbitration against PBMs,
providers prudently express concern over potential retaliatory action
by a PBMs for asserting statutory and contractual rights. These
concerns are not always misplaced. Even though the law is clear, PBMs
often take the position that the law does not apply. However, a review
of anti-retaliation laws shows the prohibition on retaliation is clear.
The Social Security Act and related regulations expressly prohibit
retaliation by a prescription drug plan sponsor or Part D sponsor's
agent, the PBM, against a provider for exercising a right of action.
Public Health and Welfare Act, Requirements for and contracts with PDP
Sponsors, 42 U.S.C. Sec. 1395w-112(b)(4)(F)(ii); 42 CFR Sec. 423.520.
Medicare statutes and regulations also require that a contract between
a provider and a Part D plan sponsor, or agents thereof, incorporate
anti-retaliation provisions. Public Health Welfare Act, Medicare
Program, Contract Provisions, 42 CFR Sec. 423.505(b)(19) (incorporating
42 CFR Sec. 423.520). In a scenario where the PBM has ``inadvertently
omitted'' the anti-retaliation language from the provider agreement, a
court will likely read the language into the contract because of these
statutory obligations. Thus, pharmacies should be protected against
retaliatory conduct, such as network termination or sudden audits.
Providers are also afforded additional anti-retaliation protections
under ERISA. In addition to the protections that the Social Security
Act provides regarding Federal healthcare programs, ERISA prohibits
retaliatory action arising out of commercial plans. As such, PBMs are
expressly prohibited from engaging in retaliatory action against
pharmacies for exercising their contractual rights. Employee Retirement
Income Security Program, Interference with Protected Rights, 29 U.S.C.
Sec. 1140 (stating that ``it shall be unlawful for any person to
discharge, fine, suspend, expel, discipline or discriminate against a
participant or beneficiary for exercising any to which he is entitled .
. .''). In addition to the foregoing, providers are also be protected
under State law directly associated with retaliatory action by
PBMs.\90\ Thus, providers are entitled to anti-retaliation protections
in both federal and commercial healthcare programs.
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\90\ For example, in Massachusetts, PBMs are prohibited from
refusing to contract with a provider if the provider has advocated on
behalf of past, current or prospective patients against the PBM. See
Mass. Gen. Laws Ann. ch. 176O, Sec. 4. Moreover, such retaliatory
action would likely be deemed an unfair trade practice and subject to
an action under Massachusetts law. Mass. Gen. Laws Ann. ch. 176D,
Sec. 3.
Unfortunately, pharmacy providers face a real threat of retaliation by
PBMs for any challenge to the PBM's DIR Program. Retaliation in this
manner is prohibited in the Medicare Part D Program. 42 CFR
Sec. 423.505(b)(19) (incorporating 42 CFR Sec. 423.520(g) (``Anti-
retaliation. Consistent with applicable Federal or State law, a Part D
sponsor may not retaliate against an individual, pharmacy, or provider
for exercising a right of action under paragraph (g)(1) of this
section.''). Heedless of the law, PBMs have retaliated against
---------------------------------------------------------------------------
pharmacies in direct contravention of the law.
In the arbitration Caremark, LLC and CaremarkPCS, LLC v. Senderra Rx
Partners, LLC, AAA Case No.: 01-20-0007-3182, a PBM retaliated against
a specialty pharmacy specifically for bringing challenges to its DIR
Program by attempting to terminate the pharmacy entirely from its
networks. In their Final Award, the Panel found the PBM had, in fact,
retaliated against the pharmacy in violation of federal law by
attempting to terminate the pharmacy because the pharmacy sent a
dispute notice to the PBM challenging its DIR Program. Caremark, LLC
and CaremarkPCS, LLC v. Senderra Rx Partners, LLC, AAA Case No.: 01-20-
0007-3182. Final Award, at 17. The Panel entered a permanent injunction
against the PBM based upon this illegal retaliation. Ibid.
Unfortunately, due to the lack of transparency in the PBMs' secretive
contracts with pharmacies, it is unknown whether this or other PBMs'
retaliatory actions will be brought to light.
Other pharmacies have been similarly retaliated against. In another
arbitration, a specialty pharmacy had to bring an emergency action to
prevent its termination from a PBM's network, again because the
pharmacy had challenged the DIR Program. AON Pharmacy, LLC v. Caremark
et al., AAA Case No. 01-22-0003-8522. That retaliation was resolved
when the PBM withdrew its termination during oral argument, but only
after the pharmacy expended tremendous resources in bringing the
emergency claim. AON Pharmacy, LLC v. Caremark et al., AAA Case No. 01-
22-0003-8522, Order Approving Respondents' Withdrawal of Termination
Notice. Yet other Specialty Pharmacies have been threatened with
termination for bringing similar claims. Caremark letters to Onco360,
BioPlus. Retaliation is a real and continuing problem, and PBMs can
hide these retaliative acts behind the cloak of confidentiality.
V. PBM Conduct Conflicts With Plan Sponsor Interests By Imposing
Spread Pricing to Increase Plan Sponsor Cots and
Using Rebate Aggregators to Avoid Obligations to
Pass Through Drug Manufacturer Rebates
A. Spread Pricing/Differential Pricing
PBMs retain the margin between what they charge plan sponsors such as
Medicare or Medicaid, and what they reimburse dispensing pharmacies for
the same prescription claim--a process referred to as ``spread
pricing.'' When PBMs retain these margins, or ``spreads,'' the costs to
plan sponsors are artificially inflated above the actual cost of each
prescription claim. Plan sponsors are often unaware that their PBM
Agreements allow PBMs to retain spread--effectively handing the PBM a
``blank check.'' For example, buried in Exhibit D of Express Scripts,
Inc.'s (``ESI'') contract with County of Ventura for the Ventura County
Health Care Plan, it states:
PBM agreements generally provide that a client pay ESI an
ingredient cost, plus dispensing fee, for drug claims at a
unform rate. If the rate paid by a client exceeds the rate
contracted with a particular pharmacy, ESI will realize a
positive margin on the applicable claim.\91\
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\91\ Express Scripts, Inc. and County of Ventura, Pharmacy Benefit
Management Agreement, Exhibit D, 39, available at https://
nationalprescriptioncoveragecoalition.com/wp-content/uploads/2017/07/
WebPage-1.pdf.
In the Medicare and Medicaid contexts, taxpayers/patients bear the
costs of these artificially inflated prices. By way of example, on
August 16, 2018, the Auditor of the State of Ohio issued an audit
report on the State Medicaid Managed Care Pharmacy Services wherein the
audit report revealed staggering ``spread'' findings.\92\ From April 1,
2017 through March 31, 2018, the Auditor's analysis determined that CVS
Caremark (``Caremark'') and OptumRx, Inc. (``Optum''), the PBMs
contracted with Ohio Medicaid's managed care organizations, retained,
on average, $5.71 as spread across all claims.\93\ With respect to
generic drugs, which made up eighty-six point one percent (86.1%) of
all claims, the average spread was $6.14 per claim.\94\ In total,
Caremark and Optum retained nearly $225 million in spread in only one
plan year.\95\ Caremark and Optum paid pharmacists nearly $225 million
less than what they charged taxpayers through Ohio's Medicaid program.
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\92\ Yost, David, Ohio's Medicaid Managed Care Pharmacy Services
Auditor of State Report (August 16, 2018), 1, available at https://
ohioauditor.gov/auditsearch/Reports/2018/
Medicaid_Pharmacy_Services_2018_Franklin.pdf.
\93\ Id.
\94\ Id.
\95\ Id.
Spread pricing is not unique to Ohio Medicaid's program. 3 Axis
Advisors, LLC (``3 Axis''), a research and analytics firm focused on
understanding the prescription drug supply chain and prescription drug
cost drivers, has ``found strong evidence of spread pricing in Medicaid
programs in New York, Illinois, and Michigan,'' and noted that state
government work in Kentucky, Georgia, Virginia, and Maryland ``has
definitively quantified spread in their state's Medicaid programs as
well.\96\ Likewise, in their analysis of Florida Medicaid prescription
drug claims, 3 Axis found that in 2017 and 2018, Caremark retained
$8.27 per claim--generating just over $10 million in 2018 alone.
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\96\ 3 Axis Advisors, LLC, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis,
(January 30, 2020), 1, available at https://static1.squarespace.com/
static/5c326d5596e76f58ee234632/t/5e384f26fc490b221da7ced1/
1580748598035/FL+Master+Final+Download.pdf (citing 3 Axis Advisors,
LLC, Analysis of PBM spread pricing in New York Medicaid managed care
(January 17, 2019), available at https://www.3axisadvisors.com/
projects/2019/1/17/analysis-of-pbm-spread-pricing-in-new-york-medicaid-
managed-care; 3 Axis Advisors, LLC, Illinois Medicaid Managed Care
Pharmacy Analysis (March 13, 2019), available at https://
www.3axisadvisors.com/projects/2019/3/12/illinois-medicaid-managed-
care-pharmacy-analysis; 3 Axis Advisors, LLC, Analysis of PBM Spread
Pricing in Michigan Medicaid Managed Care (April 28, 2019), available
at https://www.3axisadvisors.com/projects/2019/4/28/analysis-of-pbm-
spread-pricing-in-michigan-medicaid-managed-care; Langreth, R., Drug
Middlemen Took $123.5 Million in Hidden Fees, State Claims (February
21, 2019), available at https://bloomberg.com/news/articles/2019-02-21/
drug-middlemen-took-123-5-million-in-hidden-fees-state-claims;
Langreth, R., Drug Middlemen Face State Probes Over Complex Pricing
System (April 9, 2019), available at https://www.bloomberg.com/news/
articles/2019-04-09/drug-middlemen-face-state-probes-over-complex-
pricing-system; Kimsey, K., Report on Managed Care Pharmacy Benefit
Manager (PBM) Transparency Report (October 1, 2019), available at
https://rga.lis.virginia.gov/Published/2019/RD593/
PDF?fbclid=IwAR3uI8LVdO0xrVrtV65HFi02cYWEjfo8S4jjo5BEdLq9TdxJ79WYopPTI
P8.
3 Axis's analysis of Florida Medicaid also exposes the concept of
differential pricing. Differential pricing occurs when PBMs charge or
reimburse different rates for filling the same drug at different
pharmacies, almost always with the intent of advantaging the PBM-owned
or affiliated pharmacy.\97\
---------------------------------------------------------------------------
\97\ See Id., at 61.
To illustrate, one of Florida's top MCOs, Sunshine/Centene (managed in
part by Caremark), reported a weighted average unit cost of
aripiprazole of $11.18 when filled at CVS pharmacies.\98\ However, when
the same aripiprazole was filled at competing pharmacies, the weighted
average unit cost reported ranged from $0.53 across independent
pharmacies.\99\ In the aggregate, Sunshine/Centene priced generics to
create $3.1 million in Margin over NADAC \100\ in 2018--of which $2.9
million (94%) was reported at a CVS pharmacy.\101\ Although Florida
determined the cost of dispensing a prescription claim is $10.24 in the
Medicaid fee-for-service context,\102\ Florida pharmacies participating
in Medicaid managed care that are not affiliated with PBMs received a
weighted average of $1.97 per claim as payment for servicing Florida's
Medicaid patients.\103\
---------------------------------------------------------------------------
\98\ See Id., at 65.
\99\ See Id., at 66.
\100\ It is the total reported MCO claim payment less the claim's
National Average Drug Acquisition Cost.
\101\ See Id., at 74.
\102\ See Id., at 2.
\103\ See Id., at 142.
Differential pricing is a product of vertical integration in the
prescription drug supply chain. When differential pricing results in
independent pharmacies receiving razor-thin payments--as discovered in
Florida--it is ultimately Medicaid patients and independent pharmacies
that face the most risk. Disadvantaged patients are put at risk when
independent pharmacies are forced to close because of minimal or
negative margins received from PBMs. When local pharmacies are forced
to close, particularly in low-income and rural areas, patient access to
medication and medication adherence rates suffer. Consequently, the
likelihood of disease state complications and hospital visits rises--
resulting in disproportionate financial risk to state and/or federal
governments and worse healthcare outcomes for Medicare and Medicaid
patients.\104\
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\104\ See Id., at 78 (citing Lee, David, Lack of Pharmacy Access
Sends Some Patients Back to the Hospital (August 1, 2016).
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B. Rebates/Rebate Aggregators
Aside from pricing schemes designed to boost PBM profits at the expense
of patients, taxpayers, independent pharmacies, and plan sponsors,
possibly the most significant area of PBM profit arises in the context
of manufacturer rebate manipulation. Similar to spread pricing
provisions, PBMs impose misleading or opaque language in the PBM
Agreements to allow themselves or an affiliated rebate aggregator to
withhold rebate dollars from plan sponsors. PBMs routinely purport to
provide their clients with one hundred percent (100%), but these
``pass-through'' contract provisions are designed to deceive plan
sponsors. For example, in its contract with Orange County, Optum agreed
to provide the Orange County the greater of ``100% pass-through of
actual Total Rebates''\105\ or the minimum guarantees.\106\ By limiting
the Orange County's entitlement to rebates Optum actually receives, the
agreement fails to address portions of rebate dollars retained by
Optum's subcontracted or affiliated rebate aggregators.
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\105\ Id., at 24. (``Total Rebates will include all compensation or
remuneration Contractor receives from pharmaceutical manufacturers
(branded and generic), attributable to the purchase or utilization of
covered drugs (including Specialty Drugs) by an eligible member'').
\106\ OptumRx, Inc. and the County of Orange, Pharmacy Benefit
Management and Claims Administration Program, (January 1, 2021), at 31,
available at: http://cams.ocgov.com/Web_
Publisher_SAM/Agenda01_26_2021_files/images/O00220-001235A.PDF.
Each of the three major PBMs, Caremark, Optum, and ESI, have vertically
integrated rebate aggregators tasked with administering their rebate
programs,\107\ making it difficult to grasp the full extent of rebate
dollars collected by PBMs and rebate aggregators. PBMs and their
subsidiary rebate aggregators carefully guard this revenue to prevent
clients from identifying the payment arrangement. These major PBMs have
vertically integrated rebate aggregators including Ascent Health
Services (owned by Cigna/ESI), Emisar Pharma Services and Coalition for
Advanced Pharmacy Services (owned by UnitedHealth Group/Optum), and
Zinc Health Services (owned by CVS Health/Caremark). These rebate
aggregators also provide services to other PBMs. For example, Humana
and Prime use Ascent Health Services for rebate aggregation. Also, it
is worth noting that Ascent Health Services is based out of Switzerland
and Emisar Pharma Services is headquartered in Ireland.
---------------------------------------------------------------------------
\107\ See Stargard, Andreas, et al, FTC Report on ``PBM Rebate
Walls'' Reveals Impact on Drug Spending, Patient Care and Competition
(June 28, 2021), available at https://www.frierlevitt.com/articles/ftc-
report-on-pbm-rebate-walls-reveals-impact-on-drug-spending-patient-
care-and-competition/ (providing that Ascent Health Services, LLC is
affiliated with ESI; Emisar Pharma Services, LLC and the Coalition for
Advanced Pharmacy Services, Inc. are affiliated with OptumRx, Inc., and
that Zinc Health Services, LLC is affiliated with CVS Caremark.).
In 2017, Broward County, Florida, released an Audit Report detailing
the rebate scheme perpetuated by Optum.\108\ Optum utilized a complex
web of subcontracts that included Optum's arrangement with its wholly
owned rebate aggregator and additional contract with ESI. Optum
maximized the rebates it retained at the expense of the Broward County
and the taxpayers, all while representing that it paid Broward County
all rebate funds it received.\109\
---------------------------------------------------------------------------
\108\ Melton, Robert, Audit of Pharmacy Benefit management Services
Agreement, Report No. 18-13 (December 7, 2017), available at https://
www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%20Ser
vices%
20by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf.
\109\ See Id.
Rebate aggregators are also prevalent in Medicare Part D space. Frier
Levitt represented a Medicare Part D Sponsor in its rebate dispute
against a PBM owned by a publicly traded company. Frier Levitt
uncovered that the PBM, unbeknownst to the Part D Sponsor, delegated
its rebate functions to a rebate aggregator, who in turn, subcontracted
with a major PBM.\110\ We recovered $6.25M in rebates for one (1)
calendar year for the Part D Sponsor. It is also worth noting that the
PBM provided rebate-related data to the Part D Sponsor to submit the
annual DIR reports to the CMS. However, in the DIR reports, the PBM did
not specify whether the rebates that were not passed to the Part D
Sponsor included rebates retained by the rebate aggregators. In fact,
the Medicare Part D DIR Reporting Guidance fails to require PBMs to
report rebates retained by rebate aggregators.\111\ PBMs drive up the
total drug spending of plan sponsors including Medicare and Medicaid
through spread pricing on reimbursement for prescription drugs and
manufacturer rebates, and by utilizing PBM-owned or affiliated rebate
aggregators.
---------------------------------------------------------------------------
\110\ See Caltavuturo, Christopher, et al., Frier Levitt
Successfully Obtains a $6.25 Million Settlement on Behalf of its Plan
Sponsor Client Against a Pharmacy Benefit Manager (December 23, 2020),
14-20 available at https://www.frierlevitt.com/articles/service/
pharmacylaw/recent-successes/frier-levitt-successfully-obtains-a-6-25-
million-settlement-on-behalf-of-its-plan-sponsor-client-against-a-
pharmacy-benefits-manager/.
\111\ See Centers for Medicare and Medicaid Services, Final
Medicare Part D DIR Reporting Guidance for 2021, March 30, 2022,
available at https://www.cms.gov/files/document/
final2021dirreportingreqsmemo508v3.pdf.
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VI. PBMs Have Systematically Warped the Benefit and Intent of the 340B
Drug Program for Their Own Financial Gain By
Redirecting a Significant Portion of 340B Revenue
Intended for Healthcare Providers
Congress implemented and designed the federal 340B Drug Pricing Program
(``340B Program'' or ``340B'') in 1992 through the Veteran's Health
Care Act (P.L. 102-585) to assist certain healthcare providers--
referred to as ``Covered Entities''--that serve poor, uninsured or
otherwise vulnerable populations by permitting them to purchase
prescription drugs at lower costs from manufacturers.\112\
Specifically, pursuant to the 340B Program, drug manufacturers are
required to charge Covered Entities no more than a significantly
discounted ``ceiling price'' on certain outpatient prescription, in
exchange for the manufacturer's drug products being covered by Medicaid
and Medicare Part B.\113\
---------------------------------------------------------------------------
\112\ See Veterans Health Care Act of 1992, Pub. L. No. 102-585,
Sec. 602 (codified as amended at 42 U.S.C. Sec. 256b); see also
Overview of the 340B Drug Discount Program, https://
crsreports.congress.gov/product/pdf/IF/IF12232 (October 14, 2022).
\113\ 42 U.S.C. Sec. 256b(a)(1),(4).
Under 340B, Covered Entities can acquire drugs from manufacturers at
extreme discounts from what is normally available. In turn, Covered
Entities are (in theory) able to ``pass on'' those savings to their
patients through lower costs for medications, or, as contemplated by
340B itself, Covered Entities can seek reimbursement for 340B drugs in
the normal course and use those greater profit margins to subsidize
other unfunded areas of their operations. It is fundamental to the 340B
Program that Covered Entities are credited for their ability to
``provide direct clinical care to large numbers of uninsured
Americans'' regardless of the patient's ability to pay.\114\ As
articulated by Congress itself, the 340B Program's purpose is ``to
enable covered entities to stretch scarce Federal resources as far as
possible, reaching more eligible patients and providing more
comprehensive services.''\115\
---------------------------------------------------------------------------
\114\ See H.R. Rep. No. 102-384, pt. 2, at 12 (September 22, 1992).
\115\ Id.; see also HRSA, Notice Regarding Section 602 of the
Veterans Health Care Act of 1992; Contract Pharmacy Services, 61 Fed.
Reg. 43,551 (August 23, 1996) (wherein the Health Resources and
Services Administration (``HRSA''), the federal agency charged with
administering the 340B Program, opines that 340B is designed so that
CEs would ``pass all or significant part of the discount to their
patients.'')
Since its implementation in 1992, the 340B Program has grown
exponentially. Approximately 14% of all pharmaceutical sales in the
United States, or $93.6 billion, are accounted for under 340B.\116\
340B has grown five times faster than the overall drug market,\117\
with 340B expenditures quadrupling since 2014.\118\ In terms of
magnitude, it is the second largest federal drug program, behind only
Medicare Part D. By 2026, 340B is expected to exceed the size of both
Medicaid and Medicare.\119\
---------------------------------------------------------------------------
\116\ Rory Martin, IQVIA, 340B Program Continues to Grow While
Contract Pharmacy Restrictions Take Effect, at 2.
\117\ Id.
\118\ Adam Fein, Drug Channels, Exclusive: The 340B Program Soared
to $38 Billion in 2020--Up 27% vs 2019, https://www.drugchannels.net/
2021/06/exclusive-340b-program-soared-to-38.html.
\119\ Berkeley Research Group, LLC, 340B Program at a Glance,
https://media.thinkbrg.com/wp-content/uploads/2021/12/09062840/
340B_Forecast-Report-Infographic_2021.pdf.
Industry experts have opined that ``[t]he enormous growth in 340B
contract pharmacy arrangements seems to boil down to a single factor:
outsized profit margins.''\120\ Leveraging their role as the middle-men
of the prescription drug industry, and substantial vertical integration
amongst plan sponsors and pharmacies, PBMs have systematically, and
increasingly, warped the benefit of intent of the 340B Program for
their own financial gain. These abusive and problematic PBM practices
are well documented, and negatively affect both patients and providers
alike.\121\ Astoundingly, through these practices, vertically
integrated health care conglomerates that own or are affiliated with
PBMs retain upwards of 63.5% of the total 340B cost to payors and their
patient beneficiaries.\122\ In effect, PBMs have diverted the 340B
discounts and ``outsized profit margins''--intended to benefit the
nation's most vulnerable and the providers that serve them--into the
coffers of Fortune 500 companies. Put simply, PBMs have mutated the
340B Program, a well-intentioned community benefit, into a virtual ATM
cash machine for themselves, at the expense of Covered Entities,
community contract pharmacies, and the patients they serve.
---------------------------------------------------------------------------
\120\ Berkeley Research Group, LLC, For-Profit Pharmacy
Participation in the 340B Program, https://media.thinkbrg.com/wp-
content/uploads/2020/10/06150726/BRG-ForProfitPharmacy
Participation340B_2020.pdf (emphasis added).
\121\ See AstraZeneca Pharmaceuticals LP v. U.S. Dept. Health and
Human Services, No. 22-1676 (United States Court of Appeals, Third
Circuit), ECF. #36, Brief of Community Oncology Alliance, Inc. as
Amicus Curiae.
\122\ See infra, Section II.D., Figure 3.
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A. While Managing the 340B Drug Program, PBM-Owned
Pharmacies Syphon Benefits Away from Covered
Entities
Because certain Covered Entities, such as small community health
centers, may not have in-house pharmacies, HRSA issued sub-regulatory
guidance in 1996 permitting Covered Entities to ``contract'' with
outside pharmacies (referred to as ``Contract Pharmacies'').\123\
Initially, HRSA restricted Covered Entities to contracting with only a
single Contract Pharmacy.\124\ In 2010, however, HRSA dramatically
shifted the 340B Contract Pharmacy landscape by permitting Covered
Entities to maintain an unlimited number of Contract Pharmacy
relationships.\125\ In the wake of this HRSA guidance, for-profit
pharmacies, especially those owned or affiliated with PBMs, seized on
the opportunity to capitalize on substantial 340B drug discounts. In
fact, Contract Pharmacies owned by or affiliated with PBMs can retain
upwards of twenty-five percent (25%) of the total 340B cost as their
dispensing fee.\126\
---------------------------------------------------------------------------
\123\ See 61 F.R. at 43549.
\124\ Id. at 43,551.
\125\ See 75 F.R. 10272-01 (March 5, 2010).
\126\ See infra, Section II.D., Figure 3.
Notably, the Contract Pharmacies participating in 340B are primarily
not independent pharmacies. Rather, the vast majority of Contract
Pharmacy arrangements are between Covered Entities and large for-profit
pharmacies that are owned by or affiliated with the largest PBMs.\127\
Indeed, CVS Health, Walgreens, Cigna, UnitedHealth Group and Walmart--
now control 73% of all Contract Pharmacy relationships.\128\ Each of
these entities also operate or are affiliated with a PBM. The three
largest PBMs (Caremark, ESI and OptumRx), controlling 80% of the total
prescription drug market, account for 39% of all Contract Pharmacy
relationships through their owned or affiliated Contract
Pharmacies.\129\ In 2021, Walgreens and CVS held the greatest 340B
Contract Pharmacy market share with Walgreens controlling 31% of all
retail Contract Pharmacies (up from 28% in 2020) and CVS controlling
19% of all retail Contract Pharmacies (up from 20% in 2020).\130\ More
than 80% of Walgreens retail pharmacy locations and two-thirds of CVS
locations are Contract Pharmacies.\131\ Also noteworthy, in 2022, the
three largest PBMs--Caremark, ESI and OptumRx--collectively owned 500
mail order, specialty, and infusion Contract Pharmacies.\132\ These 500
PBM-affiliated mail, specialty, and infusion pharmacies account for
only 1.5% of all 340B Contract Pharmacy locations, but total a stunning
21% of the total 340B Contract Pharmacy relationships with Covered
Entities.\133\ And PBM-affiliated pharmacy's control over these
channels continues to rapidly increase. As of 2020, there were 16,293
Contract Pharmacy arrangements between Covered Entities and vertically
integrated specialty pharmacies, representing a 1,006% growth from
2016.\134\
---------------------------------------------------------------------------
\127\ Karen Mulligan, Ph.D., University of Southern California, The
340B Drug Pricing Program: Background, Ongoing Challenges and Recent
Developments (October 14, 2021) at 4, https://healthpolicy.usc.edu/wp-
content/uploads/2021/10/The_340B_Drug_Pricing_Program.
pdf (noting that ``[l]arge retail pharmacy chains--Walgreens, CVS,
Walmart, and Rite Aid--are disproportionately represented among
contract pharmacies''); see also GAO 2018, at 21-22; (noting 75% of CP
arrangements are held by ``chain pharmacies'').
\128\ Adam Fein and Doug Long, The Specialty Pharmacy Industry
Update and Outlook, May 3, 2022, https://drugch.nl/asembia22; see also
2018 GAO Rep., at 20-21 (noting approximately 75% of 340B Contract
Pharmacies are chain pharmacies, notwithstanding that chain pharmacies
represent scarcely half of all pharmacies nationwide).
\129\ Id.
\130\ Nephron, Decade-Long 34B Tailwind Gives Way to Significant
Pharmacy Headwind in 1Q 2022, at 9-10; see also Karen Mulligan, Ph.D.,
University of Southern California, The 340B Drug Pricing Program:
Background, Ongoing Challenges and Recent Developments (October 14,
2021) at 4, https://healthpolicy.usc.edu/wp-content/uploads/2021/10/
The_340B_Drug_Pricing_
Program.pdf.
\131\ Adam Fein, Drug Channels, Exclusive: 340B Continues Its
Unbridled Takeover of Pharmacies and PBMs, https://
www.drugchannels.net/2021/06/exclusive-340b-continues-its-
unbridled.html.
\132\ Id.
\133\ Id.
\134\ Berkeley Research Group, LLC, For-Profit Pharmacy
Participation in the 340B Program, https://media.thinkbrg.com/wp-
content/uploads/2020/10/06150726/BRG-ForProfitPharmacy
Participation340B_2020.pdf (emphasis added); Adam Fein, Drug Channels,
PBM-Owned Specialty Pharmacies Expand Their Role In--and Profits From--
the 340B Program, https://www.drugchannels.net/2020/07/pbm-owned-
specialty-pharmacies-expand.html; Nephron,
Decade-Long 34B Tailwind Gives Way to Significant Pharmacy Headwind in
1Q 2022, at 10 (noting that CVS controls the largest share of specialty
Contract Pharmacies, with 30.1% of the market).
Based on this market dominance, Contract Pharmacies affiliated with
Walgreens, Caremark, ESI and OptumRx are conservatively estimated to
retain upwards of $2.58 billion in 340B discounts in 2022 alone.\135\
This is no small matter. If these corporations retain these discounts
as profit, which is likely considering the Covered Entity supplies 340B
drugs to the Contract Pharmacy at essentially no cost to the Contract
Pharmacy, it would equate to between 6.4% to 17.4% of their adjusted
operating profit.\136\ Further, in 2021, Walgreens Contract Pharmacies
retained $994 million of 340B drug discounts, ESI Contract Pharmacies
retained $561 million and OptumRx Contract Pharmacies retained $281
million.\137\ Further evidencing the material impact the 340B Program
is to the bottom lines of PBMs--who are notably not the intended
beneficiaries of the Program--PBMs and their affiliated Contract
Pharmacies have indicated that reductions to their 340B Contract
Pharmacy footprint would significantly and materially affect overall
profitability. For example, the annual reports of CVS Health and
Walgreens Boots Alliance confirm that 340B profits are material to
their business operations and warn that restrictive Contract Pharmacy
policies enacted by drug manufacturers, which have been the subject of
recent litigation,\138\ will negatively impact their bottom lines.\139\
Clearly, with the huge increase in Contract Pharmacies, 340B has
mutated away from the original intention of Congress, to serve
communities and patients in need, to increasing profits for large
corporations.
---------------------------------------------------------------------------
\135\ Id.
\136\ Id.
\137\ Nephron, at 8-12.
\138\ See Sanofi Aventis, U.S. LLC v. United States Department of
Health and Human Services., et al., No. 21-3167, 21-3379 (United States
Court of Appeals, Third Circuit); Eli Lilly and Company v. Norris
Cochran et al., No. 1:21-00081 (United States District Court, Southern
District of Indiana).
\139\ See e.g., CVS Health Corporation, Form 10-K FY 2021, p. 22-23
(``[a] reduction in `Covered Entities' participation in contract
pharmacy arrangements, as a result of the pending enforcement actions
or otherwise, a reduction in the use of [CVS/Caremark's] administrative
services by Covered Entities, or a reduction in drug manufacturers'
participation in the program could materially and adversely affect
[CVS/Caremark]''; WBA, Form 10-K FY 2021, p. 22 (``[c]hanges in
pharmaceutical manufacturers' pricing or distribution policies and
practices as well as applicable government regulations, including, for
example, in connection with the federal 340B drug pricing program,
could also significantly reduce [WBA's] profitability.''); see also
Nephron, at 9 (``Walgreens is by far the most exposed to 340B, given
long dominance in contract pharmacy, TPA, and tech services to covered
entities'').
---------------------------------------------------------------------------
B. PBM-Owned 340B Third Party Administrators Wrongful
Conduct
The process of determining whether a particular claim is 340B eligible
is complex, and responsibility for compliance lies with the Covered
Entity.\140\ Covered Entities hire third-party administrators
(``TPAs'') to retroactively determine 340B eligibility and rely on them
to ensure 340B compliance.\141\ TPAs generally provide claims
processing and management services and retroactively determine which
claims are 340B eligible. Covered Entities also utilize the services of
TPAs to appropriately calculate and reconcile the payments between
themselves and Contract Pharmacies. TPAs are typically for-profit
businesses and charge Covered Entities a fee for TPA services. For all
such services, TPAs charge Covered Entities a fee, which is generally
assessed on a per claim basis as a percentage of the amounts paid by
the patient and their insurance. Some TPAs charge an estimated 7.5% of
the total payment per claim for their reconciliation services. Notably,
the largest TPAs are also vertically integrated with the largest PBMs:
CVS Health owns the TPA Wellpartner.\142\ Cigna owns the TPA Verity
Solutions.\143\ Walgreens owns the TPAs 340B Complete and Shields
Health Solutions.\144\
---------------------------------------------------------------------------
\140\ Covered Entities are responsible for the compliance of their
Contract Pharmacy(ies) and must comply with Section 340B of the Public
Health Service Act, 42 U.S.C. Sec. 256b and relevant HRSA guidance.
\141\ OIG Report, Contract Pharmacy Arrangements in the 340B
Program (February 4, 2014), at 5, https://oig.hhs.gov/oei/reports/oei-
05-13-00431.pdf.
\142\ BRG, For-Profit Pharmacy Participation in 340B Program, at 4
(October 2020), https://bit.ly/36X0eUG; see also AIR340B, The Impact
and Growth in 340B Contract Pharmacy Arrangements--Six Years Later, at
8, https://340breform.org/wp-content/uploads/2021/04/AIR340B_340B-
Contract-Pharmacies.pdf.
\143\ Id.
\144\ Id.
Consistent with their virtual stranglehold on the Contract Pharmacy
market, and motive to divert every 340B discount to themselves, TPAs
vertically integrated with PBMs require Covered Entities to contract
with and use their own Contract Pharmacies. For example, beginning in
2018, CVS Health required Covered Entities seeking to enter into a 340B
Contract Pharmacy arrangement with CVS to also utilize CVS Health's
wholly owned TPA, Wellpartner, for 340B claim reconciliation.\145\
Covered Entities were presented with a choice: either use the PBM's TPA
or not contract with CVS' vast network of Contract Pharmacies. CVS's
Wellpartner now serves as the exclusive TPA for any CVS Contract
Pharmacy arrangement--accounting for 19% of all retail Contract
Pharmacies and 30.1% of all specialty Contract Pharmacies.\146\
Compounding this situation, Wellpartner charges Covered Entities a
percentage of each claim they reconcile.
---------------------------------------------------------------------------
\145\ See RxStrategies, Inc. v. CVS Pharmacy, Inc., 390 F. Supp.3d
1341, 1347 (M.D.Fl. 2019) (``CVS now requires any covered entity that
wants to fill 340B Program prescriptions at a CVS pharmacy to use
Wellpartner as its program administrator. If the covered entity does
not want to use Wellpartner as its 340B program administrator, it
cannot utilize CVS as a contract pharmacy for the 340B program.'').
\146\ Nephron, at 10.
---------------------------------------------------------------------------
C. PBMs Divert Funds Away from the Intended Beneficiaries
of the 340B Program
Through their business practices described herein, and below, PBMs make
every effort to divert as much of the substantial savings offered by
the 340B Program away from their intended beneficiaries--the Covered
Entities and their patients--to themselves and their affiliates. Two
particular PBM abusive practices that are most concerning are: (1) PBMs
collect substantial sums of DIR fees (described above) on 340B claims--
which diverts 340B funds away from Covered Entities, community Contract
Pharmacies, and the patients they serve, and into the pockets of the
PBMs; and (2) PBMs pay pharmacies below market pricing on 340B claims,
further diverting 340B savings away from providers and into the PBM
(and their affiliate's) pockets.
1. PBMs Collect Significant DIR Fees on 340B Claims
PBMs force Contract Pharmacies to pay DIR fees on 340B claims, long
after the PBM has adjudicated the claim and effected payment to the
pharmacy. As described above, these DIR fees can be substantial
percentages (for example 5%) of the overall reimbursement received by
the pharmacy. By assessing DIR fees on 340B claims, PBMs are reducing
the reimbursement amounts to pharmacies and pocketing these funds for
themselves. In other words, the 340B savings intended to compensate
providers for serving indigent populations, and to promote these
providers to continue providing these essential services, are
systematically siphoned away by PBMs through the assessment of DIR fees
on 340B eligible claims. Making matters worse, the largest TPAs (such
as Wellpartner) do not account for DIR fees assessed by their
affiliated PBMs, which causes the TPAs to artificially inflate the
total reimbursements received by the Covered Entity and/or Contract
Pharmacy. Again, the TPA's fee is generally based on a percentage of
the total dollar amount of the claim. Thus, an inflated claim amount
(i.e., a claim that fails to account for DIR fees, reducing the total
reimbursement) results in an inflated fee to the TPA. Thus, DIR fees on
340B claim enrich not only PBMs, but also their TPA affiliates.
2. PBMs Pay Less for Medications Dispensed to 340B
Patients
Not only do PBMs take a percentage DIR fee off the top of many 340B
claims, PBMs reimburse providers at significantly reduced rates on 340B
claims. This flies in the face of the intention of the 340B Program--
which specifically contemplates Covered Entities and their Contract
Pharmacies obtaining a profit margin on 340B drugs as a means of
funding charity care operations, that Congress has deemed essential. In
other words, PBMs have unilaterally decided that PBMs should also share
in the 340B Program's savings--even though PBMs do not provide any
patient care and are not the intended beneficiaries of the Program.
Recently, several PBMs have sought to make the identification of 340B
claims mandatory by 340B providers specially so that they can pay
pharmacies less on these claims. ESI, for example, issued notice in
February 2021 that Contract Pharmacies must retrospectively identify
340B claims.\147\ Thereafter, PBMs (like ESI) began to impose
significantly lower reimbursement rates for 340B claims, essentially
usurping the savings that should have flowed to Covered Entities, even
when a PBM owned or affiliated pharmacy may not have been the CP.\148\
It must be noted that while the PBMs are paying the pharmacy a
significantly discounted rate, many PBMs are still charging the plan
sponsor as if the claim were not 340B-eligible. The ``spread'' between
the higher amounts the PBM charges the plan sponsor and the lower
amounts the PBM reimburses the pharmacy for 340B claims, is retained by
the PBM. This ``spread'' is intended for the Covered Entity, the
Contract Pharmacy, and their patients; not the PBM. In effect, PBMs are
singling out 340B drugs for reduced reimbursement, ``which essentially
transfers the benefit of the program from safety net providers to for-
profit payers.''\149\ PBMs have thus ensured that they profit from 340B
in as many ways as possible.
---------------------------------------------------------------------------
\147\ Rhiannon Klein, cv340b, Express Scripts Issues 340B Claims
Identification Requirements, (March 11, 2021), https://www.cv340b.org/
express-scripts-issues-340b-claims-identification-requirements/.
\148\ Adam Fein, Drug Channels, How Hospitals and PBM Profit--and
Patients Lose--From 340B Contract Pharmacies (July 23, 2022), https://
www.drugchannels.net/2020/07/how-hospitals-and-pbms-profitand.html.
\149\ Legacy Health Endowment, PBMs and the 340B Program, at 1,
https://340breport.com/wp-content/uploads/2021/06/PBMs-and-340B-White-
Paper-June-29-2021.pdf.
---------------------------------------------------------------------------
VII. Recommendations to the U.S. Senate Committee on Finance
Based on the foregoing, we recommend that the Committee take action to
address the outsized and deleterious impact of PBMs on patients, plan
sponsors, manufacturers, distributors, taxpayers and pharmacy
providers. The vertical integration among PBMs has led to reduced
competition, limited drug access, a lack of transparency, and higher
costs for patients and plan sponsors. At the same time, PBMs have
severely harmed the ability of unaffiliated pharmacy providers to
continue to operate, putting a significant burden on pharmacy providers
and their ability to provide essential care to patients.
To that end, we recommend the Committee address the following issues:
1. Inadequate Reimbursement to Pharmacy Providers by PBMs to
Maintain a Robust Network of Quality Providers
Through a variety of tactics, including DIR fees, generic and
brand effective rate reconciliation, and outright below water
reimbursement rates, PBMs seriously threaten the viability of a robust
network of pharmacy providers outside of their affiliated providers. We
call upon the Committee to investigate reimbursement rates to pharmacy
providers (both those owned by PBMs and those that are unaffiliated),
including a comprehensive study of reimbursement rates, network access
and network adequacy. We further call upon the Committee to take action
to set appropriate standards for establishing reimbursement rates to
pharmacy providers. These standards must take into account actual
available acquisition costs in the marketplace (including the
differences based on pharmacy provider type), as well as reasonable
dispensing fees taking into account the actual costs to dispense
different types of medications. Such standards may either create a
floor, or, alternatively, establish an appropriate formula for
determining appropriate reimbursement rates, based on the
aforementioned standards. Finally, the Committee must act to create an
enforcement procedure to address instances where PBMs have not offered
such appropriate reimbursement terms, as well as a dispute resolution
framework in order for pharmacy providers and PBMs to effectively
resolve such matters between themselves.
2. Bring PBMs Within the Bounds of the Law
PBMs routinely and consistently maintain that they are not
bound by a host of laws aimed at regulating conduct within the drug
supply channel. Most notably, PBMs have asserted (successfully in some
instances) that they are not bound by the federal any willing provider
law, and thus, do not take such compliance obligations in mind when
establishing pharmacy networks within the Medicare Part D program.
Thus, we urge the Committee to clarify existing guidance regarding the
applicability of such laws to PBMs, and, where necessary, amend
relevant federal laws to apply to more clearly PBMs.
3. Reduce the Negative Impact of Vertical Integration and Rebate
GPOs
Through secretive offshore companies, PBMs have been able to
circumvent the oversight and regulation intended by recent legislative
and regulatory efforts aimed at adding transparency to rebates received
on behalf of plan sponsors. Simply put, PBMs are still not passing
through rebates received on behalf of their plan sponsor clients. We
call upon the Committee to investigate the negative impact of PBM-owned
Rebate GPOs on patients, plan sponsors and the federal government. We
further call upon the Committee to take action to regulate PBMs'
vertical integration, to reduce the negative consequences of such
vertical integration, including the abusive power PBMs hold over
formularies, and on wholesalers through unchecked buying power.
Finally, we call on the Committee to recommend enforcement actions
regarding PBMs' vertical integration, to protect patients, plan
sponsors, pharmacy providers and taxpayers, alike.
The time for action is now. Pharmacy providers face existential threats
due to PBM consolidation and integration. Thus, we implore the
Committee to take action to protect patients, plan sponsors, taxpayers,
and pharmacy providers, alike.
Exhibit
Pharmacy Benefit Manager Expose: How PBMs Adversely Impact Cancer Care
While Profiting at the Expense of Patients, Providers, Employers, and
Taxpayers.
Prepared by Frier Levitt, LLC
Commissioned by the Community Oncology Alliance
February 2022
1 Executive Summary
There is growing awareness of the problems and pitfalls with Pharmacy
Benefit Managers (PBMs) in the United States health care system.
Contracted by plan sponsors (including government programs, self-
insured employers and insurance companies) to negotiate on their behalf
with pharmaceutical companies, these ``middlemen'' corporations have
quietly become an unavoidable part of our nation's health care system.
Today, fewer than five PBMs control more than 80% of drug benefits for
over 260 million Americans, which includes the power to negotiate drug
costs, what drugs will be included on plan formularies, and how those
drugs are dispensed. Oftentimes, patients are required to receive drugs
through PBM-owned or affiliated specialty and mail-order pharmacies and
suffer serious, sometimes dangerous, and even deadly, impact of their
abuses as a result of medication delays and denials.
However, while the role PBMs play in the U.S. health care system is
complex and under scrutiny by both federal and state policymakers and
the public, it is increasingly becoming clear that PBMs make up an
oligopoly of rich, vertically integrated conglomerates that routinely
prey on health care practices, providers, and their patients. PBMs have
done this by overwhelmingly abusing their responsibility to protect
Americans from this country's drug pricing crisis, instead exploiting
the opacity throughout the nation's drug supply chain to enrich
themselves.
Unfortunately, their impact is only becoming more pronounced,
especially in the world of cancer care. More and more cancer
medications are coming out in oral formulations, resulting in a shift
away from the medical benefit and into the pharmacy benefit. And
because cancer medications are among the most expensive out there, they
are very attractive to PBMs because they yield higher rebates, higher
``DIR fees,'' and other pricing gimmicks that yield substantial
profits.
Through vertical integration and sheer market power, PBMs have also
been able to creep into other areas of our health care system, such as
injectable biosimilars and intravenous chemotherapies. Not only can
PBMs leverage these products for steep originator drug rebates (thereby
stifling the biosimilar industry for their own gain), but PBMs have
also begun to institute policies such as mandatory ``white bagging'' to
take the in-office administration out of the hands of patients'
oncologists.
The purpose of this expose is to reveal and explain PBMs' advantage and
leverage by providing transparency where now there is total darkness,
and by delving into the many ways that PBMs have abused their power.
This report comprehensively explores and documents the myriad of PBM
abuses, and their impact on patient care--focusing especially on cancer
care. It explores how the recent levels of consolidation among PBMs and
health insurers is adversely impacting cancer care, fueling drug costs,
all while allowing for massive profits for PBMs and health insurance
companies. Examining the most pervasive and abusive PBM tactics, each
section highlights the adverse impact of PBMs on patients, health care
payers (including Medicare, Medicaid, employers, and taxpayers), and
providers, while also detailing potential solutions.
Each day that goes by, physicians, practices, and most importantly,
patients become increasingly powerless because of horizonal PBM
consolidation and vertical integration with insurers. The result is a
system designed for patients to receive inferior treatment, while
paying more out-of-pocket for their medications.
The time for sitting back and hoping for PBMs to become good faith
actors is over. It is time for action to stop PBM abuses once and for
all, and this expose provides a road map for tackling them one dirty
PBM trick at a time.
2 Introduction
In the eyes of many Americans, the problem with drug pricing is caused
by unscrupulous pharmaceutical manufacturers who have increased drug
prices over the last two decades with reckless abandon. This has been
exemplified by a handful of highly visible bad actors, such as
``pharma-bro'' Martin Shkreli or Nostrum Pharmaceuticals founder Nirmal
Muyle, who rightfully captured the public's attention, but wrongfully
over-simplified the causes of our nation's drug pricing issues.
Far more dangerous and insidious actors have quietly grown to dominate
the nation's pharmaceutical industry and drive high drug prices through
the secretive pharmacy benefit manager (PBM) industry. Ironically, in
the country's attempt to rein in ruthless operators like Shkreli and
Muyle, we ended up inadvertently creating the PBM problem that now
plagues us. Expanding the role of PBMs, first from simple processors of
pharmacy claims to middlemen more actively managing the prescription
benefit initially made some sense. Clients--employers, unions, state
governments, and other payers of medical care--did not have the
expertise to manage complex drug benefits. Thus, they could hire a PBM
to administer their prescription benefit, which would include
simplifying and streamlining a complicated drug supply chain, designing
formularies to exclude wasteful drugs, using their size and leverage to
negotiate better discounts from pharmaceutical manufacturers, and
managing pharmacy networks to create better outcomes for patients.
However, as this expose on PBM business tactics, dirty tricks, and
their negative impacts will detail, what seemed like a good idea ``on
paper'' has not come to fruition. Instead, the nation's largest PBMs
have capitalized on the complexity of the drug supply chain and used
the secrecy in which they operate to hide the true cost of drugs. And
rather than eliminate the costly arbitrage within the supply chain,
PBMs co-opted and embraced it, exacerbating the very problems of high
drug prices that they were originally hired to control. They saw the
financial windfall that would come through vertical integration and
bought or set up their own mail-order and specialty pharmacies,
steering patients away from independent community pharmacies and
medical practices to their wholly-owned or affiliated pharmacy
facilities where they could retain the inflated prices (and profits)
they themselves were responsible for creating.
The perverse result is that PBMs have abandoned their most sacrosanct
function of protecting their clients from high cost or low benefit
drugs, instead letting higher priced drugs ``buy'' their way onto their
clients' formularies via rebates that the PBMs mostly retain. They then
set up affiliated rebate aggregator entities to further obfuscate the
flow of pharmaceutical manufacturer dollars, retaining a larger portion
of their clients' rebates, and leaving patients on high deductible
plans exposed to drugs with exploitative list prices. The result is
that patients pay more for their drugs off of artificially inflated
list prices and the PBM clients have higher prescription drug costs.
The PBM's purpose in the drug supply chain was to ``police'' the
system. Had the largest PBMs not been lured in by the immense profit
potential borne out of the complete opacity of drug costs, a PBM's
greatest asset would have been trust--trust from payers and providers
that they were tirelessly working to protect the American public from
high drug prices. However, this unfortunately did not come to pass.
Instead, the PBM's greatest advantage has become the almost total
opacity of the U.S. drug supply chain and a lack of understanding among
employers, unions, state governments, and American taxpayers of how
most PBMs have chosen to abuse it.
The purpose of this expose is to reveal and explain the PBM advantage
by providing transparency where now there is total darkness and delving
into the many ways that PBMs have abused their power to become
``crooked cops.'' Throughout this expose, we comprehensively explore
and document the myriad of PBM abuses, and their impact on patient
care--focusing especially on cancer care. Finally, we explore how the
recent levels of consolidation among PBMs and health insurers is
adversely impacting cancer care, fueling drug costs, while allowing for
massive profits for PBM and health insurance companies. We have
thoroughly examined and detailed the most pervasive and abusive PBM
tactics, in each section highlighting their adverse impact on patients,
health care payers (including Medicare, Medicaid, employers and
taxpayers), and providers.
With the ultimate goal of this expose being transparency, Frier Levitt
went beyond the law, partnering with 3Axis Advisors LLC to create
infographics derived from their analysis of millions of prescription
claims across multiples states. The goal of these infographics is to
help crystallize and simplify the very complex topics we will discuss
throughout this expose. Lastly, because PBMs have been known to hold
themselves out as being ``above the law,''\1\ we have provided the
applicable law and legal principles governing each topic, and detailed
the PBMs' thin legal footing as it comes to these abusive practices.
Finally, we have laid out potential, workable solutions to these
issues, which may be legislative, regulatory, or legal in nature.
---------------------------------------------------------------------------
\1\ See, CZ Servs. v. Express Scripts Holding, Case No. 3:18-cv-
04217-JD, Dkt. No. 301-3.
We intend for this report to serve as an authoritative source and
reference guide for federal and state policymakers, regulators, and
employers seeking greater understanding of PBM behavior, as well as
frameworks for reshaping the industry for the better. While not all
PBMs engage in these types of practices, or the degree with which they
engage in these practices may vary from plan to plan, program to
program, state to state, and so on, we believe that a thorough exposure
of the blind spots, latitude for abuse, and backwards incentives is
essential for any coherent understanding of the inherent flaws within
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the drug supply chain.
This expose was commissioned by the Community Oncology Alliance (COA).
The findings reflect the independent research of the authors, Frier
Levitt, LLC, and does not endorse any product or organization. If this
expose is reproduced, we ask that it be reproduced in its entirety, as
pieces taken out of context can be misleading.
3 Background
3.1 The Stakeholders
Any examination of the PBM industry must necessarily begin with an
overview of the relevant stakeholders. These include five major
categories of industry participants: (1) plan sponsors, (2) health
insurers, (3) patients, (4) manufacturers, (5) providers, and (6) PBMs.
Understanding who the major stakeholders are, and their relationship
with one another, is paramount.
At the top of the hierarchy are plan sponsors. These include
governmental health benefits programs (such as Medicare, Medicaid and
TRICARE), employer-sponsored health plans, Taft-Hartley and union
welfare plans, and private health insurance companies. These entities
sponsor a health benefits plan for their members, beneficiaries or
employees, and provide coverage for pharmacy expenses and drug costs
(in addition to traditional medical expenses). In the Medicare Part D
context, the Centers for Medicare & Medicaid Services (CMS) contracts
with private insurance companies that submit bids to become Part D plan
sponsors, and CMS in turn subsidizes certain costs associated with the
operation of the plans.\2\ Likewise, in the Medicaid space, the
majority of states operate a managed care model with respect to
pharmacy benefits, contracting with Medicaid Managed Care Organizations
(MCOs), who in turn, contract with PBMs to administer the pharmacy
benefit.\3\ Finally, in the private sector, employers either directly
or through an insurance company contract with PBMs to administer
pharmacy benefits. These employer-sponsored plans may either be fully-
insured (meaning the employer hires an insurance company and pays all
or part of the premiums on behalf of its employees) or self-insured
(meaning the employer bears all of the financial risk with the costs of
care).\4\ In any case, these plan sponsors bear the ultimate costs of
care, and suffer when PBM abuses cause prices to rise or waste to
occur. Plan sponsors may or may not hire a health insurance company to
help offset the risks associated with the cost of care, and pay
premiums on behalf of their beneficiaries. These health insurance
companies may in turn be the entity that directly contracts with the
PBM for pharmacy care. However, as noted below, the lines have become
increasingly blurred between health insurers and PBMs; thus, the key
distinction between plan sponsors and health insurers is that the plan
sponsors are typically the ultimate financial guarantors of the costs
of the health care for their beneficiaries, including not only drug
costs but also major medical expenses.
---------------------------------------------------------------------------
\2\ http://medpac.gov/docs/default-source/reports/
jun19_medpac_reporttocongress_sec.pdf.
\3\ https://www.kff.org/medicaid/issue-brief/management-and-
delivery-of-the-medicaid-pharmacy-benefit/.
\4\ https://www.shrm.org/hr-today/news/hr-magazine/pages/
0909wellsc.aspx.
At the other end of the continuum are the patients. Patients include
beneficiaries of government sponsored health care programs, as well as
the employees (and dependents) of employers sponsoring health plans.
They are also uninsured or underinsured individuals who are left to
find a way to cover drug costs themselves. In oncology, they are cancer
patients needing care from a complex and disjointed health care system.
As a group, they not only bear a disproportionate share of the out-of-
pocket costs associated with PBM abuses, but also suffer from the
inferior care caused by certain PBMs' tactics of putting profits over
patients. These include delays and denials as a result of PBMs'
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unnecessary obstacles to care.
On the front line of care are the providers. These include retail,
specialty and mail-order pharmacies, and in oncology, community
oncology practices. In addition to providing direct medical care,
community oncology practices provide in-office and outpatient pharmacy
services, which can take two basic forms (depending on applicable state
law): dispensing physician practices (i.e., in-office dispensing under
a plenary medical license), or oncologist-owned pharmacies (i.e., the
oncology practice owns and operates a licensed retail pharmacy within
the clinic).\5\ These providers contract with PBMs to dispense
medication to plan members, and participate in PBM networks. In so
doing, they are tasked with providing appropriate care to their
patients, while remaining bound to the PBMs who set reimbursement rates
and other terms for participation.
---------------------------------------------------------------------------
\5\ See, Mark Munger et al., Emerging Paradigms: Physician
Dispensing, Presentation to the National Association of Boards of
Pharmacy (May 20, 2014), available at https://www.nabp.net/system/rich/
rich_files/rich_files/000/000/338/original/munger-202.pdf.
While not directly involved in the provision of care, manufacturers are
equally part of the continuum and impacted by PBM actions. These
include drug and biologic manufacturers, including both brand and
generic companies. Manufacturers have had a particular important role
in the biosimilar market, becoming captive to PBMs' rebate traps, and
stifling the biosimilar market before it even has a chance to take
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hold.
The final piece of the puzzle is the PBM. PBMs are third-party
administrators of prescription drug programs covered by a plan sponsor.
The PBM is primarily responsible for processing and paying prescription
drug claims submitted by participating providers on behalf of covered
beneficiaries. However, a PBM's role is not limited to processing and
paying prescription drug claims. Rather, PBMs also provide bundled
services related to the administration of pharmaceutical benefits,
including formulary design, formulary management, negotiation of
branded drug rebates, and controlling network access of participating
pharmacies. Perhaps most importantly, PBMs often also own and operate
their affiliated retail, mail-order and/or specialty pharmacies, and in
so doing, directly compete with independent providers participating in
PBM networks. They are not just the gatekeepers, but also competitors
operating in the same marketplace. This blatant conflict of interest
has serious consequences. Finally, as the result of consolidation and
vertical integration within the marketplace, virtually all of the major
PBMs have merged with, acquired or become acquired by health insurers,
greatly blurring the lines between insurer and PBM. As a result, health
insurers and PBMs are often referred to jointly as ``payers.''
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
3.2 Consolidation of PBMs and Health Insurers, and the
Resulting Influence on Recent PBM Actions
PBMs traditionally have played a critical role in the administration of
prescription drug programs. However, over the past ten years, the PBM
marketplace has transformed considerably. Changes include both
horizontal and vertical integration among health insurance companies,
PBMs, chain pharmacies, specialty pharmacies, and long-term care
pharmacies. As a result, a smaller number of large companies now wield
nearly limitless power and influence over the prescription drug market.
Within the PBM marketplace, over 80% of the covered lives in the United
States are controlled by only five PBMs.\6\ As a result of this
concentration, a pharmacy's access to these five PBM networks is
critical. Being out of network with just one PBM (which in some
regions, could make up more than 85% of the market), and being unable
to obtain reimbursement for claims dispensed to those patients, could
make it financially unviable for any community oncology practice to
provide dispensing services at all. The lack of competition in the
marketplace stems, in large part, from a series of mergers,
integrations, and consolidations. These consolidations and integrations
are undoubtedly a factor in many abusive PBM practices, ranging from
seeking to exclude independent providers, to reimbursement rates that
force providers to lose money by filling prescriptions, to outright
diversion of patients to the PBMs' wholly-owned or affiliated
pharmacies. The consolidation increases the market power of the top
PBMs, which makes this possible.
---------------------------------------------------------------------------
\6\ See, https://www.latimes.com/business/hiltzik/la-fi-hiltzik-
pbm-drugs-20170611-story.html.
The breadth of PBM power did not arise overnight. It began with a
series of vertical consolidations in which some PBMs acquired
pharmacies and other PBMs acquired insurance companies. In 2007, the
shareholders of Caremark Rx, one of the nation's largest PBMs at the
time, approved a $26.5 billion takeover of CVS Pharmacy, which
effectively created the first vertically integrated retail pharmacy and
PBM.\7\ Vertical integration of the industry continued in 2011, as Blue
Cross Blue Shield of North Carolina, one of Medco's largest customers,
began shifting its PBM business away from Medco to Prime
Therapeutics,\8\ a PBM that is wholly owned by a group of thirteen Blue
Cross plans across the country. In 2012, UnitedHealthcare (United), the
nation's largest insurance company, began migrating the administration
of its plans from Medco Health Solutions to OptumRx, United's wholly-
owned PBM.\9\
---------------------------------------------------------------------------
\7\ Evelyn M. Rusli, Caremark Approves CVS Merger, Forbes (March
16, 2007, 4:59 PM), http://www.forbes.com/2007/03/16/caremark-approves-
update-markets-equity-cx_er_0316
markets29.html.
\8\ Jon Kamp, Medco Faces Loss of Blue Cross Customer, The Wall
Street Journal (August 3, 2011, 6:04 PM), http://www.wsj.com/articles/
SB10001424053111903454504576486653127
464070.
\9\ Anna Wilde Mathews, UnitedHealth's Answer to Express Scripts-
Medco Merger?, The Wall Street Journal (July 21, 2011, 8:34 AM), http:/
/blogs.wsj.com/deals/2011/07/21/unitedhealths-answer-to-express-
scripts-medco-merger/.
Consolidation of the PBM and payer space has not been limited to
vertical integration. In 2011, two of the nation's then-largest PBMs--
Medco Health Solutions, Inc. and Express Scripts, Inc.--announced a $29
billion merger. After a contentious regulatory approval process, the
Federal Trade Commission ultimately approved the merger in 2012.\10\
---------------------------------------------------------------------------
\10\ Reed Abelson and Natasha Singer, F.T.C. Approves Merger of 2
of the Biggest Pharmacy Benefit Managers, New York Times (April 2,
2012), http://www.nytimes.com/2012/04/03/business/ftc-approves-merger-
of-express-scripts-and-medco.html.
Thereafter, the industry continued consolidation both horizontally and
vertically. In 2013, a regional PBM--SXC Corporation--agreed to buy
another regional PBM--Catalyst, Inc.--for $4.4 billion to form a
national PBM, known as Catamaran Corp.\11\ In July 2015, Catamaran was
acquired by United, OptumRx's parent company, for $12.8 billion. The
two PBMs are now integrating operations and operate under one name,
OptumRx. In 2015, Rite Aid acquired the PBM EnvisionRx for
approximately $2 billion.\12\ Later that year, Walgreens announced its
intention to acquire Rite Aid and EnvisionRx for $9.4 billion.\13\ Also
in 2015, Aetna, the nation's third largest insurer, announced its
intention to acquire Humana, the nation's fourth largest insurer, as
well as Humana's wholly-owned PBM, Humana Pharmacy Solutions, for $37
billion.\14\ Finally, in 2015, Anthem announced its agreement to buy
Cigna (including its PBM arm) for $48 billion, which would result in,
yet again, fewer players in the space.\15\ However, on July 21, 2016,
the Justice Department filed lawsuits to block both the Aetna-Humana
and Anthem-Cigna mergers, asserting that the mergers would quash
competition, leading to higher prices and reduced benefits.\16\
---------------------------------------------------------------------------
\11\ Michael J. De La Merced, SXC Health Solutions to Buy Catalyst
Health for $4.4 Billion, New York Times (April 18, 2012, as updated
3:07 PM), http://dealbook.nytimes.com/2012/04/18/sxc-health-solutions-
to-buy-catalyst-for-4-4-billion/.
\12\ Rite Aid Completes Acquisition of Leading Independent Pharmacy
Benefit Manager EnvisionRx, Business Wire (June 24, 2015, 10:23 AM),
http://www.businesswire.com/news/home/20150624005906/en/Rite-Aid-
Completes-Acquisition-Leading-Independent-Pharmacy.
\13\ Dana Mattioli, Michael Siconolfi, and Dana Cimilluca,
Walgreens, Rite Aid Unite to Create Drugstore Giant, The Wall Street
Journal (October 27, 2015, 9:01 PM), http://www.wsj.com/articles/
walgreens-boots-alliance-nears-deal-to-buy-rite-aid-1445964090.
\14\ Aetna to Acquire Humana for $37 Billion, Combined Entity to
Drive Consumer-Focused, High-Value Health Care, Business Wire (July 3,
2015, 2:08 AM), http://www.businesswire.com/news/home/20150702005935/
en/Aetna-Acquire-Humana-37-Billion-Combined-Entity#.VZYpMe
TD9OI.
\15\ Michael J. De la Merced and Chad Bray, Anthem to Buy Cigna
Amid Wave of Insurance Mergers, New York Times (July 24, 2015), http://
www.nytimes.com/2015/07/25/business/dealbook/anthem-cigna-health-
insurance-deal.html.
\16\ Leslie Picker, U.S. Sues to Block Anthem-Cigna and Aetna-
Humana Mergers, New York Times (July 21, 2016), http://www.nytimes.com/
2016/07/22/business/dealbook/us-sues-to-block-anthem-cigna-and-aetna-
humana-mergers.html.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Unfortunately, the last five years has only seen this trend of
consolidation and integration expand at an exponential rate. In
November 2018, CVS Health completed a controversial $69 billion
acquisition of Aetna, a managed health care company that specializes in
selling traditional and consumer-directed health insurance along with
related services including dental, vision, and disability plans. Not to
be outdone, in December 2018, health insurer Cigna acquired Express
Scripts for $54 billion.\17\ Since that time, Cigna and Express Scripts
have continued to expand in creative ways. In December 2019. Express
Scripts and Prime Therapeutics announced a three-year collaboration
agreement, whereby Express Scripts would take over the contracting and
administration of the pharmacy benefits for Prime Therapeutics'
members.\18\ As a result of the arrangement, Express Scripts will now
manage the prescription benefits for more than 100 million
Americans.\19\
---------------------------------------------------------------------------
\17\ Bruce Japsen, Cigna-Express Scripts Merger's a Done Deal,
Forbes, December 19, 2018, https://www.forbes.com/sites/brucejapsen/
2018/12/19/cigna-express-scripts-merger-a-done-deal-by-thursday/
#261d98a55688.
\18\ https://medcitynews.com/2019/12/express-scripts-strikes-
partnership-with-prime-therapeutics/.
\19\ https://www.primetherapeutics.com/en/news/pressreleases/2019/
release-prime-express-scripts-collaboration.html.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
This rapid evolution of the PBM and health insurance industry shows
how a limited number of corporations wield an outsized level of control
and influence in the prescription drug coverage marketplace. Fewer
payers spells harm to patients, especially cancer patients. These
integrated companies have greater abilities to control the nature and
direction of patients' care, including what type of care/drugs they
receive, from whom they receive it, and in what setting they are
treated. The level of PBM intrusion into the care received by patients
borders on the practice of medicine by these PBMs and health insurance
---------------------------------------------------------------------------
conglomerates.
Fewer payers also results in harm to plan sponsors, especially
employers sponsoring health plans, who have fewer choices based on
decreased competition. This hits small employers the hardest, who lack
the overall leverage and resources to either demand competitive rebates
or restructure entrenched PBM practices.
Fewer payers also exponentially increases the importance of network
access for providers. Exclusion from one PBM with a market share of 35%
means that the provider loses out on a major portion of the patient
population.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
As can be seen in the figure above,\20\ consolidation has created
merged entities that have oppressive power. This creates a virtual
chokehold note only on community oncology practices and pharmacy
providers, but on plan sponsors and patients alike. It is through this
market dominance that PBMs are able to get away with their abuses.
Whether it is outsized rebates and DIR fees fueling drug prices.
Whether it is unreasonable barriers to entry, network exclusions or
mandatory white bagging forcing patients to receive inferior service at
higher costs. Whether it is employing insidious copay accumulator
programs or deceptive pricing and reimbursement techniques. Or worse
yet, whether it is essentially practicing medicine, through ``fail
first'' step therapy, prior authorization requirements, or formulary
exclusions, many of which favor not the least expensive medication, but
the most profitable one for the PBM. Each of these tactics are made
possible by the PBMs' sheer levels of dominance at all levels of the
health care continuum. This consolidation has hurt medical care, while
fueling both drug prices and costs to patients and plan sponsors alike.
---------------------------------------------------------------------------
\20\ Exhibit 76 in The 2019 Economic Report on U.S. Pharmacies and
Pharmacy Benefit Managers, Drug Channels Institute. Available at http:/
/drugch.nl/pharmacy.
While the Federal Trade Commission (FTC) and Department of Justice
(DOJ) Antitrust Division recently embarked on a process to rewrite
vertical merger guidelines, this effort is seen by many as coming ``too
little, too late.''\21\ Providers, patients and plan sponsors have long
realized that the vertical integration between payer-PBM-provider would
spell disaster for quality and freedom of choice.\22\ Dramatic and
urgent action is necessary to curtail this wide ranging abuse of power.
---------------------------------------------------------------------------
\21\ https://www.cnbc.com/2022/01/18/ftc-doj-seek-to-rewrite-
merger-guidelines.html.
\22\ https://www.ftc.gov/system/files/attachments/798-draft-
vertical-merger-guidelines/vmg11_
ncpa_comment.pdf; https://www.pbgh.org/despite-claims-vertical-
integration-isnt-great-for-
health-care-consumers-or-purchasers/.
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4 Manufacturer Rebates, Rebate Aggregators, and the ``Gross-to-Net
Bubble''
It is axiomatic to say that the PBM market is highly concentrated, with
three companies (i.e., CVS Caremark, Express Scripts, and OptumRx)
covering nearly 80 percent of the market, or 180 million American
lives. As a result, pharmaceutical and biosimilar manufacturers face
exceedingly high stakes when negotiating for formulary placement.\23\
Among the different sources of revenue, the most prolific by far is in
the form of rebates from pharmaceutical manufacturers that PBMs extract
in exchange for placing the manufacturer's product drug on a plan
sponsor's formulary or encouraging utilization of the manufacturer's
drugs.\24\ Rebates are mostly used for high-cost brand-name
prescription drugs where there are interchangeable products and aim to
incentivize PBMs to include pharmaceutical manufacturers' drugs on plan
sponsors' formularies and to obtain preferred tier placement.\25\
---------------------------------------------------------------------------
\23\ See, Bai, G., A.P. Sen, and G.F. Anderson, ``Pharmacy Benefit
Managers, Brand-Name Drug Prices, and Patient Cost Sharing.'' Annals of
Internal Medicine, 2018. 168(6): p. 436-437; See also, Applied Policy,
``Concerns Regarding The Pharmacy Benefit Management Industry,'' 2015,
accessible online: http://www.ncpa.co/pdf/applied-policy-issue-
brief.pdf.
\24\ See, Federal Trade Commission, ``Pharmacy Benefit Managers:
Ownership of Mail Order Pharmacies,'' August 2005, accessible online:
https://www.ftc.gov/sites/default/files/documents/reports/pharmacy-
benefit-managers-ownership-mail-order-pharmacies-federal-trade-
commission-report/050906pharmbenefitrpt_0.pdf.
\25\ See, AMCP, ``Maintaining the Affordability of the Prescription
Drug Benefit,'' 2019, accessible online: https://amcp.org/sites/
default/files/2019-03/Maintaining%20the%20Affordability
%20of%20the%20Prescription%20Drug%20Benefit.pdf.
While drug prices are too high, ironically, the growing number and
scale of rebates is the primary fuel of today's high drug prices. The
truth is that PBMs have a vested interest to have drug prices remain
high, and to extract rebates off of these higher prices. PBM
formularies tend to favor drugs that offer higher rebates over similar
drugs with lower net costs and lower rebates.\26\
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\26\ See, Neeraj Sood, et al., ``The Association Between Drug
Rebates and List Prices,'' 2020, accessible online: https://
healthpolicy.usc.edu/wp-content/uploads/2020/02/SchaefferCenter_
RebatesListPrices_WhitePaper.pdf; see also, Ornstein, C. and K. Thomas,
``Take the Generic, Patients Are Told. Until They Are Not,'' 2017,
accessible online: https://www.nytimes.com/2017/08/06/health/
prescription-drugs-brand-name-generic.html.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Apart from increasing costs today, these destructive practices will
have a long-
lasting impact on the future of health care and drug innovation.
Traditionally, generic drugs offer significant price relief for brand
medications; however, there are an ever-growing subset of medications
that are unlikely to ever have a traditional generic alternative. As a
result, federal policy was enacted to create eventual competition for
these brand products such as the biosimilar pathway. However, the PBMs'
practice of maximizing rebates may effectively neuter the nation's
biosimilar market before it even gets off the ground. Unlike
traditional drug products, biologics are unique and complex molecules,
and represent many of the new breakthrough treatments that have come to
market over the past ten years. But with such breakthrough comes
extremely high cost. As a result, biosimilars--that is, products that
are ``highly similar'' to the reference biologic \27\--have emerged to
provide alternatives and competition in the biologics space. The first
biosimilar product in the United States was approved in March 2015 and
marketed in September 2015.\28\ The greater use of biosimilars has the
potential to reduce the overall drug spending, while providing greater
clinical options for providers and patients.\29\ However, PBMs and
biologics manufacturers have erected ``rebate walls'' that have
severely depressed biosimilar development and widespread adoption.\30\
According to former FDA Commissioner, Dr. Scott Gottlieb, Americans
could have saved more than $4.5 billion in one year alone, if they had
bought FDA-approved biosimilars.\31\ While the FDA had approved 11
biosimilars through 2018, only three were then being marketed in the
U.S.\32\ As of January 2022, nearly 32 biosimilars have been approved,
while only 29 are currently being marketed.\33\ PBM rebates represent a
clear and existential threat to the future of the biosimilar
marketplace.\34\
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\27\ US Food and Drug Administration, Center for Drug Evaluation
and Research (CDER), Center for Biologics Evaluation and Research
(CBER). Scientific Considerations in Demonstrating Biosimilarity to a
Reference Product. Guidance for Industry. April 2015. https://
www.fda.gov/media/82647/download. Accessed June 25, 2018.
\28\ See, What Are Biosimilars?, available at: https://
www.biosimilarsresourcecenter.org/faq/what-are-biosimilars/.
\29\ See, James D. Chambers, et al., ``Coverage for Biosimilars vs.
Reference Products Among US Commercial Health Plans,'' May 19, 2020,
JAMA. 2020;323(19):1972-1973. doi:10.1001/jama.2020.2229; see also, Ed
Silverman, ``Biosimilars got the cold shoulder from health plans when
it came to preferred coverage,'' May 20, 2020, accessible online:
https://www.
statnews.com/pharmalot/2020/05/20/biosimilars-biologics-health-
coverage-drug-prices/.
\30\ See, Cathy Kelly, FTC Wades Into Rebate Walls And Biosimilar
Access With Remicade Investigation, available at: https://
pharmaintelligence.informa.com/resources/product-content/ftc-wades-
into-rebate-walls-and-biosimilar-access-with-remicade-investigation.
\31\ Yanchun Liu, MarketWatch News, ``FDA chief says pharmas use
rebates to block biosimilar competition,'' available at: https://
www.marketwatch.com/story/fda-chief-says-pharmas-use-rebates-to-block-
biosimilar-competition-2018-07-19.
\32\ See, id.
\33\ See, Biosimilar Approval Status, available at: https://
biosimilarsrr.com/us-biosimilar-filings/.
\34\ https://www.forbes.com/sites/joshuacohen/2021/03/01/rebate-
walls-stifle-prescription-drug-competition/?sh=4b07ed3966ae.
As the American public and plan sponsors have become more aware of the
nature and extent of rebates, they have begun demanding that all or
nearly all rebates negotiated on their behalf be fully reported and
passed-through. As a result, PBMs have begun to market themselves as
transparent and assert that many of their customers are able to
negotiate ``pass-through pricing'' allowing pharmaceutical manufacturer
rebates and other concessions to flow directly to plan sponsors.\35\
However, a dangerous new trend has grown exponentially over the last
few years through which PBMs seek to ``circumvent'' these pass-through
requirements. PBMs have increasingly ``delegated'' the collection of
manufacturer rebates to ``rebate aggregators,'' which are often owned
by or affiliated with the PBMs, without seeking authorization from plan
sponsors and without telling plan sponsors.\36\ Sometimes referred to
as rebate GPOs, these mysterious entities include Ascent Health
Services, a Switzerland-based GPO that Express Scripts launched in
2019, Zinc, a contracting entity launched by CVS Health in the summer
of 2020, and Emisar Pharma Services, an Ireland-based entity recently
rolled out by OptumRx.\37\ Even some of the major PBMs (i.e., the ``Big
Three'' PBMs) sometimes find themselves contracting with other PBMs'
rebate aggregators for the collection of manufacturer rebates (for
example, in the case of OptumRx contracting with Express Scripts for
purposes of rebate aggregation for public employee plans).\38\
---------------------------------------------------------------------------
\35\ See, ERISA Advisory Council, ``PBM Compensation and Fee
Disclosure,'' 2014, available online: https://www.dol.gov/sites/dolgov/
files/ebsa/about-ebsa/about-us/erisa-advisory-council/
ACDanzon061914.pdf.
\36\ See, Office of Broward County Auditor, ``Audit of Pharmacy
Benefit Management Services Agreement,'' 2017, accessible online:
https://www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%20Ser
vices%2
0by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf.
\37\ See, Alia Paavola, ``CVS Health reportedly launching a GPO
called Zinc,'' Becker's Hospital Review, June 30, 2020. Accessible at:
https://www.beckershospitalreview.com/pharmacy/cvs-health-reportedly-
launching-a-gpo-called-zinc.html; https://www.drugchannels.net/2021/08/
drug-channels-news-roundup-august-2021.html.
\38\ See, Office of Broward County Auditor, ``Audit of Pharmacy
Benefit Management Services Agreement,'' 2017, accessible online:
https://www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%20Ser
vices%2
0by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf.
In both the private sector and with respect to government health care
programs, the contracts regarding manufacturer rebates (i.e., contracts
between PBMs and rebate aggregators, as well as contracts between PBMs/
rebate aggregators and pharmaceutical manufacturers) are not readily
available to plan sponsors.\39\ Moreover, PBMs do not provide plan
sponsors access to claim-level rebate information unless demanded
through the contracts entered by and between plan sponsors and
PBMs.\40\
---------------------------------------------------------------------------
\39\ See, Office of Broward County Auditor, ``Audit of Pharmacy
Benefit Management Services Agreement,'' 2017, accessible online:
https://www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%20Ser
vices%2
0by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf; see also, Office of the
Legislative Auditor General for the State of Utah, ``A Performance
Audit of PEHP's Pharmacy Benefit Manager,'' 2019, accessible online:
https://le.utah.gov/audit/19_13rpt.pdf; see also, MedPAC, ``Status
Report on Part D. Report to Congress: Medicare Payment Policy,'' 2016.
\40\ See, Office of Broward County Auditor, ``Audit of Pharmacy
Benefit Management Services Agreement,'' 2017, accessible online:
https://www.broward.org/Auditor/Reports/Documents/
2017_1212%20Agenda%20Review%20of%20Pharmacy%20Benefit%20Management%2
0Services%20by%20StoneBridge/2017_1212%20Exh1_OptumRx.pdf; see also,
Office of the Legislative Auditor General for the State of Utah, ``A
Performance Audit of PEHP's Pharmacy Benefit Manager,'' 2019,
accessible online: https://le.utah.gov/audit/19_13rpt.pdf.
Within Medicare Part D, Part D Sponsors are required to submit direct
and indirect remuneration (DIR) reports to CMS disclosing the total
amount of rebates, inclusive of manufacturer rebates, retained by PBMs
regardless of whether such rebates were passed to Medicare Part D plan
sponsors.\41\ And while PBMs and rebate aggregators are obligated to
provide, among other things, the aggregate amount and type of rebates,
discounts, or price concessions to the plan sponsors (who in turn
provide the same to CMS),\42\ PBMs and rebate aggregators do not have
to provide claims-level information on the actual amounts received on
behalf of plan sponsors.
---------------------------------------------------------------------------
\41\ See, Social Security Act Sec. 1860D 15, 42 U.S.C. [1395w-115].
\42\ See, 42 CFR Sec. 423.514(d).
---------------------------------------------------------------------------
4.1 Who Is Impacted?
The deleterious effects of rebates, and the furtive work of rebate
aggregators, are felt across the health care spectrum.
4.1.1 Harm to Patients
Whether a patient has insurance or not, rebates serve to increase the
overall costs of drugs and out-of-pocket expenditures for patients.\43\
With one in four people in the United States having difficulty paying
the cost of their prescription medications,\44\ the extent of the
negative impact of rebates is felt far and wide.
---------------------------------------------------------------------------
\43\ See, Neeraj Sood, et al., ``The Association Between Drug
Rebates and List Prices,'' 2020, accessible online: https://
healthpolicy.usc.edu/wp-content/uploads/2020/02/SchaefferCenter_
RebatesListPrices_WhitePaper.pdf.
\44\ See, Chaarushena Deb, et al., ``Relentless Prescription Drug
Price Increases,'' JAMA, 29 February 2020, 323(9):826-828.
For uninsured patients, the rebates negotiated by a PBM or health
insurance company do nothing to lower their out-of-pocket costs.
Rebates promote high drug list prices. ``Higher drug prices hurt
uninsured patients who pay list prices . . . based on drugs' list
prices.''\45\ And because these rebates are received and kept among
secretive health care conglomerates, and not shared with providers or
other groups, even discount programs like GoodRx do little to help
uninsured patients receive savings on the most expensive drugs.
---------------------------------------------------------------------------
\45\ Neeraj Sood, et al., ``The Association Between Drug Rebates
and List Prices,'' 2020, accessible online: https://
healthpolicy.usc.edu/wp-content/uploads/2020/02/SchaefferCenter_
RebatesListPrices_WhitePaper.pdf.
Even for patients with insurance, rebates ultimately increase costs to
the patient for the benefit of PBMs and health insurers. At the point
of sale, the inflated list prices caused by rebates ``hurt . . .
insured patients who pay coinsurance and deductibles based on drugs'
list prices.''\46\ Over the past several years, the number of patients
on high-deductible health plans has skyrocketed.\47\ This has turned
the insurance market upside down, causing the relatively small number
of sick patients who pay high copays off of inflated list prices to
subsize the cost of care for healthy people. In this form of ``reverse
insurance,'' the sickest patients (e.g., those taking expensive cancer
medications) generate a large share of manufacturer rebate payments,
which in turn are used to ``subsidize the premiums for healthier
[patients].''\48\ This is the opposite of how insurance is supposed to
work.
---------------------------------------------------------------------------
\46\ Neeraj Sood, et al., ``The Association Between Drug Rebates
and List Prices,'' 2020, accessible online: https://
healthpolicy.usc.edu/wp-content/uploads/2020/02/SchaefferCenter_
RebatesListPrices_WhitePaper.pdf.
\47\ https://www.kff.org/report-section/ehbs-2019-section-8-high-
deductible-health-plans-with-savings-option/
#::text=Enrollment%20in%20HDHP%2FSOs%20has,in%202019%20%5BFigure
%208.5%5D.
\48\ https://www.drugchannels.net/2017/11/will-cms-pop-gross-to-
net-bubble-in.html.
What's worse, PBMs' preference of highly-rebated drugs not only
increases patients' out-of-pocket expenses, but also creates
unnecessary burdens in receiving appropriate care, even to the point of
fatality.\49\ PBMs have an incentive to favor high-priced drugs over
drugs that are more cost-effective, because rebates are often
calculated as a percentage of the manufacturer's list price. PBMs
receive a larger rebate for expensive drugs than they do for ones that
may provide better value at lower cost. This can also occur ``when a
brand drug goes generic under the Hatch-Waxman Amendments, with the
first generic version being granted six months of market exclusivity,''
and ``[i]n exchange for substantial rebates, manufacturers [are given]
an exclusive extension of their brand drug, which circumvents Hatch-
Waxman and blocks generic competition.''\50\ PBMs' financial
motivations often result in more expensive and less efficacious drugs
being placed on the drug formulary, which in turn hurts patient
care.\51\
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\49\ See, Community Oncology Alliance, ``Pharmacy Benefit manager
Horror Stories--Part IV,'' April 4, 2019, accessible online: https://
communityoncology.org/pharmacy-benefit-manager-horror-stories-part-v/.
\50\ Rumore, Martha M., and F. Randy Vogenberg. ``PBM P&T
Practices: The HEAT Initiative Is Gaining Momentum.'' P & T: a peer-
reviewed journal for formulary management vol. 42,5 (2017): 330-335.
\51\ See, Community Oncology Alliance, Letter to Defense Health
Agency, ``The Perverse Financial Impact of Pharmacy Benefit Managers on
Our Military Service Members Covered by the TRICARE Program,'' 2019.
Again, PBMs are able to do this because of the sheer levels of market
consolidation and integration, which is adversely impacting cancer care
and fueling drug costs all in the interests of PBM profits.
4.1.2 Harm to Plan Sponsors
While rebates are intended to lower the ``net price'' of drugs, thereby
reducing costs to plan sponsors (including employers), there are
several important ways that PBM rebates increase the costs of drugs for
both plan sponsors and patients.
The first way relates to the ability of plan sponsors, especially self-
funded employers, to ensure the full amount of rebates are reported and
passed through to them by PBMs. As noted above, it is extremely
difficult to gauge the true amount of drug manufacturer rebates
collected by PBMs, and this is only made more difficult by the advent
of rebate aggregators.\52\ Unlike in the Medicare Part D program, PBMs
typically do not legally owe self-funded employers any reporting on
rebates. PBMs employ exceedingly vague and ambiguous contractual terms
to recast monies received from manufacturers outside the traditional
definition of rebates, which in most cases must be shared with plan
sponsors. Rebate administration fees, bona fide service fees, and
specialty pharmacy discounts/fees are all forms of money received by
PBMs and rebate aggregators which may not be shared with (or even
disclosed to) the plan sponsor.\53\ These charges serve to increase the
overall costs of drugs, while providing no benefit whatsoever to plan
sponsors.
---------------------------------------------------------------------------
\52\ See, supra, Office of Broward County Auditor, ``Audit of
Pharmacy Benefit Management Services Agreement,'' 2017.
\53\ See, National Prescription Coverage Coalition, ``It's Time to
Determine How Much Your PBM Is Depriving Your Plan of Rebates: File An
`Accounting' Procedure,'' available at: https://
nationalprescriptioncoveragecoalition.com/its-time-to-determine-how-
much-your-pbm-is-depriving-your-plan-of-rebates-file-an-accounting-
procedure/.
And while there might be greater reporting and disclosure obligations
in the Medicare Part D and Medicaid programs,\54\ the growth of rebate
aggregators has created a way for PBMs (or their corporate affiliates)
to retain rebates and not share them with plan sponsors. This causes
the Part D plan sponsor to become liable to CMS to ``true up'' any
reductions in cost caused by these rebates, despite the fact that the
Part D plan sponsor never actually received any rebates. Moreover,
studies have shown that PBM rebates extracted from drug manufacturers
drive up the drug spending of plan sponsors including Medicare and
Medicaid.\55\ This is especially draining on already budget-strapped
state governments. Since Medicare Part D is financed through general
revenues, beneficiary premiums, and state payments for dual-eligible
beneficiaries (who received drug coverage under Medicaid prior to
2006), rebates also drive up the drug spending of the participating
states and in turn, taxpayers' financial obligations to support
Medicare Part D and Medicaid continues to rise.\56\ The total drug
spend of a plan sponsor, regardless of whether it is a federal or state
governmental program or a self-funded employer, will inevitably
increase because PBMs are incentivized to favor expensive drugs that
yield high rebates.\57\ In some instances, PBMs purposely misclassify
generic drugs as brand drugs to charge higher prices to plan sponsors,
which ultimately generate higher rebate revenue.\58\ Moreover, the
gross-to-net bubble (i.e., the dollar difference between sales at
brand-name drugs' list prices and their sales at net prices after
rebates, discounts, and other reductions) has been growing at an
exponential pace.\59\ The upward trend in the gross-to-net bubble
reached $175 billion in 2019.\60\ Based on this trend and the fact that
plan sponsors are not receiving full value of the rebates from PBMs, it
is evident that rebates increase total drug spend of plan sponsors and
only benefit PBMs.
---------------------------------------------------------------------------
\54\ See, Social Security Act Sec. 1860D-15, 42 U.S.C. [1395w-115].
\55\ See, e.g., U.S. Department of Health and Human Services,
``Increases in Reimbursement for Brand-Name Drugs in Part D,'' 2018,
accessible online: https://oig.hhs.gov/oei/reports/oei-03-15-00080.pdf;
see also, Auditor of the State of Ohio, ``Ohio's Medicaid Managed Care
Pharmacy Services,'' August 16, 2018.
\56\ See, e.g., Juliette Cubanski, et al., ``A Primer on Medicare:
Key Facts About the Medicare Program and the People it Covers,'' March
20, 2015, available at: https://www.kff.org/report-section/a-primer-on-
medicare-how-is-medicare-financed-and-what-are-medicares-future-
financing-challenges/.
\57\ U.S. Department of Health and Human Services, ``Fraud and
Abuse; Removal of Safe Harbor Protection for Rebates involving
Prescription Pharmaceuticals and Creation of New Safe Harbor Protection
for Certain Point-of-Sale Reductions in Price on Prescription
Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees,''
available at: https://www.govinfo.gov/content/pkg/FR-2019-02-06/pdf/
2019-01026.pdf/.
\58\ Complaint, Ohio Highway Patrol Retirement System v. Express
Scripts, Inc., Case No. AM-20CV004504, Court of Common Pleas, Fraknlin
County, Ohio.
\59\ https://www.drugchannels.net/2021/01/surprise-brand-name-drug-
prices-fell.html.
\60\ https://www.drugchannels.net/2020/08/the-gross-to-net-bubble-
hit-175-billion.html.
The final and perhaps most long-term impact that rebates will have on
plan sponsors is in the suppression of the biosimilar market. The
greater use of less expensive biosimilars (essentially ``generic''
versions of biologic medications) has the potential to reduce overall
drug spending. However, many health plans do not include biosimilars in
their preferred tiers.\61\ This is because of the ``rebate trap,''
where PBMs prefer the higher cost, branded biologics that offer
rebates, over cheaper biosimilar alternatives.\62\ The result is that
when biosimilars do make their way to the market, many patients do not
have access to them because their PBM does not cover it.\63\ These
policies stifle advancements, and will, in the long term, keep plan
sponsors beholden to higher cost, branded medications.
---------------------------------------------------------------------------
\61\ See, James D. Chambers, et al., ``Coverage for Biosimilars vs.
Reference Products Among US Commercial Health Plans,'' May 19, 2020,
JAMA. 2020;323(19):1972-1973. doi:10.1001/jama.2020.2229; see also, Ed
Silverman, ``Biosimilars got the cold shoulder from health plans when
it came to preferred coverage,'' May 20, 2020, accessible online:
https://www.statnews.
com/pharmalot/2020/05/20/biosimilars-biologics-health-coverage-drug-
prices/.
\62\ See, FiercePharma, ``Could adoption of biosimilars be slowed
by `rebate trap'? Yale experts think so'', available at: https://
www.fiercepharma.com/pharma/could-adoption-biosimilars-be-slowed-by-
rebate-trap-yale-experts-think-so; https://jamanetwork.com/journals/
jama/article-abstract/2625049?resultClick=1.
\63\ See, Thomas Sullivan, ``January MedPAC Recommendations:
Rebates and Biosimilars,'' available at: https://www.policymed.com/
2019/03/january-medpac-recommendations-rebates-biosimilars.html.
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4.1.3 Harm to Providers
Finally, rebates also impact providers in several ways. First, PBMs
preference of highly rebated drugs limits providers' choice of optimal
drug therapy for patients.\64\ Once again, this results in the PBM
inserting itself in between the prescribers and their patients and
violates the sanctity of the doctor-patient relationship. This is
especially true with biosimilars. The greater use of biosimilars has
the potential to reduce overall drug spending and provide greater
clinical options for providers, including community oncology practices.
However, due to rebates, many PBMs do not include biosimilars in their
preferred tier, thereby prevent wide-spread adoption and cost
savings.\65\
---------------------------------------------------------------------------
\64\ See generally, ``Pharmacy Benefit Manager Horror Stories--Part
IV,'' April 4, 2019, accessible online: https://communityoncology.org/
pharmacy-benefit-manager-horror-stories-part-v/; see also, James D.
Chambers, et al., ``Coverage for Biosimilars vs. Reference Products
Among US Commercial Health Plans,'' May 19, 2020, JAMA.
2020;323(19):1972-1973. doi:10.1001/jama.2020.2229; see also, Ed
Silverman, ``Biosimilars got the cold shoulder from health plans when
it came to preferred coverage,'' May 20, 2020, accessible online:
https://www.statnews.
com/pharmalot/2020/05/20/biosimilars-biologics-health-coverage-drug-
prices/.
\65\ See, James D. Chambers, et al., ``Coverage for Biosimilars vs.
Reference Products Among US Commercial Health Plans,'' May 19, 2020,
JAMA. 2020;323(19):1972-1973. doi:10.1001/jama.2020.2229; see also, Ed
Silverman, ``Biosimilars got the cold shoulder from health plans when
it came to preferred coverage,'' May 20, 2020, accessible online:
https://www.statnews.
com/pharmalot/2020/05/20/biosimilars-biologics-health-coverage-drug-
prices/.
In instances where biosimilars are included on formularies, this is
done so inconsistently and on a patchwork basis, tied solely to the
rebates that the PBM can extract from the drug manufacturer, and not
the efficacy of the product. The result is that community oncology
practices often are required to stock several different versions of
very expensive biosimilars based on the rules of the patient's PBM,
rather than being able to prescribe and dispense the product that is
best suited for their patients.\66\
---------------------------------------------------------------------------
\66\ See generally, James D. Chambers, et al., ``Coverage for
Biosimilars vs. Reference Products Among US Commercial Health Plans,''
May 19, 2020, JAMA. 2020;323(19):1972-1973. doi:10.1001/jama.2020.2229;
see also, Ed Silverman, ``Biosimilars got the cold shoulder from health
plans when it came to preferred coverage,'' May 20, 2020, accessible
online: https://www.statnews.com/pharmalot/2020/05/20/biosimilars-
biologics-health-coverage-drug-prices/; see also, Sean McGown, ``Five
years on, biosimilars need support from all health care players,''
March 6, 2020, accessible online: https://www.statnews.com/2020/03/06/
biosimilars-in-us-turn-five/.
Rebates further intrude on the doctor-patient relationship when
combined with step therapy, prior authorization, or other utilization
management protocols. ``Fail first'' step therapy requires a patient to
first fail once or twice on a medication specified by the PBM or health
insurer before being allowed to ``step up'' to the therapy prescribed
by the physician.\67\ In many cases, the medication dictated by the PBM
or health insurer is not the least expensive medication, but rather, is
the most profitable drug to the PBM due to rebates. The impact of step
therapy, driven by rebating, is that it ``takes the medical decision-
making out of the hands of doctors'' and puts it into the hands of the
actuaries, accountants and businesspeople at the PBM, who are not
choosing the drug that is most efficacious, or cheapest, or even most
efficient--they are choosing the drug that is the most profitable.\68\
---------------------------------------------------------------------------
\67\ http://prescriptionprocess.com/barriers-to-access/step-
therapy/.
\68\ https://www.lilly.com/news/stories/time-to-tear-down-rebate-
wall.
---------------------------------------------------------------------------
4.2 What Does the Law Say?
Medicare Part D plan sponsors are required to submit DIR reports to CMS
disclosing the total amount of rebates, inclusive of manufacturer
rebates and pharmacy rebates, retained by PBMs regardless of whether
such rebates were passed to Medicare Part D plan sponsors.\69\
---------------------------------------------------------------------------
\69\ See, Social Security Act Sec. 1860D-15, 42 U.S.C. [1395w-115].
In the commercial market, many states have enacted laws that require
transparency from PBMs and ``pass through'' pricing. For example,
Delaware House Bill 194 enacted into law on July 17, 2019, permits the
Insurance Commissioner to examine the affairs of PBMs, among other
things.\70\ Likewise, under New York Senate Bill S1507A enacted into
State Budget for the 2019-2020 Fiscal Year on April 12, 2019, PBMs are
required to fully disclose to the Department of Health and plan
sponsors the sources and amounts of all income, payments, and financial
benefits.\71\ Similarly, Utah House Bill 272, which was enacted into
law on March 30, 2020, requires PBMs to report all rebates and
administrative fees to the Insurance Department including the
``percentage of aggregate rebates'' that PBMs retained under its
agreement to provide pharmacy benefits management services to plan
sponsors.\72\
---------------------------------------------------------------------------
\70\ See, Delaware General Assembly House Bill 193, An Act to Amend
Title 18 of the Delaware Code Relating to Pharmacy Benefit Managers,
available at: https://legis.delaware.gov/
BillDetail?LegislationId=47636.
\71\ See, New York State Budget for 2019--2020 Fiscal Year
incorporating New York Senate Bill S1507A, available at: https://
www.cqstatetrack.com/texis/redir?id=5c43ef1197.
\72\ See, House Bill 272, Pharmacy Benefits Act, available at:
https://www.cqstatetrack.com/texis/redir?id=5e3cc83dc51.
However, Maine Bill 1504, enacted into law on June 24, 2019, takes
these reporting requirements a step further, and provides that ``[a]ll
compensation remitted by or on behalf of a pharmaceutical manufacturer,
developer or labeler, directly or indirectly, to a carrier, or to a
pharmacy benefits manager under contract with a carrier, related to its
prescription drug benefits must be: A. Remitted directly to the covered
person at the point of sale to reduce the out-of-pocket cost to the
covered person associated with a particular prescription drug; or B.
Remitted to, and retained by, the carrier. Compensation remitted to the
carrier must be applied by the carrier in its plan design and in future
plan years to offset the premium for covered persons.''\73\
---------------------------------------------------------------------------
\73\ See, Maine Bill 1504, available at: https://
www.cqstatetrack.com/texis/redir?id=5ca593682.
---------------------------------------------------------------------------
4.3 What Can Be Done?
If high drug prices meaningfully addressed then outsized negative
impact of rebates, rebate aggregators, and the resulting high gross-to-
net bubble must be addressed. Luckily there are several varied options
available to the affected parties:
Legislative
Policymakers should enact laws that mandate PBMs
and rebate aggregators to report drug manufacturer rebates procured by
utilizing drugs dispensed to plan sponsors' patients in a given year.
Requirements set forth under 42 CFR Sec. 423.514(d) are not sufficient
to cast the light of full transparency on PBMs (and rebate aggregators)
that contract with Medicare Part D plan sponsors.\74\
---------------------------------------------------------------------------
\74\ See, e.g., Social Security Act Sec. 1860D-15, 42 U.S.C.
[1395w-115].
Laws should be enacted that allow plan sponsors
to gain access to the drug manufacturer rebates reported by PBMs and
rebate aggregators.\75\
---------------------------------------------------------------------------
\75\ See, e.g., New York State Budget for 2019-2020 Fiscal Year
incorporating New York Senate Bill S1507A, available at: https://
www.cqstatetrack.com/texis/redir?id=5c43ef1197; see also, Eugene A.
DePasquale, Bringing Transparency and Accountability to Drug Pricing
(December 11, 2018), available at: https://www.paauditor.gov/Media/
Default/Reports/RPT_PBMs_
FINAL.pdf.
Laws should be enacted that entitle Medicare Part
D plan sponsors and state Medicaid agencies to conduct full and
complete audits of PBMs and rebate aggregators and these entities
should not have any ability to limit the scope and extent of such
audits.\76\
---------------------------------------------------------------------------
\76\ See, e.g., Maine Bill 1504 enacted into law on June 24, 2019,
available at: https://www.cqstatetrack.com/texis/redir?id=5c80b75c13.
Laws should be enacted that limit Medicare Part D
plan sponsors' financial obligation to CMS in the event that PBMs and
rebate aggregators retained drug manufacturer rebates that were not
---------------------------------------------------------------------------
relayed to Medicare Part D plan sponsors.
It should be called out that some in Congress have the mistaken belief
that drug manufacturers are the primary beneficiary of rebates in terms
of ``buying'' formulary access for their drugs. Although this may be
true in a limited number of cases, the reality is that PBMs use rebates
to extract--some would say ``extort''--drug manufacturers to pay the
rebate ``toll'' in order for PBMs to include these drugs on formulary
or to avoid being part of a ``fail first'' step therapy scheme.
Congress has been held hostage to PBMs and their corporate affiliated
health insurers by threatening to increase plan premiums if rebates are
eliminated or made illegal.
Plan Sponsor Action
As part of the PBM contracts, plan sponsors
should: . Require PBMs to seek approval from plan sponsors prior to
delegating the rebate aggregation function to rebate aggregators.
Require PBMs to disclose a list of rebate
aggregators to plan sponsors.
Require PBMs to disclose an unredacted contract with
the rebate aggregator.
Require PBMs to be pay fees to rebate aggregators
for their services but such fees should not come from drug manufacturer
rebates.
Require PBMs to agree to rebate audits conducted by
plan sponsors and/or third-party auditors at plan sponsors' choosing.
Require PBMs to report claims-level data on rebates
collected on claims paid by pan sponsors.
5 Pharmacy Direct and Indirect Remuneration Fees
As a result of a 2014 CMS rule change that went into effect in Plan
Year 2016, PBMs have developed shrewd and calculated methods of
financial engineering, maximizing their revenue at the expense of the
patient, the Medicare Part D Program, and providers. This was
accomplished through pharmacy direct and indirect remuneration fees, or
``DIR fees.'' DIR fees are typically post point-of-sale fees ranging
from 1.5% to 11% of a drug's list price assessed by PBMs upon network
pharmacy providers, typically three to six months after the provider
has dispensed the medication.
The concept of DIR fees arose out of Medicare Part D coverage for
prescription drugs. Part D plan sponsors and Medicare Advantage plans
offering drug coverage are paid by the government based on the actual
cost for drug coverage. The actual cost is based on the Part D plan
sponsor's ``negotiated price,'' which is then used as the basis to
determine plan, beneficiary, manufacturer (in the coverage gap), and
government costs during the course of the payment year, subject to
final reconciliation following the end of the coverage year.
Unfortunately, very few pharmacy price concessions have been included
in the negotiated price at the point of sale. All pharmacy and other
price concessions that are not included in the negotiated price must be
reported to CMS as pharmacy DIR.\77\ As employers and plan sponsors are
demanding a greater share of the PBM rebates, and as those rebates have
been threatened with regulation by state and federal lawmakers, PBMs
have gone ``downstream'' to make up for any rebate revenue shortfalls
by assessing DIR fees on pharmacy providers. In fact, DIR fees
categorized as pharmacy price concessions have increased 45,000 percent
between 2010 and 2017, and have hit a whopping $9.1 billion in
2019.\78\
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\77\ Modernizing Part D and Medicare Advantage to Lower Drug Prices
and Reduce Out-of-Pocket Expenses, 83 Fed. Reg. 62175 (November 30,
2018).
\78\ Modernizing Part D and Medicare Advantage to Lower Drug Prices
and Reduce Out-of-Pocket Expenses, 83 Fed. Reg. 62174 (November 30,
2018); https://www.drugchannels.net/
2020/02/pharmacy-dir-fees-hit-record-9-
billion.html#::text=February%2013%2C%202020-,Phar
macy%20DIR%20Fees%20Hit%20a%20Record%20%249%20Billion%20in%202019,reache
d%20%
249.1%20billion%20in%202019.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
PBMs purport to pass a large portion of DIR fees to their plan
sponsor clients, especially Part D plan sponsors--ironically, many of
which are under the same corporation as the PBMs (e.g., CVS Caremark,
one of the nation's largest PBM, and SilverScript, the nation's largest
Medicare Part D plan sponsor, are both owned by CVS Health). However,
no study has been conducted to match the deductions from pharmacy
remittances for ``DIR'' with the DIR reported to CMS. Unfortunately,
CMS cannot even perform such an audit today, as it does not require
plans to submit DIR collected from each pharmacy, but rather requires
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DIR to be reported by drug, on an NDC number basis.
Even if pharmacy DIR fees are reported accurately, Medicare risk
corridors allow a Part D plan sponsor that spends less than its bid
estimate of costs to keep all savings up to 5% and a portion of those
savings thereafter, which, in practice, allows PBMs and Part D plan
sponsors to retain the vast majority of DIR fees collected.\79\ Thus,
PBMs and Part D plan sponsors financially benefit from DIR fees.
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\79\ Medicare Part D Prescription Drug Benefit, Congressional
Research Services, Suzanne M. Kirchhoff, August 13, 2018, available at:
https://fas.org/sgp/crs/misc/R40611.pdf.
Worse yet, DIR fees on expensive specialty drugs are typically
calculated as a percentage of a drug's list price. As such, DIR fees
provide another incentive for PBMs to keep drug list prices high--high
list prices yield not only larger rebates, but also larger DIR fees. As
such, over the past several years DIR fees have become a larger
percentage of the overall revenue that PBMs and Part D plan sponsors
receive. Simply put, PBMs are making their money one way or another--
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rebates or DIR fees from pharmacy providers.
More problematic than the growth of DIR fees is the manner in which DIR
fees are assessed on providers, especially community oncology
practices. These fees are charged against community oncology practices
based on their performance in a number of primary-care focused
``quality metric'' categories, which are totally unrelated and
irrelevant to the cancer patients these practices treat. As a result,
these community oncology practices have no meaningful ability to
influence their performance scores--with no ability for upside--and
such fees amount to nothing more than extortion from practices. Given
the market clout of the top PBMs in terms of the percentage of
prescription drugs they manage, community oncology practices simply
have to pay these DIR fees to stay in network, lest they lose the
ability to provide dispensing services to their patients.
These DIR fees are assessed after the point-of-sale. While they are
sometimes recouped as soon as PBMs reimburse providers (i.e., extracted
from initial reimbursements), in most cases DIR fees are assessed
months after patients receive their medications. The total amount of
DIR fees assessed on providers may not be known by providers until more
than a year after a drug has been dispensed, as some PBM contracts
create the potential for a partial or total refund of DIR fees (though
a total refund is practically unobtainable).
DIR fees increase patients' cost sharing responsibilities because
patient out-of-
pocket costs are based on an artificially inflated list drug prices at
the point-of-sale; thus, in the case of Medicare patients, prematurely
pushing them into the Medicare Part D ``donut hole.'' The cost of DIR
fees also shifts the burden of drug costs to the federal government as
more patients are prematurely pushed into the catastrophic phase of the
Medicare benefit, resulting in higher financial contribution by the
Medicare program. Ultimately, DIR fees weakens the overall benefit of
the Medicare insurance benefit intended to provide health care coverage
for our nation's oldest and most vulnerable citizens.
Finally, DIR fees extracted from reimbursement to providers often
results in drugs reimbursed below drug acquisition cost. Some speculate
that this is yet another strategy by PBMs to ultimately drive pharmacy
providers out of business so that the PBMs can take over the business
with their retail, specialty, or mail-order pharmacies.
PBMs are able to effectively ``extort'' DIR fees due to their size and
hegemony. As of 2018, three companies--UnitedHealth, Humana and CVS
Health--covered over half of all Medicare Part D patients.\80\ Pharmacy
providers do not have a meaningful choice but to accept the terms being
provided to them--rejecting just one Part D plan could mean losing out
on being able to service nearly a quarter of their Medicare Part D
patients. PBMs know the power they hold and use it to its fullest
extent.
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\80\ https://www.kff.org/medicare/issue-brief/medicare-part-d-in-
2018-the-latest-on-enrollment-premiums-and-cost-sharing/.
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5.1 Who Is Impacted?
The expansion of DIR fees has had a substantial negative impact on both
Medicare beneficiaries and the program as a whole. As confirmed in
recent CMS studies, DIR fees ultimately shift financial liability from
the Part D plan sponsor to the patient, then ultimately to the federal
government, through Medicare's catastrophic coverage phase. The
shifting of financial liability away from the Part D plan sponsor and
to Medicare and the patient is even more pronounced with specialty
medications, such as oral cancer medications.
5.1.1 Harm to Patients
The primary harm to patients from DIR fees is that patients' out-of-
pocket costs are higher because they are based on list drug prices.
Once again, PBMs have a vested financial interest to have drug list
prices as high as possible as DIR fees are assessed as a percentage of
the list prices for expensive specialty drugs. Medicare Part D patients
find themselves paying more for their medications because they pay
increased copayments and coinsurance on inflated point-of-sale list
prices, which do not reflect the after-the-fact price adjustment in DIR
fees that the PBM is clawing back from the pharmacy provider.
The use of DIR fees by PBMs has degraded the quality of the Medicare
Part D benefit available for beneficiaries, all the while providing an
additional lucrative revenue source for PBMs and affiliated Part D plan
sponsors.\81\ It has shifted the benefit of the Medicare Part D program
from those who rely on it for drugs, to those that do not use it, in
the form of lower (or zero dollar) premiums. Meanwhile, DIR has put
upward pressure on drug expenditures for those that use the benefit.
Studies conducted by CMS have concluded that DIR fees increase out-of-
pocket costs for Medicare patients at the point of sale.\82\
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\81\ See, e.g. https://www.communityoncology.org/wp-content/
uploads/2017/01/COA_White_
Paper_on_DIR-Final.pdf; https://naspnet.org/dir-white-paper/.
\82\ https://www.cms.gov/newsroom/fact-sheets/medicare-part-d-
direct-and-indirect-remuneration-dir; see also, https://www.cms.gov/
newsroom/press-releases/cms-takes-action-lower-out-pocket-medicare-
part-d-prescription-drug-costs.
Consider for example, that Medicare Part D beneficiaries' cost sharing
is based on the PBM-determined rate at the point-of-sale. DIR fees are
by definition not assessed at the point of sale. Thus, the patient's
copayment or coinsurance that is based on the price at the point-of-
sale is artificially inflated. CMS similarly concluded that DIR fees
cost patients money, noting ``[w]hen pharmacy price concessions and
other price concessions are not reflected in the negotiated price at
the point of sale (that is, are applied instead as [Direct and Indirect
Remuneration] at the end of the coverage year), beneficiary cost-
sharing increases.''\83\
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\83\ 83 Fed. Reg. 62152, 62176 (November 30, 2018).
Likewise, up until the end of the 2020 plan year when the ``donut
hole'' existed in the Medicare Part D Program, DIR fee programs pushed
patients through the coverage stages much faster. Within the donut
hole, patients pay 25% of the drug cost based on the (inflated) list
price at the point-of-sale. The concern that patients continue to foot
the bill for increased costs is not hidden from scrutiny as a group of
21 U.S. Senators urged HHS to address DIR fees because ``beneficiaries
face high-cost sharing for drugs and are accelerated into the coverage
gap (or ``donut hole'') phase of their benefit.''\84\
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\84\ https://www.cantwell.senate.gov/imo/media/doc/7-18-
18%20DIR%20Azar%20Letter.pdf.
In addition, despite PBMs' purported justifications for such programs,
DIR fees have not benefitted the quality of Part D plans offered to
Medicare beneficiaries. For example, SilverScript had a 4.0 Star Rating
from Medicare in 2018 \85\ (based on 2017 data), but saw its score drop
to a 3.5 Star Rating in 2019 \86\ despite the widespread usage of DIR
fees. At the same time, as the impact of DIR fees has increased
dramatically since 2016, patients have also been impacted by diminished
access to care as providers facing decreased net reimbursement are
forced out of business, forcing patients to receive services from
pharmacies owned by or affiliated with the very PBMs and Part D plan
sponsors extracting DIR fees (see, Section 6, infra).\87\
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\85\ https://q1medicare.com/PartD-
2018StarRatingsPartCPartDOverall.php?state=SC&contract
Id=S5601&planId=018&plan=SilverScript%20Choice%20(PDP)%20-%20S5601-
018&utm_source
=partd&utm_medium=pdpfinder&utm_campaign=starimglink.
\86\ https://www.silverscript.com/pdf/star-ratings.pdf.
\87\ See, https://www.drugchannels.net/2019/12/insurers-pbms-
specialty-pharmacies.html (``The largest insurers, PBMs, and specialty
pharmacies have now combined into vertically-
integrated organizations. . . . these companies have also been rapidly
integrating with healthcare providers.'')
5.1.2 Harm to Plan Sponsors
Just as DIR fees negatively impact patients, PBM-Imposed DIR fees shift
costs away from Part D plan sponsors, while increasing the costs to the
Medicare program (and in turn, the taxpayer) for catastrophic coverage
and subsidy payments.\88\ As mentioned, when a Medicare beneficiary is
pushed through the benefits tiers and reaches the ``catastrophic
coverage'' stage, the cost of services shifts to 80% paid by Medicare,
while only 15% paid by the plan sponsors.\89\ The government covers
these costs in part by turning to the reinsurance marketplace. From
2007 through 2018, a period similar to when CMS saw DIR fees from
pharmacy price concessions increase by more than 45,000 percent,
reinsurance costs of Medicare soared by 411%.\90\ Part D plan sponsors
and their PBMs have a financial incentive to move Medicare
beneficiaries into the catastrophic phase of coverage, to the detriment
of the taxpayer.
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\88\ See, CMS, Medicare Part D--Direct and Indirect Remuneration
(DIR), (January 19, 2017), https://www.cms.gov/Newsroom/
MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-01-19-
2.html.
\89\ https://archive.segalco.com/media/2521/me-5-4-2016.pdf.
\90\ http://medpac.gov/docs/default-source/default-document-
library/part_d_public_jan_2020.
pdf?sfvrsn=0.
In fact, the National Community Pharmacists Association (NCPA)
commissioned a report by Wakely Consulting Group, LLC to estimate the
cost savings that would occur if congress prohibited retroactive
reductions in payments by Part D plan sponsors in the form of DIR fees.
Wakely Consulting Group, LLC found $3.4 billion in Part D payments over
a nine-year period if these fees were prohibited.\91\
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\91\ The Wakely Consulting Group, Impact of H.R. 1038/S. 413 on CMS
Payments Under Part D addition to harming patients, improper MAC
pricing.
Unfortunately, the harm from DIR fees goes beyond the Medicare program
and American taxpayers. Like rebates, DIR fees have the effect of
driving up the cost of drugs, through higher list prices. From 2013 to
2019, DIR fees rose from $229 million to an estimated $9.1 billion.\92\
Most striking, however, is that DIR fees now account for more than 18%
of all Medicare rebates received by Part D plans.\93\ This increased
reliance on DIR fees relative to drug rebates, both of which are tied
to the list price of drugs, highlights the upward pressure DIR fees
have placed on list prices for drugs. During this same period, drug
list prices grew between 10-15% per year.\94\ Meanwhile, net prices
have been relatively flat throughout this time period.\95\ These
inflated list prices are felt by all plan sponsors--especially
employers and state Medicaid programs--who do not receive any of the
supposed benefits of DIR fees (such as lowered premiums).
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\92\ https://www.drugchannels.net/2020/02/pharmacy-dir-fees-hit-
record-9-billion.html.
\93\ https://www.drugchannels.net/2020/02/pharmacy-dir-fees-hit-
record-9-billion.html.
\94\ https://www.aarp.org/content/dam/aarp/ppi/2019/11/brand-name-
drug-prices-increase-more-than-twice-as-fast-as-inflation.doi.10.26419-
2Fppi.00073.005.pdf.
\95\ https://www.aarp.org/content/dam/aarp/ppi/2019/11/brand-name-
drug-prices-increase-more-than-twice-as-fast-as-inflation.doi.10.26419-
2Fppi.00073.005.pdf.
PBMs have used their consolidation in the marketplace to use DIR fees
and rebates in concert, fueling higher drug prices, while adversely
impacting cancer care.
5.1.3 Harm to Providers
To say that DIR fees have had an adverse impact on providers is an
understatement. DIR fees decrease pricing transparency creating
uncertainty as to the true real reimbursement rates for drugs, very
often driving reimbursement rates below the providers' acquisition cost
of drugs (see, section 8, infra).
The metrics utilized by PBMs in implementing DIR fee programs are
typically completely inapplicable to community oncology practices.
Specifically, community oncology practices dispense primarily (and
almost exclusively) specialty medications for cancer patients. As such,
they have virtually no ability to influence their performance based on
PBMs' ``quality metric'' categories measuring patient drug adherence
relating to cholesterol, heart disease, and diabetes medications, which
are relevant to dispensing general medications, not specialty
drugs.\96\
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\96\ It is important to note that neither these metrics, nor the
methodology in determining the performance scores are approved by CMS,
and in fact, are not permitted by Medicare regulations.
Worse yet, adherence-based metrics are particularly problematic and in
cases not only wholly inapplicable in treating cancer patients, but
also may be very dangerous. Community oncologists are extremely
vigilant about monitoring their patients' cancer medication regimens
and may temporarily discontinue or ``hold'' medications until a
patient's status returns to an acceptable level, especially relating to
adverse drug side effects. The period during which the medication is
``held,'' or therapy is temporarily discontinued, is wrongly and
obtusely measured by the PBM as a lack of adherence in one of the few
areas where the community oncology practices may be measured,
ultimately causing the community oncology practices' performance to
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decrease, and the DIR fee assessment to subsequently increase.
Consider, for example, Imbruvica (ibrutinib), which is dispensed by
many community oncology practices to treat mantle cell lymphoma (MCL)
and chronic lymphocytic leukemia (CLL). Studies have shown that
Imbruvica tends to cause hematologic effects such as neutropenia and
thrombocytopenia in MCL and CLL.\97\ If these adverse events occur at
certain levels, the standard of care--as articulated directly by the
FDA-approved package insert--is to hold the medication until the
patient's lab values return to normal ranges.\98\ This can happen in as
many as 46% of cases, resulting in discontinuing the patient's
medication for up to a month. If community oncology practices are
required to continue to dispense this drug, it will result in
additional (and avoidable) costs to Medicare for the discontinued
fills, as well as potential harm to the patient (along with potentially
increased costs to Medicare for associated medical costs).
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\97\ IMBRUVICA (ibrutinib) [package insert]. Sunnyvale, CA;
Pharmacyclics LLC; Revised April, 2020.
\98\ U.S. Department of Health and Human Services. Common
Terminology Criteria for Adverse Events. CTEP. 2017;5:88-90. https://
ctep.cancer.gov/protocolDevelopment/electronic_
applications/docs/CTCAE_v5_Quick_Reference_5x7.pdf. Accessed September
24, 2020.
Further, due to the high cost of specialty drugs, and in particular,
oncology medications, any small change in perceived adherence rates due
to the purposeful physician-directed temporary discontinuation of
therapy results in unreasonably low reimbursement rates.\99\ Many PBMs
justify their DIR fee programs as being designed to influence providers
to deliver better care to patients in their Medicare Part D networks.
On that clinical basis, if community oncology practices were to be
``influenced'' by the PBMs' DIR fee metrics by adhering to a medication
when the FDA-approved label calls for the therapy to be held, patients
would suffer. As such, community oncology practices are often left
without any meaningful way to impact PBMs' so-called ``quality
metrics'' and improve their DIR fee performance.
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\99\ Notably, most cancer medications entering the market cost more
than $100,000 per year of treatment.
Ultimately, community oncology practices have no way out. For them, due
to the clout and market leverage of PBMs, DIR fees are simply a form of
extortion that community oncology practices are forced to pay.
5.2 What Does the Law Say?
The most directly applicable legal principles relating to pharmacy DIR
fees are found in the federal Any Willing Provider law. Within the
federal Any Willing Provider law, CMS expressly recognized that
unreasonably low reimbursement, which often result after accounting for
DIR fees, violates the federal Any Willing Provider law.\100\ As it
relates to the methodologies being used to assess DIR fees, performance
criteria, and the manner in which PBMs and Part D plan sponsors are
using those programs must also be reasonable and relevant.\101\ For
community oncology practices, performance criteria that they are unable
to influence or performance criteria that does not reasonably measure
optimal cancer care can run afoul of the federal Any Willing Provider
law.
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\100\ See, 42 U.S.C. Sec. 1395w-104(b)(1)(A); 42 CFR
Sec. 423.505(b)(18) Medicare Prescription Drug Benefit Manual, Chapter
6, Section 50.3.
\101\ 42 U.S.C. Sec. 1395w-104(b)(1)(A); 42 CFR Sec. 423.505(b)(18)
Medicare Prescription Drug Benefit Manual, Chapter 6, Section 50.3.
In addition to explicit statutory language and CMS guidance, many of
these principles are incorporated within, and apply directly to, the
contract between PBMs and community oncology practices. PBM contracts
include explicit obligations that the PBMs will comply with federal
code, statues, rules, and CMS guidance, including but not limited to
the Medicare Part D Provider Manual. These contractual obligations are
not included in the contract with pharmacies by choice, but rather
federal law requires these terms to be included in the contract between
CMS and plan sponsors, and in contracts with their first tier entities
(including PBMs, and in contracts between PBMs and pharmacy providers).
This creates affirmative obligations on PBMs to comply with these laws,
as well as the ability for pharmacy providers to directly challenge
PBMs for breaches of contract when PBM actions do not comply with
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federal law.
In January 2022, CMS introduced a proposed Final Rule that would alter
the way PBMs and Part D plan sponsors are required to report DIR
fees.\102\ In particular, CMS has proposed that PBMs and Part D plan
sponsors report the lowest possible reimbursement to pharmacy providers
(inclusive of all potential DIR fees) as the ``negotiated price.''\103\
While this proposed rule (if finalized) could have the result of
removing the financial incentive for PBMs and Part D plan sponsors to
institute retrospective DIR fees, it does little to protect pharmacy
providers against unreasonably low reimbursement rates or wholly
irrelevant ``quality'' metrics when assessing DIR fees.
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\102\ https://www.cms.gov/newsroom/press-releases/cms-takes-action-
lower-out-pocket-medicare-part-d-prescription-drug-costs.
\103\ https://www.cms.gov/newsroom/fact-sheets/cy-2023-medicare-
advantage-and-part-d-proposed-rule-cms-4192-p.
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5.3 What Can Be Done?
Legislative Solutions
Federal legislation should be enacted requiring
that any DIR fee program (i) be tied to relevant quality programs to
the specialty being measured; (ii) actually measured on an individual
pharmacy level; (iii) provide equal opportunity for upside performance
(i.e., not just a way for PBMs to ``rig'' the program to always measure
downside performance resulting in DIR fees extracted from the
provider); and (iv) require that DIR fees be applied equally and fairly
across all network pharmacies, specifically including PBM-owned or
affiliated pharmacies).
Federal legislation should require that all
pharmacy price concessions, including DIR fees, be included in the
negotiated price at point-of-sale.
Federal legislation should give CMS greater
latitude in regulating the reimbursement structure between Part D plan
sponsors and pharmacy providers.
Regulatory
CMS should issue regulation providing ``guard
rails'' on what constitutes reasonable and relevant terms and
conditions, and clarify that whether given terms are ``reasonable'' or
``relevant'' can be adjudicated in a private contractual dispute
between Part D plan sponsors/PBMs and pharmacies.
CMS should initiate complaints against Part D
plan sponsors and PBMs who have failed to pass on negotiated prices to
patients at the point-of-sale, when DIR fees were known or knowable
(i.e., the PBM maintained a minimum range of DIR fees that were to be
assessed against every pharmacy no matter what).
CMS should initiate complaints against Part D
plan sponsors and PBMs who have not paid providers based on reasonable
and relevant terms and conditions, including through unreasonably low
reimbursements, or irrelevant performance criteria.
CMS should require reporting of pharmacy DIR fees
by both NDC number and pharmacy National Provider Identifier (NPI)
allowing for full end-to-end audits of the flow of money from
pharmacies to the Medicare program. The results of these audits should
be made available to the public.
6 Restrictive Networks, Credentialing Abuses, and Artificial Barriers
of Entry
PBMs maintain a monopoly-like grasp on the industry, the natural result
of which is the inability of patients to freely choose a provider based
on his or her personal health care decisions, as opposed to the
mandates of his or her PBM. As noted previously, only three PBMs
process more than three-quarters of all prescription claims: CVS
Health, Express Scripts, and OptumRx,\104\ while five PBMs process over
80% of all prescription claims. Each of the three major PBMs share
common ownership with a major insurer and in turn with a mail-order
and/or specialty pharmacy. These vertical, integrated relationships
allow the PBMs to control the pharmaceutical supply chain, and erect
superficial barriers to entry or even outright exclude entire classes
of potential pharmacy providers.
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\104\ See, CVS, Express Scripts, and the Evolution of the PBM
Business Model, available at https://www.drugchannels.net/2019/05/cvs-
express-scripts-and-evolution-of.html). See also Brief for Community
Oncology Alliance, Inc. et al. as Amici C Curiae Supporting
Respondents, Rutledge v. Pharmaceutical Care Management Association,
140 U.S. 812 (2020), 2020 WL 1372777.
This is particularly pronounced in the context of cancer care, where
the introduction of new oncology therapies over the past several years,
specifically, oral treatments for cancer and related conditions,
presents new challenges for patients, plan sponsors, and providers
alike. Between 2017 and 2019, there have been over 24 new oral cancer
medications introduced into the marketplace.\105\ In 2020 alone, ten
new oral oncolytics were approved by the FDA.\106\ As it stands, oral
oncolytics make up 25% to 35% of cancer medications in development,
making it likely that over the next several years, oral therapies will
encompass an indispensable component of any treatment plan for cancer
patients.\107\ While traditional chemotherapy infusion therapy that is
``administered'' is covered under a patient's ``medical'' benefits,
oral oncolytics that are ``dispensed'' are being shifted to the
patient's ``pharmacy'' benefits, managed by PBMs. Unlike chemotherapy
administered in the clinic setting, the advent of oral oncolytics have
given the PBMs a tremendous new opportunity to control cancer care and
divert prescriptions and profits to themselves.
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\105\ https://scholarlycommons.baptisthealth.net/cgi/
viewcontent.cgi?article=4573&context=se-all-publications.
\106\ https://www.clinicaloncology.com/FDA-Watch/Article/12-20/New-
Oncology-Drug-Approvals-in-2020/61464.
\107\ See, https://www.onclive.com/view/oral-oncolytics-will-
require-health-care-system-to-adapt (citing Stokes M, Reyes C, Xia Y,
Alas V, Goertz HP, Boulanger L. Impact of pharmacy channel on adherence
to oral oncolytics. BMC Health Serv Res. 2017;17(1):414. doi:10.1186/
s12913-017-2373-2).
These new oral cancer medications can be extremely expensive, often
ranging more than $10,000 per month.\108\ This is what is attracting
PBMs, and as a result, PBMs have attempted to use their market size and
leverage to limit dispensing of oral oncolytics through certain
specialty and/or mail-order pharmacies, most often their own or
affiliated pharmacy.\109\
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\108\ https://www.onclive.com/view/oral-oncolytics-will-require-
health-care-system-to-adapt.
\109\ See, Nancy J. Egerton, In-Office Dispensing of Oral
Oncolytics: A Continuity of Care and Cost Mitigation Model for Cancer
Patients, Am. J. Manag. Care Vol. 22, Supp. No. 4, S100 (2016), https:/
/www.ncoda.org/wp-content/uploads/bp-attachments/7218/ajmcpan032016in
officedispensingcontinuityofcarebynancyegerton.pdf.
PBMs use several different tactics to maintain their control over where
patients receive their care. The first and foremost of these is
creating restricted networks, blocking access to any provider that is
not affiliated with their PBM. In these instances, the PBM will contend
that the network is ``closed'' or that there is no ``network,'' and
thus, pharmacy providers are not even given the opportunity to apply
for network admission. This occurs more frequently in the commercial
insurance space involving employer-sponsored plans, but can also
involve Medicaid managed care programs, where the PBM will require
patients to receive their cancer medication from the PBM's wholly-owned
or affiliated pharmacy, and no one else. This is anticompetitive
conduct--pure and simple--where patients are trapped into using one
particular provider not based on the quality of care provided by that
provider but based on the financial arrangements and the corporate
affiliation between the pharmacy provider and the PBM and/or health
---------------------------------------------------------------------------
insurer.
A related, but slight variation of this tactic is to restrict access to
certain classes of providers (i.e., retail pharmacies), while excluding
wholesale other classes of providers (i.e., dispensing physician
practices). For example, beginning in early 2016, CVS Caremark espoused
a self-serving stance that dispensing physician practices were now to
be deemed ``out-of-network'' and no longer able to participate in
Medicare Part D networks. This would have the effect of dramatically
interrupting the ongoing relationship between treating oncologists and
their patients. CVS Caremark later backtracked on this position and
began allowing ``grandfathered'' dispensing physicians (i.e., those
that previously held a contract with the PBM) to continue in-network,
but delayed the processing of any new, non-grandfathered dispensing
physician practices. In another instance, in January of 2018, Prime
Therapeutics (Prime)--the PBM owned by a consortium of approximately
twenty-two Blue Cross Blue Shield plans--announced that it would no
longer accept any new dispensing physicians into its pharmacy networks
on the alleged basis of ``fraud, waste, and abuse'' concerns and a
commitment to maintaining to compliant networks. Without providing any
further details, Prime claimed that Dispensing Physicians did not
adhere to Prime's Provider Manual. This trend expanded to existing in-
network dispensing physicians actively servicing patients when,
recently, Prime announced that it would also terminate existing, or
``grandfathered'' dispensing physicians from its networks. Despite
having credentialed, contracted, and paid dispensing physicians as
``in-network'' Medicare Part D providers for over a decade, Prime
seemingly unilaterally took the position that dispensing physicians are
now considered ``out-of-
network providers'' under Medicare Part D. Like wholesale network
exclusion, these practices disadvantage vital providers while allowing
PBM-owned or affiliated pharmacies to capture a greater share of
prescription volume.
Even in instances where a PBM nominally allows a community oncology
practice to apply for network participation, the PBM can still place
other barriers in the way of providers being able to service their
patients by imposing onerous credentialing processes. For a community
oncology practice to service patients within a PBM's network, PBMs
require that the provider adhere to specific and extremely onerous,
credentialing requirements, including the requirement that the provider
maintain certain accreditations. These conditions are made even more
onerous where PBMs delay the review of credentialing applications
(seemingly with the intention to avoid admitting these providers),
enact credentialing applications with terms and conditions designed to
keep out providers (rather than ensuring the quality of providers) or
allow participation but at rates so low that reimbursement may not even
cover the acquisition cost of a drug.
These obstructionist policies harm patients, degrade the quality of
prescribers and benefit only PBMs that are incentivized to continue to
these illegitimate practices.
Finally, even when a community oncology practice has ultimately been
admitted into a PBM's network, PBMs continue to utilize other tactics
to drive patients away from community oncology practices, and towards
PBM-owned or affiliated pharmacies. This includes tactics such as
patient slamming and claim hijacking (see, section 7, infra),
misleading communications aimed at steering patients to PBM-owned or
affiliated pharmacies, and creating patient incentives for patients
(such as lower copays, larger days' supply or free products/services)
to utilize preferred PBM-owned or affiliated pharmacies. PBMs also
utilize other tactics, such as abusive auditing practices (i.e.,
requiring the production of thousands of pages of documentation to
support claims billed) and terminating providers without cause or on
pretextual bases (i.e., that they only dispense one class of
medications).
PBMs employ these tactics to maintain their oppressive market
dominance. But at the same time, in a vicious cycle, these tactics are
themselves the consequence of the horizontal and vertical consolidation
within and between insurance and PBM markets, which has created merged
entities with such oppressive power that it a virtual chokehold on
community oncology practices and pharmacy providers. The result of
these tactics is that patients are steered away from receiving care at
their community oncology practices, and forced to receive care from
PBM-owned or affiliated pharmacies. This is not only without regard to
the impact on patient care and outcomes, but as the chart below
demonstrates, only continues to prop up higher drug prices and charges.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
6.1 Who Is Impacted?
The overall lack of industry standards and oversight in the PBM
credentialing sphere has led to arbitrary denials and lengthy, costly
application processes, that ultimately have a negative impact on a
community oncology practice's ability to focus on patient care. Instead
of allowing community oncology practices to enter into their networks,
PBMs attempt to limit the dispensing of oral oncolytics through their
own specialty pharmacies, leading to poor patient compliance and
adherence to life-saving treatments, causing the quality of cancer care
to suffer.\110\
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\110\ See American Pharmacists Association, Pharmacy
credentialing--challenges and opportunities (August 21, 2017), https://
www.pharmacist.com/article/pharmacy-credentialing-challenges-and-
opportunities. See also, Egerton, supra, at S100.
These tactics have had negative impact all across the spectrum,
affecting patients, health care payers (including Medicare, Medicaid,
employers and taxpayers), and providers.
6.1.1 Harm to Patients
These exclusionary practices--whether they be unreasonable barriers to
entry or outright exclusion of certain classes of providers--result in
serious harm to patients, specifically those who are seeking the
services of community oncology practices that have been excluded from a
PBM specialty network. For one, these exclusionary practices destroy
existing patient-provider relationships. In early 2016, when CVS
Caremark undertook re-interpreting longstanding CMS regulations, it did
so in such a way as to effectively cut out physicians from continuing
to dispense medications to their existing Medicare Part D
patients.\111\ PBMs have no regard for the continuity of these vital
health care relationships and their impact on patients' well-being and
outcomes.
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\111\ See, CVS Health Corp., Letter to Congressman Ed Whitfield
from Senior Vice President of Government and Public Affair Melissa A.
Schulman (February 19, 2016) [``CVS-Whitfield Letter''].
This is critical, as patients are more likely to raise certain
questions or concerns about their medications, when these medications
are dispensed by community oncology practices. To strip patients, who
are facing serious life-threatening diseases, of that important
patient-provider relationship could result in serious patient
harm.\112\ This also has the effect of decreasing medication adherence,
which would further affect patients, especially those undergoing life-
saving treatments at community oncology practices.\113\
---------------------------------------------------------------------------
\112\ See, First Coast Health Solutions, How In-Office Dispensing
Can Improve Patient's Clinical Outcomes (June 30, 2019), https://
firstcoasthealthsolutions.com/2019/06/30/how-in-office-drug-dispensing-
can-improve-patients-clinical-outcomes-2/.
\113\ See, Jacob G. Moroshek, Improving outpatient primary
medication adherence with physician guided, automated dispensing
(2017), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5221544/; see also
Marie T. Brown, MD and Jennifer K. Bussell, MD, Medication Adherence:
WHO Cares? (April 2014), https://www.ncbi.nlm.nih.gov/pmc/articles/
PMC3068890/.
The ultimate outcome of creating restricted networks or excluding
entire classes of providers, namely, that patients are essentially
required to obtain medications at a PBM-owned or affiliated pharmacy.
It is well-documented \114\ that when the PBM-owned or affiliated
pharmacy is responsible for filling the patients' prescriptions, it
results in worse care. The near-monopolistic control of the network,
combined with the lack of patient choice, remove any checks and
balances on the quality of the care being provided.
---------------------------------------------------------------------------
\114\ See, Georgia General Assembly, 2019-2020 Regular Session, HB
233 (available at http://www.legis.ga.gov/Legislation/en-US/display/
20192020/HB/233; https://www.theatlantic.com/
health/archive/2019/04/pbms-health-care-drug-delays-prices/586711/;
https://patientsrising
now.org/how-do-pbm-business-policies-affect-patients/; https://
communityoncology.org/wp-content/uploads/2018/08/COA_PBM-
paperHorrorStories_VolII.pdf.
Consider, for example, a patient battling cancer was denied life-saving
medications by a PBM due to the PBM being unwilling to enter
medications into its computer system.\115\ In another example, a
patient had been diagnosed with Philadelphia chromosome-positive +
chronic myeloid leukemia and had been responding positively to
``180mg'' of a certain medication. However, according to the patient's
PBM, the medication had to come from the PBM's mandated mail order
specialty pharmacy instead of a pharmacy of their choice. Since the
medication was not available in a single 180mg dosage form, the
prescription clearly indicated that the patient was to receive a ``100
mg tablet and an 80 mg tablet.'' Instead, over the course of the next
several months, the PBM pharmacy dispensed either a 100 mg tablet or an
80 mg tablet, but never both. Ultimately, the patient did not respond
well to the lowered dosages of the medication.\116\ Finally, in a
particularly disturbing example, a colorectal cancer patient was
prescribed a common oral medication that had been on the market for
nearly 20 years. The patient's PBM mandated that the patient fill the
prescription at a large, well-known specialty pharmacy, and the
patient's oncologist prescribed the medication to be taken in rounds
with the following specific instructions: ``two weeks on, one week
off.'' The PBM mail-order pharmacy neglected to include the ``one week
off'' instruction on the label, and as a result, the patient ended up
in the intensive care unit of a hospital.\117\
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\115\ See, https://pbmabuses.org/a-4000-co-pay-forced-this-
prostate-cancer-patient-to-admit-defeat-and-not-receive-a-treatment-
that-could-have-extended-his-life/.
\116\ See, Community Oncology Alliance, Pharmacy Benefit Manager
Horror Stories--Part IV (August 1, 2018), https://
communityoncology.org/pharmacy-benefit-manager-horror-stories-part-iv-
2/.
\117\ See, https://pbmabuses.org/already-fighting-for-her-life-one-
mistake-at-the-hands-of-the-pbm-nearly-killed-her/.
Unfortunately, patients often do not have any ability or choice to
switch their PBMs in order to have control over which pharmacy provider
from whom they would like to receive service. PBMs who undertake these
restrictive practices are typically selected by the patient's employer
(or sometimes by the insurance company selected by the patient's
employer). The patients are two, sometimes three steps removed from any
part of the decision-making process. Since most patient get their
health care coverage through their jobs, the only way a patient can
exert any control over the network of pharmacy providers is to change
jobs and hope that their new employer utilizes a different PBM's
network. But, in a world where three PBMs account for nearly 80% of the
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marketplace, the odds of getting a better PBM are slim to none.
The PBMs know the level of power that they wield. And their focus is on
profits, not patients. Ultimately, given the acute focus on patient
care inherent in community oncology practices, patients suffer when
those providers are forced out of the space.\118\
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\118\ See, Allison Gilchrist, The Advantage of Independent
Pharmacies, Pharmacy Times, March 12, 2016, https://
www.pharmacytimes.com/view/the-advantage-of-indepdendent-pharmacies.
---------------------------------------------------------------------------
6.1.2 Harm to Plan Sponsors
In addition to patients, these exclusionary practices harm plan
sponsors, such as Medicare and Medicaid, because they cause an
artificial rise in the cost of specialty medication, particularly
within the oncology space. Specifically, the exclusion of community
oncology practices from PBM networks require more patients to utilize
PBM-owned or affiliated mail-order and/or specialty pharmacies. This,
in turn, leads to exponentially more waste of medication, causing
increased costs to plan sponsors.\119\ Mail-order pharmacies, without
proper access to patient outcomes, routinely dispense 90-day supplies
of medications. In several instances, patients continue to receive
medications despite their repeated requests to have the mail-order
pharmacy cease sending medication, often due to a change in their
course of treatment. In more tragic cases, the PBM mail-order
pharmacies continue to dispense medications to the patient's residence
despite the patient having passed away, leading to the waste of
unwanted, expensive medications.\120\
---------------------------------------------------------------------------
\119\ https://cdn.ymaws.com/www.papharmacists.com/resource/resmgr/
Legislative/TPA-Drug-Report-print.pdf; https://www.pharmacist.com/
article/study-raises-mail-order-pharmacy-patient
-adherence-dispensing-
questions#::text=Prescriptions%20filled%20by%20mail%20order,from%20
the%20Community%20Pharmacy%20Foundation; https://www.pharmacytimes.com/
news/ncpa-mail-order-waste-all-too-common-documented-by-federal-
officials.
\120\ See, Egerton, supra, at S100. See also, NCPA: Mail Order
Waste All Too Common; Documented by Federal Officials, March 5, 2013,
https://www.pharmacytimes.com/news/ncpa-mail-order-waste-all-too-
common-documented-by-federal-officials. See also National Community
Pharmacists Association, Waste Not, Want Not: Examples of Mail Order
Pharmacy Waste, May 27, 2020, http://www.ncpa.co/pdf/waste-not-want-
not---examples-of-mail-order-pharmacy-waste
.pdf.
Moreover, when pharmacy care is diverted from community oncology
practices to PBM-owned or affiliated pharmacies, plan sponsors lose out
on tremendous value-based contracting opportunities.\121\ In the
Medicare space, CMS is developing new payment and delivery models
designed to improve the effectiveness and efficiency of specialty care.
Among those specialty models is the Oncology Care Model, which aims to
provide higher quality, more highly coordinated oncology care at the
same or lower cost to Medicare. The Oncology Care Model ``provides an
incentive to participating physician practices to comprehensively and
appropriately address the complex care needs of the beneficiary
population receiving chemotherapy treatment and heighten the focus on
furnishing services that specifically improve the patient experience or
health outcomes.''\122\ PBM exclusionary practices would thwart this
initiative. Likewise, in the private sector, value-based care (VBC)
innovations are on the rise, increasing the quality while lowing the
overall cost to health care payer and their patients. The ability to
tie benefits to providers and value to patients is critical to aligning
interests in the health care space and has long been a long-term goal
of health policy experts. However, this type of integration of medical
and pharmacy care is against the interest of current PBM practices to
implement. Absent changes to PBM regulation, the federal government
will be unable to achieve some of the same cost-saving/quality
improving measures as is being utilized in primarily the self-funded
employer sponsor health care space.
---------------------------------------------------------------------------
\121\ See, NCPA: Mail Order Waste All Too Common; Documented by
Federal Officials, March 5, 2013, https://www.pharmacytimes.com/ajax/
NCPA-Mail-Order-Waste-All-Too-Common-Documented-by-Federal-Officials.
See also, National Community Pharmacists Association, Waste Not, Want
Not: Examples of Mail Order Pharmacy Waste, May 27, 2020, http://
www.ncpa.co/pdf/waste-not-want-not---examples-of-mail-order-pharmacy-
waste.pdf.
\122\ See, Oncology Care Model (last updated May 15, 2020), https:/
/innovation.cms.gov/innovation-models/oncology-care. See also Value-
Based Care Leads the Way to Lower Costs and Better Quality (December 4,
2019), https://www.ahip.org/news/articles/value-based-care-leads-the-
way-to-lower-costs-and-better-quality/. See also The Oncology Care
Model 2.0 (May 28, 2019), https://communityoncology.org/wp-content/
uploads/sites/20/2019/06/COA-PTAC.pdf.
Unfortunately, these lost opportunities are not made up for in savings
garnered by PBMs, and in fact, quite the opposite has occurred. As
illustrated in the figure on page 36, the exclusion of community
oncology practices and other independent providers allows PBMs to
pocket more through their wholly-owned or affiliated mail-order and
---------------------------------------------------------------------------
specialty pharmacies.
In a study conducted by Ohio's Medicaid Managed Care Pharmacy Services,
PBMs billed taxpayers 8.8% more for medications than what they paid
pharmacies. This difference, commonly referred to as ``spread'' has
been growing and is typically the highest on specialty medications,
such as oral oncolytics.\123\ Worse yet, similar data has shown that
the spread between plan sponsor funded PBM revenue and pharmacy-
captured reimbursement has increased over time. In short, PBMs are
keeping more and more revenue from health care costs to the detriment
of others in the health care space.
---------------------------------------------------------------------------
\123\ See, Auditor of State Report (August 16, 2018), https://
audits.ohioauditor.gov/Reports/AuditReports/2018/
Medicaid_Pharmacy_Services_2018_Franklin.pdf. See also, Analysis of PBM
Spread Pricing in Michigan Medicaid managed care (April 18, 2019),
https://www.3axis
advisors.com/projects/2019/4/28/analysis-of-pbm-spread-pricing-in-
michigan-medicaid-managed-care (identifying that PBMs overcharged
Michigan Medicaid by at least $64 million).
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Ultimately, when compared to costs of PBM exclusionary practices,
the savings associated with dispensing by community oncology practices
are palpable. Reports estimate that physician point-of-care dispensing
could save seniors and taxpayers over $20 billion in Medicare Part D
alone.\124\
---------------------------------------------------------------------------
\124\ See, Physician Point-of-Care Dispensing Could Save Seniors
and Taxpayers $20 Billion on Generic Drug Costs in Medicare (August 20,
2019), https://aapsonline.org/physician-point-of-care-dispensing-could-
save-seniors-and-taxpayers-20-billion-on-generic-drug-costs-in-
medicare/.
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6.1.3 Harm to Providers
An increasingly important component of the physician-patient
relationship with oncology is the dispensing of medications to patients
through the community oncology practice, at the site of care. Excluding
community oncology practices from PBM networks prevents physicians from
providing consistent care to their patients.\125\
---------------------------------------------------------------------------
\125\ See, National Evaluation of Prescriber Drug Dispensing
(2014), https://dopl.utah.gov/PrescriberDrugDispensing.pdf.
When PBMs impose unreasonably high or arbitrary requirements for
network admission, designed for no purpose other than to serve as an
artificial barrier of entry, they place immense and undue burdens on
community oncology practices seeking to service their patients. As
noted above, these credentialing standards often require a provider to
hold multiple forms of accreditation, such as URAC and ACHC. These
specified accreditations are often not the most relevant or appropriate
form of accreditation for community oncology practices, and do not
constitute the most applicable form of endorsement based on the unique
---------------------------------------------------------------------------
and specialized services provided by community oncology practices.
Between the standards set forth under the Oncology Care Model (OCM) and
Quality Oncology Practice Initiative (QOPI) Certification Program,
community oncology practices also attain high standards of practices,
validated by third parties, that obviate the need for separate
accreditation. For example, QOPI has a certification program
specifically designed for clinical oncology practices as this process
``can routinely evaluate practice performance against quality measures
and standards established by experts in the oncology field.'' Likewise,
through the CMS-created OCM, community oncology practices have entered
into payment arrangements that include financial and performance
accountability for episodes of care surrounding chemotherapy
administration to cancer patients. The practices participating in OCM
have committed to providing enhanced services to Medicare beneficiaries
such as care coordination, navigation, and national treatment
guidelines for care. The fact that CMS has involved itself in the
creation of this type of model with standards that directly correlate
to community oncology providers demonstrates that these two programs
(OCM and QOPI) would be the best industry standards to judge a network
provider. Moreover, requiring dual accreditation--including URAC
accreditation in Specialty Pharmacy--apart from being redundant, also
increases the risks that the provider will have multiple, sometimes
contradictory compliance requirements, needing to comply with not just
ACHC standards, but also URAC standards, which at times can be
diverging. Finally, these accreditations can be prohibitively expensive
and costly, making it impracticable for providers to undertake the
steps necessary to even seek admission to the networks.
Likewise, when PBMs take steps to delay credentialing, this too harms
pharmacy providers. Community oncology practices have to divert
considerable amount of time and resources to respond to repeated follow
ups on their credentialing applications under normal circumstances.
However, when a PBM ``slow rolls'' an application and takes months to
review and respond to inquiries, this has often led to the PBM asking
the provider to provide the same documentation over, and over and over
again (i.e., licenses that expire and are renewed over the course of
the sometimes 18-month long credentialing process). This takes time
away from being able to service patients.
But perhaps the most direct way providers are harmed by these tactics
is through the actual effects of network exclusion. Due to the size and
market share of each PBM (see, Section 3, supra), a PBM termination or
exclusion often spells irreparable harm for a provider seeking to
participate in pharmacy networks and/or the Medicare Part D
program.\126\ Particularly alarming is the fact that about two-thirds
of all Medicare Part D Prescription Drug Plan enrollees are
concentrated in networks across just three payers: OptumRx, CVS
Caremark, and Humana. Exclusion from any one of these payers could make
dispensing simply not a viable option for a community oncology
practice.\127\
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\126\ See, Pharmacy Benefit Managers' Attack on Physician
Dispensing and Impact on Patient Care: Case Study of CVS Caremark's
Efforts to Restrict Access to Cancer Care (August 2016), https://
communityoncology.org/wp-content/uploads/2018/08/
PBMs_Physician_Dispensing-WhitePaper_COA_FL.pdf.
\127\ See, Adam J. Fein, Medicare Part D 2016: 75% of Seniors in a
Preferred Pharmacy Network (PLUS: Which Plans Won and Lost), Drug
Channels (January 20, 2016), http://www.drugchannels.net/2016/01/
medicare-part-d-2016-75-of-seniors-in.html.
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6.2 What Does the Law Say?
Among all the barriers that PBMs put in front of providers--including
onerous credentialing processes, restricting network access, steering
to owned or affiliated pharmacies--the core legal principles largely
tie back to rules promulgated around freedom of patient choice and
network participation. Remarkably, there are several federal and state
laws on the books that seek to safeguard the rights of patients to
select the provider of their choice, or to protect community oncology
practices from undue network termination or exclusion. In the federal
statutes establishing and governing the Medicare program, Congress has
included explicit ``Any Willing Provider'' requirements, which relate
directly to network access for Medicare providers, including community
oncology practices. These statutes apply to all Part D plan sponsors,
as Part D plan sponsors are under the purview of CMS, pursuant to
contracts between the Part D plan sponsors and CMS.
The Medicare Any Willing Provider law (42 U.S.C. Sec. 1395w-104)
explicitly requires that all Part D prescription drug plans permit
``the participation of any pharmacy that meets the terms and conditions
under the plan.'' The federal ``Any Willing Provider'' law further
prohibits health insurers from creating exclusive provider networks--or
unduly barring entry to such networks (such as through artificial
barriers of entry)--to which insured patients are directed to the
exclusion and detriment of non-network providers.\128\ In fact, as it
relates to credentialing abuses, CMS has also questioned whether
mandatory accreditations should be considered ``standard terms and
conditions'' of a network, and whether PBMs should instead explore
other reasonable and relevant alternatives to ensure quality assurance
and actual improved patient care, particularly where certain
accreditation requires may be arbitrary and not directly proven to
ensure quality assurance.\129\
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\128\ See, e.g., Kentucky Association of Health Plans v. Miller,
538 U.S. 329 (2003).
\129\ See, e.g., Caremark's Specialty Credentialing Application;
see, e.g., OptumRx's Specialty Designated Network Application. See
also, Medicare Program; Contract Year 2019 Policy and Technical Changes
to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-
Service, the Medicare Prescription Drug Benefit Programs, and the PACE
Program, 42 Fed. Reg. 16597 (April 16, 2018)
Likewise, federal law provides protection directly for patients to have
the freedom to select a provider of their choice.\130\ Pursuant to 42
CFR Sec. 431.51(a), Medicaid beneficiaries may obtain services from any
qualified Medicaid provider that undertakes to provide services to
them. However, plan sponsors commonly use preferred networks to
incentivize beneficiaries to fill claims at pharmacies of the Plan's
choice (rather than the beneficiary's choice), by offering reduced co-
pays at preferred pharmacies.
---------------------------------------------------------------------------
\130\ See, 42 CFR Sec. 431.51(a).
Several states also maintain their own versions of ``Any Willing
Provider'' protections. For example, North Carolina's Any Willing
Provider Law provides that a health benefit plan shall not ``[p]rohibit
or limit a resident of th[e] State . . . from selecting a pharmacy of
his or her choice when the pharmacy has agreed to participate in the
health benefit plan according to the terms offered by the insurer,'' or
``[d]eny a pharmacy the opportunity to participate as a contract
provider under a health benefit plan if the pharmacy agrees to provide
pharmacy services that meet the terms and requirements, including terms
of reimbursement, of the insurer under a health benefit plan. . .
.''\131\
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\131\ N.C. Gen. Stat. Ann. Sec. 58-51-37(c).
Similarly, Tennessee's Any Willing Provider Law provides similar
limitations on the ability to exclude providers such as community
oncology practices, mandating that ``[n]o health insurance insurer and
no managed health insurance insurer may . . . deny any licensed
pharmacy or licensed pharmacist the part to participate as a
participating provider in any policy, contract, or plan on the same
terms and conditions are offered to any other provider of pharmacy
services under the policy, contract or plan'' or ``[p]revent any person
who is a party to or a beneficiary of any policy, contract, or plan
from selecting a licensed pharmacy of the person's choice . . .
provided that the pharmacy is a participating provider under the same
terms and conditions of the contract, policy or plan as those offered
any other provider of pharmacy services.''\132\
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\132\ Tenn. Code. Ann Sec. 56-7-2359 (a)(1)-(2).
These laws prohibit not just outright network exclusion, but also a
host of other PBM practices aimed at requiring that patient use their
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wholly-owned or affiliated pharmacies.
At both the federal and state levels, policy recognizes the importance
of provider access and, ultimately, competition via the enactment of
these ``Any Willing Provider'' rules. Unfortunately, these laws have
not been without attack by the powerful PBMs,\133\ and in few instances
do they provide pharmacies a private right of action to enforce and
ensure they are meaningfully applied.
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\133\ See, CZ Services, Inc. v. Express Scripts Holding Co., Case
No. 3:18-cv-04217 Dkt. No. 27 (order denying Plaintiff's request for
temporary restraining order); Park Irmat Drug Corp. v. Express Scripts
Holding Co., No. 18-1628 (8th Cir. 2018).
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6.3 What Can Be Done?
Legislative
Congress should enact federal legislation that
provides a private right of action for community oncology practices to
exercise their rights under the federal Any Willing Provider law,
particularly when they are unfairly excluded from PBM networks and a
private right of action will allow the enforcement of a regulation by a
private party, such as a community oncology practice, allowing for
litigation or the threat of litigation to incentivize compliance of the
law.
Congress should enact state legislation that
curbs credentialing abuses and provides for stronger Any Willing
Provider laws and provides for a private right of action for community
oncology practices to exercise.
Regulatory
CMS should pursue complaints against PBMs for
their construct of artificial barriers of entry and failure to adhere
to the establishment of reasonable and relevant terms and conditions of
participation.
CMS should also enact regulation to specify
``reasonable'' and ``relevant'' standards of participation to allow for
defined requirements PBMs must adhere to.
CMS should issue regulation providing ``guard
rails'' on what constitutes reasonable and relevant terms and
conditions, and clarify that whether given terms are ``reasonable'' or
``relevant'' can be adjudicated in a private contractual dispute
between Part D plan sponsors/PBMs and pharmacies.
State Departments of Insurance should pursue
complaints against PBMs for violations of Any Willing Provider Laws,
and Medicaid Free-Choice-of-Provider provisions.
Plan Sponsor Action
Plan sponsors should require PBMs to seek
approval from plan sponsors prior to establishing a standard and/or
qualification for a provider network.
Plan sponsors should have the full and final
authority to make any modification to a standard and/or qualification
for a provider network.
Plan sponsors should retain the right to
participate in an administrative hearing requested by a provider who
has been terminated or rejected from a PBM's provider network.
Plan sponsors should retain the full and final
authority to make accept or deny a provider's request to participate in
a PBM's provider network.
7 Prescription Trolling, Patient Slamming, and Claim Hijacking
A patient's decision on where to fill his or her medication, especially
a cancer medication, is of immense importance. Cancer patients require
ease of treatment and as little confusion as possible, in order to have
a positive outcome. Based on these principles, Section 30.2.2.3 of the
Medicare Prescription Drug Benefit Manual prohibits PBMs and Part D
plan sponsors from ``Steering of physicians or beneficiaries to a
sponsor's and/or PBM's own mail order Pharmacy.'' Such prohibition
specifically includes steering of prescribers' patients to a specialty
pharmacy owned by or affiliated with a plan sponsor/PBM and most PBM
contracts require adherence to CMS Guidance and contain compliance with
law provisions.
Despite the law, there are innumerable instances where the PBMs haves
effectively utilized claims or fill data and sought to move the
prescription away from the provider of the patient's choice and toward
the PBM's wholly-owned or affiliated pharmacy. This practice, sometimes
referred to as ``prescription trolling,'' ``patient slamming,'' or
``claim hijacking,'' plays out fairly consistently. A typical case
might involve a situation where the PBM allows the provider to submit a
claim (typically a high-cost specialty medication), then reject it
claiming that it required a prior authorization (PA). Then, once the
provider has done all the required work to obtain the approval for the
PA, it is subsequently rejected once again by the PBM, this time for
the apparent reason that it ``must'' be filled at the PBM-owned or
affiliated specialty pharmacy.
Pharmacy providers typically transmit prescription claims (and
sometimes PA requests) to the patients' PBM for purposes of having it
adjudicated and receiving reimbursement. Such transmissions clearly
contain protected health information (PHI) and are directed solely at
the PBM acting as the claims adjudicator. Instead of simply reviewing
and processing this claim, in its fiduciary capacity as the PBM, the
PBM improperly and unlawfully accesses the PHI, and illegally
communicates the claim information to its related entity (a PBM-owned
specialty pharmacy). While the PBM is processing the PA, the PBM-owned
or affiliated pharmacy surreptitiously communicates to the patient,
prescriber, or both, with the goal of having the prescription filled at
the PBM-owned or affiliated specialty pharmacy. Community oncology
practices have documented \134\ some egregious instances where the PBM
blatantly lied to the patient and pharmacy staff, saying the
prescribing physician had authorized the transfer, when in fact, they
clearly had not. Further, with complete disregard to not only patient
privacy laws, but also state Pharmacy Practice Acts, PBM-owned
specialty pharmacies have brazenly filled and dispensed the medication
in complete absence of having an actual, signed prescription in
hand.\135\
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\134\ https://communityoncology.org/research-publications/studies/
the-real-life-patient-impact-of-pbms-volume-i/.
\135\ See, Hot Topics in Specialty Pharmacy Law: PBM Prescription
Trolling, HUB Arrangements, DIR Fees Update, Opioid and Naloxone Laws,
and NADAC Pricing, May 26, 2020, available at https://
www.frierlevitt.com/wp-content/uploads/2017/06/Hot-Topics-in-SPRX-Law-
Final_PDF.pdf.
Worrisomely, more deceitful and underhanded variations of this also
exist. In some instances, PBM-owned or affiliated pharmacies have
sought to mislead patients into thinking that their physician wants the
prescription to be filled at the PBM-owned or affiliated pharmacy, or
otherwise imbed prescription transfer documentation in the information
the PBM provides to the physician in order to renew the prescription
for refill (and the physician unknowingly signs to have the
prescription transferred).
7.1 Who Is Impacted?
7.1.1 Harm to Patients
A direct result of prescription trolling is severe confusion and
distress for cancer patients, who are caught in the middle, uncertain
of when or from where they will receive their next dose of their life
saving medication.\136\ These concerns in the context of prescription
trolling go beyond those when a PBM takes steps to create a restricted
network (see, section 6, supra); it is far more insidious here. While
patients cannot be compelled to fill their prescription from a specific
dispenser, many report receiving correspondence from their PBM implying
that they must use a pharmacy owned by or affiliated with the PBM.
These letters often explain that the insurance company has its own
``preferred'' pharmacy, from which the patient may already be receiving
other prescribed drugs and offer for the patient to also get their oral
cancer drug from this same source. PBMs may try to entice patients to
select their ``preferred'' pharmacy through lower patient copayments to
the patient only for the patient to later realize their oral oncolytics
cost more at the ``preferred'' pharmacy than a non-preferred provider.
Many patients find this confusing and do not understand the
repercussions that jeopardize the monitoring, care control, and
clinical management that they receive at their community oncology
pharmacy, and they mistakenly, or unintentionally, switch their drug
dispenser.\137\
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\136\ See, Pharmacist says CVS Strong-Arms Cancer-Drug Business,
May 27, 2020 available at https://www.dispatch.com/news/20180603/
pharmacist-says-cvs-strong-arms-cancer-drug-business/1.
\137\ See, PBMs: Their Role, the Problems, and How Practices Can
Work With Them, May 27, 2020, available at https://www.ajmc.com/
journals/evidence-based-oncology/2017/october-2017/pbms-their-role-the-
problems-and-how-practices-can-work-with-them.
Many patients may require special assistance from their community
oncology practice that has documented and understands their medical
history, monitors for drug interactions between their medications, and
is able to make appropriate dosing adjustments at the time of
administration. Furthermore, a patient who is switched over to a PBM-
owned or affiliated mail-order pharmacy often has his/her medication
shipped from a distance (sometimes several states away), running the
risk that the drug could be rendered ineffective in treating that
patient's condition due to a lack of sufficient temperature control
during transit.\138\ In short, the harm can literally be deadly for
patients with cancer, because of the disease and drugs involved--
medications arriving too late or failure to timely amend dosing
regimens can be the difference for life and death for these patients.
---------------------------------------------------------------------------
\138\ See, Healthcare Bullying: Some Call it Steering, We Call it
Scare Tactics, May 26, 2020, available at https://www.truthrx.org/
theputtblog/healthcare-bullying-some-call-it-steering-we-call-it-scare-
tactics.
Perhaps worst of all, PBMs and their wholly-owned or affiliated
specialty pharmacies have been known to employ underhanded tactics to
``hijack'' the prescription. In one particularly egregious instance, a
PBM-affiliated specialty pharmacy contacted a community oncology
practice claiming that one of the clinic's patients had requested that
his lung cancer medication be transferred to the PBM-affiliated
pharmacy and demanded the clinic's immediate compliance in the matter.
Surprised by the news, the oncologist contacted the patient to inquire
about his decision, only to discover that this was the first time the
patient had heard of the matter. ``Please do not transfer it anywhere
else!'' the patient requested. ``I want to get it filled through the
dispensary. I did not ask for this. I love being able to get this right
away and with no hassles. I was on an oral chemo before and it was
filled by a specialty pharmacy and I always was getting it late, missed
a few days of medication sometimes and had numerous phone calls from
them. They never seemed to know what was going on with my
medication.''\139\ As evidenced by this true story account, patients
receiving their oral drugs from a community oncology practice have
access to those drugs within 24 hours of prescribing, and they can
begin treatment immediately. Patients receiving their oral cancer drugs
through a PBM, on the other hand, often have a much longer wait,
sometimes 14 days or more. In addition to the delays, it is clear the
oncology practices have access to patient records and can more closely
monitor patients which empowers them to provide the most coordinated
care.\140\
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\139\ See, The Real-Life Patient Impact of PBMs: Volume I, May 27,
2020, available at https://communityoncology.org/research-publications/
studies/the-real-life-patient-impact-of-pbms-volume-i/.
\140\ See, PBMs: Their Role, the Problems, and How Practices Can
Work With Them, May 27, 2020, available at https://www.ajmc.com/
journals/evidence-based-oncology/2017/october-2017/pbms-their-role-the-
problems-and-how-practices-can-work-with-them.
In the end, the PBMs' lack of transparency to the patient and the
general public usurps the patient's right of choice and circumvents the
prescriber's orders and independent professional judgment.
7.1.2 Harm to Plan Sponsors
The greatest harm to plan sponsors stemming from prescription trolling
and claims hijacking is increased potential for waste, particularly
compared to when the claim would otherwise be filled by the community
oncology practice. Many times, a community oncology practice can
identify certain medications that may be difficult to tolerate or
patients whose conditions may require multiple dosing refinements. In
these cases, in anticipation of such modifications, practices will
often dispense a 15-day supply rather than a 30- or 90-day supply. PBM
specialty mail order pharmacies can lack the expertise for such
forethought or do not have the experience with care management to know
when a smaller supply might be the wiser, more economical choice.\141\
---------------------------------------------------------------------------
\141\ See, PBMs: Their Role, the Problems, and How Practices Can
Work With Them, May 27, 2020, available at https://www.ajmc.com/
journals/evidence-based-oncology/2017/october-2017/pbms-their-role-the-
problems-and-how-practices-can-work-with-them.
Ultimately, mandatory diversion of patients to PBM mail order
pharmacies leads to increased waste of often-expensive and unwanted
medication, thereby increasing overall health care spending, at the
expense of Medicare and taxpayers.\142\ In a study funded by the
Community Pharmacy Foundation reviewing medications being returned for
disposal and destruction, it was found that prescriptions originating
through mail order were far more likely to have excessive amounts of
unused medication remaining (i.e., 80% or more of the prescribed
quantity) when compared to retail pharmacies.\143\ In the cancer space,
these issues of waste can be extremely costly. ln a particularly well-
documented instance, a battling advanced colorectal cancer was told
that his health plan would only cover his prescription for oral
oncolytics if he obtained them through the PBM's mail-order
pharmacy.\144\ After he waited nearly 2 weeks to receive his
prescription, when it finally came, it included incorrect dosing
instructions, and he was told by the PBM-owned pharmacy to send back
the medication (worth $20,000) so it could be destroyed.\145\ Even when
the medication was ordered again, it came with fewer pills than were
prescribed.\146\ While the PBM-owned or affiliated pharmacies continue
to make errors and cause patients to endure life-threatening delays,
the plan sponsors--like employers and Medicaid programs--are left
footing the bill for these wasted products to the tune of tens of
thousands of dollars in this one instance alone.
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\142\ See, National Community Pharmacists Association, Waste Not,
Want Not: Examples of Mail Order Pharmacy Waste, May 27, 2020,
available at http://www.ncpa.co/pdf/waste-not-want-not---examples-of-
mail-order-pharmacy-waste.pdf.
\143\ https://www.managedhealthcareexecutive.com/view/mail-order-
pharmacy-5-things-mcos-should-consider.
\144\ https://www.mountcarmelhealth.com/news/mail-order-pharmacy-
system-delays-meds-for-some-patients.
\145\ https://www.mountcarmelhealth.com/news/mail-order-pharmacy-
system-delays-meds-for-some-patients.
\146\ https://www.mountcarmelhealth.com/news/mail-order-pharmacy-
system-delays-meds-for-some-patients.
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7.1.3 Harm to Providers
In addition to circumventing the prescriber's orders and independent
professional judgment, the PBMs' tactics of prescription trolling
further serves to push the burden of performing the initial
administrative functions on to the community oncology practices, while
removing any attendant benefits, as the first fill is the most
expensive claim. The first fills of a prescription are typically a
pharmacy's most expensive claims due to several factors, including
coordination with prescriber, prior authorization efforts, researching
and liaising with patient assistance programs, engaging in patient
training and providing skilled nursing administration.\147\ And
further, at its core, through these claim rejections, the PBMs are once
again depriving providers of any ongoing and expected future business
relationships with patients who initially sought to fill prescriptions
with their provider.\148\
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\147\ See, Hot Topics in Specialty Pharmacy Law: PBM Prescription
Trolling, HUB Arrangements, DIR Fees Update, Opioid and Naloxone Laws,
and NADAC Pricing, May 26, 2020, available at https://
www.frierlevitt.com/wp-content/uploads/2017/06/Hot-Topics-in-SPRX-Law-
Final_PDF.pdf.
\148\ See, Hot Topics in Specialty Pharmacy Law: PBM Prescription
Trolling, HUB Arrangements, DIR Fees Update, Opioid and Naloxone Laws,
and NADAC Pricing, May 26, 2020, available at https://
www.frierlevitt.com/wp-content/uploads/2017/06/Hot-Topics-in-SPRX-Law-
Final_PDF.pdf.
Apart from just the lost revenue, at their core, these tactics create a
lot more work for already burdened community oncology practices and
make patient treatment much more difficult. In the course of the PBMs'
efforts jockeying for control of the prescription, staff at community
oncology practices spends hours on the phone with all the disconnected
and disjointed stakeholders, just trying to get the prescription filled
and in the patient's hands. This includes speaking with the PBM, then
the insurance company, then the PBM-owned or affiliated pharmacy, then
the PBM again--and this all assumes everything goes ``smoothly.'' It is
well-documented that these additional layers of unnecessary
administrative complexity burden the health care system, with health
care stakeholders spending about $496 billion on billing and insurance-
related costs each year.\149\ These additional administrative burdens
have been found to have a direct negative impact on patient care.\150\
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\149\ https://www.americanprogress.org/issues/healthcare/reports/
2019/04/08/468302/excess-administrative-costs-burden-u-s-health-care-
system/.
\150\ https://www.acpjournals.org/doi/10.7326/m16-2697.
Yet PBMs remained focused on maximizing profits. As the chart below
show, immense profit comes along with diverting prescriptions to PBM-
owned pharmacies. Within the Florida Medicaid program, the overwhelming
majority of ``profits'' earned from dispensing brand name drugs
(including cancer medications) was retained by just three PBM-owned or
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affiliated pharmacies.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
The combination of restricted networks, prescription trolling, and
the mandating of dispensation of specialty drugs at specific pharmacies
has been a boon to the specialty pharmacy arms of the nation's largest
insurers and PBMs, driving disproportionate profit to them vis-a-vis
their unaffiliated pharmacy peers.
7.2 What Does the Law Say?
In addition to federal and state Any Willing Provider and Freedom of
Patient Choice laws, which are certainly implicated by PBMs directing
patients to their wholly-owned or affiliated pharmacies and excluding
community oncology practices (see, section 6, supra), several other
federal and state laws bear on the tactic of prescription trolling.
First and foremost, this activity runs afoul of the Health Insurance
Portability and Accountability Act and the regulations promulgated
thereunder (HIPAA), which limit the disclosure of PHI by covered
entities, including pharmacies and PBMs,\151\ without patient
authorization.\152\ In the absence of a valid authorization,
disclosures of PHI may only be made for purposes of treatment, payment,
or health care operations of the covered entity.\153\ As such, a PBM's
access to and use of PHI to steer patients toward the PBM's wholly-
owned or affiliated pharmacy is a breach \154\ of HIPAA, and
compromises the privacy and security of patients' personal information.
HIPAA provides, in addition to substantial civil penalties, criminal
sanctions for the use of PHI in this way,\155\ which demonstrates the
significance of maintaining patient privacy.
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\151\ 45 CFR Sec. 160.102.
\152\ 45 CFR Sec. 164.508.
\153\ 45 CFR Sec. 164.506.
\154\ 45 CFR Sec. 164.402.
\155\ 42 U.S.C. Sec. 1320d-6.
In addition, these practices likely violate many states' Anti-Patient
Steering Laws which prohibit PBM or insurer-owned or affiliated
pharmacies from ``steering'' profitable prescriptions to their own
affiliated PBM and insurance pharmacies. For example, Louisiana
provides that a PBM shall not directly or indirectly engage in patient
steering to a pharmacy in which the PBM maintains an ownership interest
or control without making a written disclosure and receiving
acknowledgment from the patient; and the PBM is further prohibited from
retaliation or further attempts to influence the patient, or treat the
patient or the patient's claim any differently if the patient chooses
to use the alternate pharmacy.\156\ Likewise, New Jersey makes it
unlawful for a pharmacist to enter into an arrangement with a health
care practitioner who is licensed to issue prescriptions, or any
institution, facility, or entity that provides health care services,
for the purpose of directing or diverting patients to or from a
specified pharmacy or restraining in any way a patient's freedom of
choice to select a pharmacy.\157\ When the PBM engages in these
underhanded tactics, it is not only directly steering the patient to a
particular pharmacy without their knowledge or consent, but forcing the
community oncology practice to go along with the scheme, by consenting
to transfer the prescription.
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\156\ La. Stat. Ann. Sec. 40:2870(A)(5)(a).
\157\ N.J. Admin. Code Sec. 13:39-3.10.
Lastly, even beyond state laws, prescription trolling may impinge on
other federal requirements, including section 2 of the Sherman Act
(i.e., attempted monopolization using their role and leverage as PBM
gatekeeper to divert business to the PBM-owned or affiliated pharmacy),
and the Employee Retirement Income Security Act of 1974 (ERISA) and its
requirements that fiduciaries discharge their duties with respect to
the plan solely in the interest of the participants and beneficiaries
(misappropriate PHI for pecuniary gain certainly could arise to the
breach of a fiduciary duty for PBMs).\158\
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\158\ 29 U.S.C. Sec. 1104(a)(1).
The overarching legal principles are potentially tempered somewhat by
recent case law involving PBM appropriation of claims data. In Trone
Health Services, Inc. v. Express Scripts Holding Co., No. 4:18-CV-467
RLW, 2019 WL 1207866, (E.D. Mo. March 14, 2019), a retail pharmacy
brought claims against Express Scripts, alleging Unfair Competition,
breaches of contract, breaches of the implied covenant of good faith
and fair dealing, interference with economic advantage, violation of
uniform trade secrets act and fraud for the practice of ``slamming,''
that is, collecting claims information received by the PBM at the
point-of-sale from retail pharmacies submitting claims for their
patients, and providing that same data to Express Scripts' wholly-owned
mail order pharmacy for the purpose of soliciting the same patients to
receive their prescriptions via mail order. The core of all the claims
was Express Scripts' conduct of collecting and using prescription data
to boost its mail-order operations. Parsing the ``black letter''
language of the one-sided contract of adhesion, the Judge, however,
held that the conduct was not prohibited and, in fact, was expressly
allowed under the terms of the agreement with the pharmacies. While the
Eighth Circuit revised the standard slightly as it relates to the
pharmacy provider's rights under HIPAA, the Court of Appeals ultimately
upheld the lower court's decision, serving as a reminder of the
unbridled power that the PBMs believe themselves to hold.\159\
---------------------------------------------------------------------------
\159\ Trone Health Services, Inc. v. Express Scripts Holding Co.,
No. 19-1774 (8th Cir. 2020).
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7.3 What Can Be Done?
Prescription trolling and patient slamming is perhaps one of the most
deceitful of the PBM tactics and requires a response at many levels to
end it once and for all:
Legislative
Congress should enact federal legislation which
would protect patient choice of pharmacy and prohibit PBMs from
requiring patients to use the mail order and specialty pharmacies they
own, creating a conflict of interest, or exploiting private patient
data for those purposes.\160\
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\160\ See, Generic Drug Pricing Transparency in Federal Health
Programs, May 27, 2020 (available at https://scpa.memberclicks.net/
assets/Lauren/hr%201316%20generic%20drug%20pricing
%20transparencey%20in%20federal%20health%20programs.pdf).
State lawmakers should enact anti-steering laws
like Louisiana's or Georgia's, which prohibit PBMs from directly or
indirectly steering patients to a pharmacy in which the PBM maintains
an ownership interest or control.\161\
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\161\ La. Stat. Ann. Sec. 40:2870(A)(5)(a); Ga. Code Ann., Sec. 26-
4-119.
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Regulatory
The Office of Civil Rights (OCR) should pursue
complaints against PBMs and PBM-owned pharmacies for misappropriation
of PHI for pecuniary gain and seek fines as well as injunctive relief.
State Boards of Pharmacy should pursue complaints
against PBMs and PBM-owned pharmacies for violations of Pharmacy
Practice Acts, including anti-patient steering laws.
State Departments of Insurance should pursue
complaints against PBMs and health insurers for violations of Any
Willing Provider laws, stemming from efforts to deny patients the right
to receive care at the pharmacy provider of their choice.
Plan Sponsor Action
Plan sponsors should negotiate PBM contract terms
to require adherence to state laws and CMS guidance.
Plan sponsors should demand that protections be
given for physician-dispensed oncology medications.
8 Low-Ball Reimbursement
Low-ball reimbursement--when PBMs reimburse providers less than the
cost of the drug--is yet another tactic taken by PBMs to effectively
exclude community oncology practices, in order to retain and ensure a
higher market share for the specialty drug market for their fully owned
specialty pharmacies.\162\ Also known as ``below water'' or
``underwater'' reimbursement, PBMs intentionally lowball the
reimbursement rates offered in one-sided, take-it-or-leave-it
agreements with providers. No negotiation is offered. The ultimate goal
of low-ball reimbursement is to allow the PBM to have it both ways:
nominally ``comply'' with Any Willing Provider laws by ``offering''
open participation in the network, but in reality, effectively
excluding pharmacy providers by pushing them to reject these
unsustainable reimbursement rates, thereby diverting more patients to
their wholly-owned or affiliated specialty pharmacies. While guised as
a cost saving measure, PBMs actually profit off the low-ball
reimbursements. As complex, multifaceted health care entities, PBMs are
able to recoup any losses that might be incurred at the dispensing
level by charging plan sponsors more money through spread pricing (see,
section 4, supra) or receiving rebates or other ``fees'' from
manufacturers at the PBM level (see, section 3, supra).
---------------------------------------------------------------------------
\162\ See, CVS Caremark Will No Longer Be Accepted at Walmart
Pharmacies Starting in May, May 27, 2020, available at https://
www.5newsonline.com/article/news/local/outreach/back-to-school/cvs-
caremark-insurance-will-no-longer-be-accepted-at-walmart-pharmacies-
starting-in-may/527-ba777e55-4f39-4edc-a976-79cb990e8199.
This recently played out in the wake of the collaboration agreement
between Prime Therapeutics and Express Scripts, causing low-ball, below
water reimbursement for community oncology practices. On April 1, 2020,
Prime Therapeutics began applying Express Scripts' lower reimbursement
rates and pharmacies have been receiving abhorrently low, even
negative, reimbursements. Claims specifically for lifesaving
medications and limited distribution drugs are rendered below water.
Notably, in June 2020, Blue Cross Blue Shield of Alabama (recognizing
that these rates may not be sustainable) began increasing rates to
independent pharmacies in Alabama for Blue Cross Blue Shield Alabama
plans \163\ (however, this plan was the exception to the rule). Many
community oncology practices continue to face unsustainable, below cost
reimbursement, which is only exacerbated when taking into account
direct costs associated with pharmacy operations (such as salaries and
benefits of pharmacy staff, accreditation fees, shipping, dispensing
fees, supplies and equipment, license fee, pharmacy dispensing software
fees and adherence and symptom management software fee, postage, etc.),
and indirect overhead (including rent, utilities and telephone
charges).
---------------------------------------------------------------------------
\163\ See, Blue Cross increasing reimbursements for independent
drug stores, June 4, 2020, available at https://www.brc.com/2020/06/04/
blue-cross-increasing-reimbursements-independent-drug-stores/.
With the impact that this has across the industry, a question is often
asked: how are PBMs able to do this? The answer is simple: their
excessive market power enables them to unilaterally dictate
reimbursement rates where pharmacy providers have essentially no choice
but to accept them. As noted above (see, section 3, supra), over 80% of
the covered lives in the United States are controlled by just five
PBMs.\164\ In some markets, a single PBM could cover over 85% of the
patients seen by a community oncology practice. As a result of this
concentration, and the inability of patients to freely select their PBM
(see, section 3, supra), being in network with each PBM network is
critical.
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\164\ https://www.latimes.com/business/hiltzik/la-fi-hiltzik-pbm-
drugs-20170611-story.html.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
8.1 Who Is Impacted?
Ultimately, the substantial and unreasonable reduction in
reimbursements creates a provider ``desert,'' making it impossible for
them to stay in business because market share is shifted to PBMs. This
turns patients into ``hot potatoes'' who are passed between different
providers because no provider wants to fill medications at losses of
hundreds of dollars, with scant guarantee of whether any of these
downward prices are actually being passed on to plan sponsors.\165\ As
vertically integrated models enable PBMs to dominate the pharmaceutical
supply chain, community oncology practices are often forced to accept
reimbursement below cost because patients have no other choice but to
participate in a plan that chooses to use one of these PBMs to manage
its pharmacy benefit.\166\ Ultimately, low-ball reimbursement harms the
provider of choice for the patient, which in turns harms the well-being
of patients.\167\
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\165\ Adam Fein, Behind Diplomat Pharmacy's Plunge: A Primer on DIR
Fees in Medicare Part D, Drug Channels (November 8, 2016), available at
http://www.drugchannels.net/2016/11/behind-diplomat-pharmacys-plunge-
primer.html (last visited on May 29, 2020); Eugene A. DePasquale,
Bringing Transparency and Accountability to Drug Pricing (December 11,
2018), at 6, 10-16.
\166\ See, Rutledge to Investigate Reimbursement Rates from CVS
Caremark, February 9, 2018, available at https://www.pharmacist.com/
article/rutledge-investigate-reimbursement-rates-cvs-caremark.
\167\ See, National Conference of State Legislatures, Health
Insurers and Access to Health Care Providers: Any Willing Providers,
November 5, 2014, available at http://www.ncsl.org/research/health/any-
willing-or-authorized-providers.aspx.
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8.1.1 Harm to Patients
As a result of low-ball reimbursements, patients are often forced to
receive care only from pharmacy providers owned by or affiliated with
PBMs, replete with conflicts of interest between patient care and costs
of service. This has had disastrous consequences.
For one, it is well-established that provider participation in pharmacy
networks will be decreased as a result of low-ball reimbursement,
leaving patients with fewer choices for care.\168\ This, in turn, will
lead to worse overall care (see, section 6, supra).
---------------------------------------------------------------------------
\168\ See, Statement for the Record: The National Community
Pharmacists Association, United States H. Subcomm. on Regulatory
Reform, Commercial and Antitrust Law Hearing: Competition in the
Pharmaceutical Supply Chain: The Proposed Merger of CVS Health and
Aetna (February 27, 2018), available at http://www.ncpa.co/pdf/
judiciary-statement-on-cvs-aetna-merger.pdf.
Worse yet, this has the possibility of turning patients into ``hot
potatoes,'' where even contracted specialty pharmacies (including ones
owned by or affiliated with PBMs) refuse to fill a patient's
prescription and risk losing money. Sadly, this was the experience of
many patients in the immediate wake of the Express Scripts-Prime
Therapeutics collaboration. In one particular example involving a Blue
Cross Blue Shield of Alabama beneficiary (whose benefits processed
under Prime Therapeutics), a provider attempted to fill a prescription
for one of its patients but was unable to because of the unsustainable
loss the below water reimbursement would have. Consequently, the
provider had to attempt to transfer the patient's prescription to at
least four different specialty pharmacies (including several PBM-owned
or affiliated pharmacies), in order to finally find a pharmacy that was
able to fill the medication (i.e., had access to the limited
distribution drug), was contracted with the payer to be reimbursed for
the prescription (i.e., held the Blue Cross Blue Shield Alabama
Oncology Specialty Network contract), and was willing to accept the
reimbursement (i.e., take a substantial loss on the prescription).
After trying multiple pharmacies in four states, the patient was
finally able to get their medication from a specialty pharmacy located
several states away. The whole process took almost two weeks to fill
the medication for the patient, causing the patient to run out of her
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life-saving medication.
These low-ball reimbursement practices have not been limited to
commercial plans. As yet another example of patients being ``hot
potatoes'' with no regard for their well-being, within the TRICARE
program, which was established by statute to provide health benefits
coverage to active duty and retired military service members and their
dependents, community oncology practices have reported per-fill losses
of $500.00 on every prescription for Imbruvica (an oral oncolytic used
to treat certain lymphomas and leukemias), $525.00 on every
prescription for Jafaki (a common oral oncolytic used to treat certain
bone marrow disorders), and $740.00 on every prescription for Alecensa
(an oral oncolytic used to treat lung cancer). Community oncology
practices have reported that over eighty percent of their TRICARE
claims reimburse at or below cost, while those that reimburse above
cost generally have a margin of less than one percent. As a result,
this has caused veterans to become ``hot potatoes'' passed between
pharmacy providers (even by PBM-owned or affiliated pharmacies), who
are unwilling to fill the medication at a loss.
8.1.2 Harm to Plan Sponsors
As noted, any so-called benefits or savings are nebulous at best. In
reality, vertically-integrated PBMs are able to take a ``loss'' at the
pharmacy level, and make up for it by overcharging the plan sponsor.
The anticompetitive nature of low-ball reimbursements further allows
PBMs to receive ``off invoice'' discounts and manufacturer payments
that help offset the low and under water reimbursement rates at the
pharmacy level. For example, PBM-owned or affiliated pharmacies can be
willing to nominally ``accept'' the same reimbursement terms applicable
to other pharmacy providers, but they are able to recoup those
``losses'' by either obtaining discounts from the manufacturer in drug
purchases (which are not passed through to the plan sponsor), or simply
utilizing spread pricing which is where the PBM charges the plan
sponsor an amount much higher than what is paid to the provider and
pocketing the profits, or the ``spread,'' for itself (see, Section 10,
infra). In a recent examples, patients and providers have studied
Explanations of Benefits (EOBs) and identified instances where a PBM or
health insurance company issued, in essence, two separate EOBs for the
same claim: one to the provider and one to the patient. The EOBs
transmitted to the provider showed the actual amounts being paid, while
the one to the patient made it appear as though a much larger amount
was being paid by the plan sponsor to the provider. In reality, PBM was
simply keeping the difference. Thus, PBMs are using the plan sponsor's
money to profit from driving independent pharmacy providers out of the
marketplace. Ultimately, the fact that plan sponsors will not
experience increased savings will lead to fewer pharmacy providers in
the network, making it more difficult for plan sponsors to get fair
terms in the future.\169\
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\169\ See, The Top 15 Specialty Pharmacies of 2018: PBMs Keep
Winning, May 27, 2020, available at https://www.drugchannels.net/2019/
04/the-top-15-specialty-pharmacies-of-2018.html.
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8.1.3 Harm to Providers
The harm of low-ball reimbursement to community oncology practices is
self-evident. Each day, more and more community pharmacy providers go
out of business due to negative margins as a result of reimbursements
below the acquisition and dispensing costs of the prescriptions they
provide to patients.\170\ Providers often times are not able to pick
and choose which rates they will accept and which ones they will not.
As a result, if providers challenge low-ball reimbursement at the
initial contracting stage, PBMs will likely exclude the provider from
the network. For community oncology practices, that means they would be
unable to dispense oral chemotherapy to patients.\171\ Likewise, when
providers have raised concerns about unsustainable reimbursement rates
after agreeing to participate, they risk being immediately and
summarily terminated without cause.\172\
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\170\ See, Linette Lopez, Business Insider, What CVS is doing to
mom-and-pop pharmacies in the US will make your blood boil, May 27,
2020, online Internet at https://www.business
insider.com/cvs-squeezing-us-mom-and-pop-pharmacies-out-of-business-
2018-3. See also, Michael Stahl, Brooklyn Daily Eagle, The price of
filling a prescription: Independent pharmacies fight for survival, May
27, 2020 at 1:30pm, available at https://brooklyneagle.com/articles/
2019/05/20/the-price-of-filling-a-prescription-independent-pharmacies-
fight-for-survival/.
\171\ See, Walmart Dispute with CVS Caremark Pharmacy Networks
Highlights Low Reimbursement, May 27, 2020, available at https://
www.mpha.org/news/434664/Walmart-Dispute-with-CVS-Caremark-Pharmacy-
Networks-Highlights-Low-Reimbursement.htm; Ryan White Clinics for 340B
Access, CVS Caremark to Delay Reimbursement Cuts until April 1st, May
27, 2020, available at https://www.rwc340b.org/cvs-caremark-to-delay-
reimbursement-cuts-until-april-1/.
\172\ Wholesale Alliance, LLC v. Express Scripts, Inc., 366
F.Supp.3d 1069 (2019).
For practices that choose to stay and accept the low-ball reimbursement
rates, they experience a reduction in the ability to provide enhanced
services and coordinate patient care, as a direct result of the
underwater reimbursements.\173\ And when combined with the heightened
credentialing standards necessary to even seek admission to these
networks, providers face a veritable Catch-22 of having to choose
between undertaking the high costs and extra workload of becoming
accredited in order to participate in the network, only to then become
unable to afford to perform the required services because of low
reimbursement once admitted.\174\
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\173\ See, Jason Hoffman, PharmD, RPh, In-House Specialty
Pharmacies Improve Quality of Care, available at https://
www.cancertherapyadvisor.com/home/cancer-topics/supportive-care/in-
house-specialty-pharmacies-improve-quality-of-care/ (last visited May
30, 2020).
\174\ See, https://www.pharmacytimes.com/publications/Directions-
in-Pharmacy/2019/Septem
ber2019/lessons-learned-starting-a-healthsystem-oncologyfocused-
specialty-pharmacy.
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8.2 What Does the Law Say?
As in the case of restrictive networks and unreasonable barriers of
entry (see, section 6, supra), federal and state Any Willing Provider
laws can offer protection against low-ball reimbursement to the extent
they require PBMs to offer participation on ``reasonable'' and
``relevant'' terms and conditions. In this regard, as it relates to the
federal Any Willing Provider law, CMS expressly recognized that
unreasonably low reimbursement terms, which would include below water
reimbursements, violate the federal Any Willing Provider law.\175\ This
serves as a strong rebuke to low-ball reimbursement in the Medicare
Part D space.
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\175\ See, Medicare Prescription Drug Benefit Manual, chapter 6,
section 50.3; 42 CFR Sec. 423.505(b)(18).
Recognizing this as a growing problem in the private commercial
insurance sector, many states have passed ``Fair Price Laws.'' For
example, the recently enacted New Jersey law, codified at N.J.S.A.
17b:27f-1 to -10, provide PBM pricing transparency and strengthen the
rights of pharmacies to contest below-cost reimbursement. Likewise,
Arkansas law prohibits PBMs from setting the price for certain generic
medications below available pharmacy acquisition costs.\176\
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\176\ Ark. Code Ann. Sec. 17-92-507(c)(4)(C)(iii).
Several unfair trade and unfair competition laws may also be implicated
by a PBM's conduct of setting below water reimbursement to increase
market share for its
wholly-owned or affiliated specialty pharmacy. For example, under
California's Unfair Competition Law (UCL), section 1702 of the
California Business and Professions Code, known as the ``Unfair
Competition Law'' or ``UCL,'' ``any person who engages, has engaged, or
proposes to engage in unfair competition may be enjoined in any court
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of competent jurisdiction.''
Finally, to the extent such PBM's low-ball reimbursement is deemed to
be seeking monopolization, Section II of the Sherman Antitrust Act may
be implicated as well.\177\ The Sherman Act provides that it is
unlawful to ``monopolize, or attempt to monopolize . . . any part of
the trade or commerce among the several states, or with foreign
nations.''\178\ And further, in the context of state-level UCL claims,
conduct may also be deemed to be ``unfair'' under the UCL if it is
``conduct that threatens an incipient violation of an antitrust law, or
violates the policy or spirit of one of those laws because its effects
are comparable to or the same as a violation of the law, or otherwise
significantly threatens or harms competition.''\179\
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\177\ 15 U.S.C. Sec. 2.
\178\ In re Adderall XR Antitrust Litig., 754 F.3d 128, 133 (2nd
Cir. 2014) (quoting 15 U.S.C. Sec. 2) (alteration in original).
\179\ Cel-Tech Communications, Inc. v. Los Angeles Cellular
Telephone Co., 20 Cal.4th 163, 188 (Cal. 1999). See also, Blank v.
Kirwan, 39 Cal.3d 311, 320 (Cal. 1985) (noting that California law
looks to the Sherman Act for guidance); Otter Tail Power Co. v. United
States, 410 U.S. 366, 377 (1973) (stating that the Sherman Act
prohibits companies from leveraging monopoly power to ``foreclose
competition or gain a competitive advantage, or to destroy a
competitor.'')
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8.3 What Can Be Done?
Low-ball reimbursement has the potential to fundamentally and
irreparably impact our health care system for years to come, and
requires action at many levels:
Legislative
Congress should enact federal legislation
extending Medicare's Any Willing Provider requirements to the TRICARE
program, requiring that terms and conditions be reasonable and
relevant, and allow for private enforcement of these requirements.
States should enact Any Willing Provider Laws
(where none currently exist) or amend existing Any Willing Provider
laws to require that health insurance companies and PBMs allow all
pharmacy providers (including community oncology practices) the right
to participate in pharmacy networks based on ``reasonable and
relevant'' terms and conditions, applicable to other similarly situated
participating providers.
States should enact laws, like New Jersey's Fair
Price law,\180\ requiring PBM pricing transparency and prohibiting
below-cost reimbursement to pharmacies.
---------------------------------------------------------------------------
\180\ N.J.S.A. Sec. 17b:27f-1 to -10.
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Regulatory
CMS should pursue complaints against Part D plan
sponsors and contracted PBMs for unreasonably low reimbursement in
violation of the federal Any Willing Provider Law and the Medicare Part
D Drug Benefit Manual, seeking fines, Warning Letters, and injunctive
relief.
CMS should issue regulation providing ``guard
rails'' on what constitutes reasonable and relevant terms and
conditions, and clarify that whether given terms are ``reasonable'' or
``relevant'' can be adjudicated in a private contractual dispute
between Part D plan sponsors/PBMs and pharmacies.
State Departments of Insurance should pursue
complaints against PBMs and health insurers for violations of Any
Willing Provider laws, stemming from efforts to constructively deny
providers the right to participate in pharmacy networks based on
unreasonably low, below cost reimbursement rates.
9 Mandatory White Bagging for Cancer Medications
A growing--and extremely concerning--trend that has emerged is the
concept of mandatory ``white bagging'' of oncology medications that are
administered in-office by community oncology practices.
``White bagging'' occurs where a physician writes and orders a
particular medication for an in-office procedure, and rather than being
sourced from the physician's medication inventory, a separate specialty
pharmacy fills a prescription, and delivers the drug directly to the
prescriber or clinic who retains the medication until the patient
arrives at their office for administration.
Likewise, ``brown bagging,'' which is less common, involves a similar
concept, except that instead of causing the prescription to be
delivered directly to the community oncology practice, the specialty
pharmacy dispenses the medication to the patient him or herself, who
then brings the medications into their physicians' offices for
administration in those settings.
In seeming unison, several health insurance companies (who
coincidentally have integrated PBMs and specialty pharmacies) have
begun to mandate that certain intravenous (IV) medications that were
previously purchased by practices and administered in-office to
patients, are now requiring that they be filled by the PBM-owned or
affiliated specialty pharmacy through white or brown bagging. These are
medications that historically have been administered in-office by
community oncology practices and billed to patients' medical benefit
(as opposed to their pharmacy benefit). Because these are IV
medications, they cannot be self-administered by the patient, and still
need to be infused by a health care provider. In essence, these payers
(which include Anthem Blue Cross of California, Blue Cross Blue Shield
of Tennessee, and Cigna) have mandated that cancer patients receive
their chemotherapy through white or brown bagging, to be supplied by
the payers' affiliated specialty pharmacy.
Each of these scenarios present immense concerns for patients, plan
sponsors and providers alike. Community oncology practices note that
white or brown bagging disrupts the chain of control of expensive
cancer drugs; risking improper storage and handling of toxic
substances; can unnecessarily cause delays in the onset of treatment;
create waste when dosages are changed to, for example, manage adverse
events; and places an administrative and liability burden on both
patients with cancer and their oncologists.\181\
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\181\ https://communityoncology.org/coa-white-brown-bagging-
position-statement/.
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9.1 Who Is Impacted?
9.1.1 Harm to Patients
Patients stand to suffer the greatest as a result of payer and PBM
mandatory white or brown bagging policies. Unlike instances where the
community oncology practice sources the medication from its own
inventory, the physician has no control over the sourcing, storage,
preparation, or handling of the specialty oncology medications in white
or brown bagging situations, and as a result, patients are exposed to
potentially serious harm. The community oncology practice cannot
guarantee the integrity and legitimacy of the products being provided
by the PBM-owned or affiliated pharmacy, especially as it relates to
the shipment and delivery from the specialty pharmacy to the practice.
``The difficulties that white bagging policies place on cancer patients
are a prime example of the potential harm.''\182\
---------------------------------------------------------------------------
\182\ https://www.aha.org/white-papers/2021-03-08-health-insurer-
specialty-pharmacy-policies-threaten-patient-quality-care.
When medications do not follow the typical chain of custody, the
integrity and safety of the medication cannot be guaranteed. When a
community oncology practice sources a medication from its wholesaler to
be infused in a patient, the community oncology provider is given a
Transaction Report or ``T3'' that details every single transaction
involving that medication, going all the way up to the manufacturer
that made it. This ensures proper pedigree at each stage along the way.
When the practice receives the drug as a white bag from a PBM-owned
specialty pharmacy, it is not provided with that information. Worse
yet, it has no control or insight into how the specialty pharmacy is
handling that product, or how it ensured stability and integrity during
the delivery process. This provides risks for patients receiving
medications of unknown integrity, where chain of custody cannot be
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guaranteed.
Patients also stand to be impacted by excessive delays and unnecessary
burdens from white bagging when forced to receive their cancer and
related treatments from PBM-owned or affiliated pharmacies (as compared
to when the community oncology practice sources products from its own
inventory for in-office administration). Delays in receiving the
medication past an anticipated date are commonly caused by a variety of
factors, including failed delivery, incorrect medications being
delivered, medications shipped to the wrong address, prior
authorization issues, out of stock medications, etc. When medications
are sourced from the community oncology practice, issues such as drug
shortages can be identified right away, and adjustments made. Requiring
that the prescription be sent to and filled by a PBM-owned or
affiliated specialty pharmacy can cause confusion and the potential for
missed treatment doses.
Finally, patients may be subject to higher out-of-pocket liability when
prescriptions are ``white bagged'' for in-office administration. In
addition to having to pay the copayment or coinsurance for the
administration procedure, patients will also be responsible for a
separate copayment from the pharmacy associated with the dispensed drug
product. Required use of the PBM-owned or affiliated specialty pharmacy
means that ``reimbursement comes not from a patient's medical benefit
but from the pharmacy benefit, and that can mean higher out-of-pocket
costs for patients,''\183\ as pharmacy benefit copays are typically
higher than copays under the medical benefit. Moreover, because PBM-
owned or affiliated pharmacies will require patients to have paid for
drugs before they are shipped, this can interrupt critical treatment if
patients cannot afford to pay for the therapies (a problem that is only
exacerbated if the PBM-owned or affiliated pharmacy does not assist the
patient in qualifying for payment assistance programs to help meet
their cost-sharing obligations, which few do).\184\
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\183\ https://www.ajmc.com/view/white-brown-bagging-of-therapies-
creates-extra-steps-for-oncology-practices.
\184\ https://www.ajmc.com/view/white-brown-bagging-of-therapies-
creates-extra-steps-for-oncology-practices.
Alternatively, even when everything goes ``smoothly,'' waste can result
if extenuating life circumstances cause a treatment plan to be adjusted
or an appointment to be rescheduled and the pre-provided ``white
bagged'' medication will not still be good by the time the appointment
is rescheduled. This would not occur if the community oncology practice
were able to simply source the medication from its own inventory at the
time of the patient's visit.
9.1.2 Harm to Plan Sponsors
The greatest harm to health care payers stemming from mandatory white
bagging is in the form of excess drug waste. When a physician utilizes
drugs the community oncology practice has on hand in its inventory, the
physician is able to quickly and efficiently address patient care real
time and avoid waste. Oncology regimens are complex and often require
dosing adjustments at the time of administration or therapy
cancellation depending on the patient's laboratory results, scans, and
other clinical considerations, such as shifts in the patient's
weight.\185\ When utilizing medications from the onsite inventory,
physicians are able to make these changes at the time of administration
without any delays or risk of waste (they can simply select a different
medication or dose off the shelf). However, the same cannot be said if
the medications are supplied by PBM-owned or affiliated specialty
pharmacies.
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\185\ Schwartz RN et al. NCCN Task Force Report: Specialty
Pharmacy. J NCCN Network.
2010;8(Supp 4):S1-S12.
Under white bagging mandates, the physician is required to write a
``prescription'' and send it to the PBM's wholly-owned or affiliated
specialty pharmacy to be filled. Circumstances requiring dosing
adjustments or therapy cancellation could occur in the time between
when an ``order'' is written by the physician, and when the medication
is received from a specialty pharmacy. Moreover, once the prescription
has a patient-specific label, it cannot be returned to stock, unlike
products kept within the practice's inventory for in-office
administration. As a result, the entire medication would essentially go
to waste, costing the plan sponsor and patient potentially thousands of
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dollars.
Moreover, plan sponsors face a great risk of being double billed when
PBM-owned or affiliated pharmacies bill separately for the drug
product, while community oncology practices bill for the procedures and
supplies associated with in-office administration. When a community
oncology practice submits a claim to an insurer for in-office
administration of a drug to its patient, it typically submits a CPT
Code for the professional services associated with the administration
(e.g., CPT 96413), as well as a J-Code for the medication (e.g., J9271
in the case of Keytruda). CPT Code 96413 corresponds with
``Chemotherapy administration, intravenous infusion technique, up to
one hour, single or initial substance.'' Thus, when submitting claims
in this manner, the physician receives his or her fee for the
professional services associated with mixing the drug and administering
it to the patient but is also reimbursed for the costs of the
medication, the diluents, the supplies, the tubing, as well as the
associated overhead.
At the same time, when the PBM-owned or affiliated specialty pharmacy
uses an NDC number to bill the patient's PBM, the pharmacy may also be
billing (and receiving reimbursement) for overlapping products/services
(which it is not actually providing or performing). Many PBM contracts
prohibit pharmacies from dispensing medications in their unfinished
form, and prohibit billing medications that require reconstitution
(e.g., injectable medications) as compounds (suggesting that
reimbursement for the diluent and other supplies necessary for
administration are included within the total payment).
In addition, many PBMs pay a ``dispensing fee'' on all claims in
addition to the reimbursement for the drug, which is intended to cover
costs that are incurred at the point of sale in excess of the
ingredient cost of the drug, including the ``measurement or mixing of
the drug,'' ``filling the container,'' physically providing the
completed prescription to the patient, ``delivery,'' ``special
packaging,'' ``salaries of [workers],'' ``costs associated with
maintaining the [ ] facility and acquiring and maintaining technology
and equipment necessary to operate the [ ] facility.''\186\ While the
wholly-owned or affiliated specialty pharmacy that is white bagging
will be selecting the product, processing the claim, and causing
delivery to the practice, many of these items for which the wholly-
owned or affiliated specialty pharmacy will be receiving reimbursement
are actually tasks that will ultimately be completed by the community
oncology practice. The community oncology practice will continue to be
responsible for mixing the drug, procuring the diluent and other
necessary supplies, and physically administering the medication to the
patient. Thus, this has the risk of the wholly-owned or affiliated
specialty pharmacy being paid by the patient's PBM for the same
services that are also being reimbursed by the plan sponsor to the
community oncology practice (and which in fact are being performed and
provided by the practice).
---------------------------------------------------------------------------
\186\ 42 CFR Sec. 100.
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9.1.3 Harm to Providers
Finally, the greatest harm to community oncology practices stemming
from mandated white bagging are increased, unfunded administrative
burdens, along with increased legal liability which the providers have
no choice but to accept. Community oncology practices are faced with
increased administrative burdens as they are expected to undertake all
work associated with preparing, diluting, and administering the drug,
without being able to seek reimbursement for the medication
itself.\187\ When medications are white bagged, they typically come in
the original manufacturer vials. Apart from the added burdens of
storing the products and maintaining them in a separate inventory
(since they are patient-specific), in order to be administered to the
patient, the products must also be mixed by the practice's staff and
placed into a bag to be infused intravenously. In many instances, IV
chemotherapy products are combined with other drug products, as
physicians often order a ``cocktail'' of different drugs and therapies
that must be taken in concert. Community oncology practices have to
perform these services, despite the fact that they are not being
reimbursed for the drug itself. This burden is only exacerbated when
the physician makes changes or amendments to the treatment, often after
the prescription has been written, but closer in time to when the
patient is receiving care. Because the prescription has already been
filled and provided by the specialty pharmacy, the practice's staff
must engage in extra work to remedy the problem.
---------------------------------------------------------------------------
\187\ See, Drug Table at Transmittal 10, Chapter 17 of the attached
Medicare Claims Processing Manual--Payment Rules for Drugs and
Biologicals; Commun Oncol 2005; 2:173-181.
In addition, and more concerningly, community oncology practices face
additional liability for their part in prescribing and administering
drugs received from outside pharmacies. In October 2012, 64 people died
and over 700 people became sick as a result of contaminated compounded
steroid injections supplied by New England Compounding Center (NECC).
The medications had been ordered by physicians for in-office
administration to their patients in clinics and surgery centers.
However, due to unsanitary conditions at the pharmacy, several batches
of the medications had become tainted with fungus, causing many
patients to develop fungal meningitis and become seriously ill or die.
In the wake of this, dozens of lawsuits (including multiple class
actions) were filed against not only the pharmacy, but also the
clinics, surgery centers and underlying physicians. Under current white
bagging mandates, community oncology practices are forced to accept
this additional risk and exposure, as ``the primary onus for patient
safety remains with providers despite [PBMs and] health plans stripping
those providers of their control over the quality and handling of drug
therapies.''\188\ With white bagging, practices no longer control the
acquisition of these medications, and as drug therapies become more
complex, thereby requiring additional resources and focus in storing,
mixing, compounding and administering the products, they are bearing an
inappropriate share of the risks.\189\
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\188\ https://www.aha.org/white-papers/2021-03-08-health-insurer-
specialty-pharmacy-policies-threaten-patient-quality-care.
\189\ https://www.aha.org/white-papers/2021-03-08-health-insurer-
specialty-pharmacy-policies-threaten-patient-quality-care.
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9.2 What Does the Law Say?
In April 2018, the National Association of Boards of Pharmacy issued a
report entitled ``White and Brown Bagging: Emerging Practices, Emerging
Regulation.''\190\ The report concluded that while ``the terms and
conditions of this business model are most often set by third-party
payers,'' issues regarding authenticity and integrity of the drug and
adverse patient outcomes are left to the state boards of pharmacy to
grapple with in an effort to protect the public. As such, some state
boards (e.g., Massachusetts)\191\ have specifically prohibited these
practices, under various provisions such as ``re-dispensing of
medication'' or handling hazardous drugs.
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\190\ National Association of Boards of Pharmacy. White and Brown
Bagging Emerging Practices, Emerging Regulation. April 2018.
\191\ 247 CMR 9.01(4)(5)(6). ``Unless otherwise permitted by law, a
licensee shall not re-dispense any medication which has been previously
dispensed.'' ``Unless otherwise permitted by law or regulation, a
licensee may not accept, store, dispense, package, label or compound
any medication that was previously processed or dispensed by another
pharmacy.''
On the state level, several state legislatures have either prohibited
or allowed white and brown bagging practices. For example, Texas,
Minnesota, and New York (Medicaid) have prohibited one or both of these
practices. Other states like California, have laws that require health
plans to demonstrate that their medical decisions are ``unhindered by
---------------------------------------------------------------------------
fiscal and administrative management.''
At the same time, many states' laws may bear directly on arrangements
mandating that community oncology practices write prescriptions and
send them to PBM-
designated specialty pharmacies. For example, many states have ``Anti-
Patient Steering'' laws, which generally prohibit health care providers
from agreeing to prescriptions to a particular pharmacy. As an example,
New Jersey law provides that ``[i]t shall be unlawful for a pharmacist
to enter into an arrangement with a health care practitioner, or any
institution, facility or entity that provides health care services, for
the purposes of directing or diverting patients to or from a specified
pharmacy or restraining in any way a patient's freedom of choice to
select a pharmacy.''\192\ As another example, Georgia law likewise
specifically prohibits pharmacies from presenting (and prohibits
pharmacy benefits managers from paying) claims for reimbursement that
were received pursuant to a referral from an affiliated PBM.\193\
---------------------------------------------------------------------------
\192\ N.J.A.C. Sec. 13:39-3.10.
\193\ Ga. Code Ann. Sec. 26-4-119.
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9.3 What Can Be Done?
Mandatory white bagging harms both patients and plans sponsors, while
increasing liability to community oncology practices, and requires a
response at many levels:
Legislative
States should enact laws prohibiting payer-
mandated white bagging for community oncology practices and allow
patients to receive their in-office oncology medications from their
treating oncologist.
Regulatory
State Boards of Pharmacy should adopt regulations
requiring pharmacies that fill prescriptions for white bagging obtain
written consent from the physician's office prior to dispensing the
medication, and have policies and procedures in place that (i) track
and assure security and accuracy of delivery for dispensed
prescriptions until they are administered to the patient; (ii) provide
for counseling to patients who are administered white bagged products;
(iii) address the return of any prescription medications not delivered
or administered to the patient; (iv) assure the confidentiality of
patient information; (v) obtain consent from the patient for using such
a delivery process through white bagging; and (vi) provide lowest
number of vials wherever possible, so as to avoid excess closed-system-
transfer requirements and potential USP <800> exposures.
Practical Considerations
Pharmacies providing white bagged medication
should be required to assume all liability associated with the
applicable medications/prescriptions and defend/indemnify health care
providers who accept white bagged medications.
Plan Sponsor Action
Plan sponsors should demand that health plans
allow patients to continue to receive administered IV chemotherapy
medication provided by their community oncology practice of choice.
10 Spread Pricing and Middleman Profits
Spread pricing occurs when PBMs charge plan sponsors one price for the
cost of a patient's drug, while on the other side of the transaction,
reimbursing the dispensing community oncology practice or pharmacy at a
lower rate, while pocketing the difference, or the ``spread,'' for
themselves.\194\ It is the classic case of the middleman mark up, but
played out in a massive and extraordinarily opaque scale. This practice
has recently come to light in the Medicaid context, where PBMs manage
benefits for state Medicaid MCOs, and where state governments have
uncovered immense spreads in drug claims for Medicaid
beneficiaries.\195\ Ultimately, spread pricing practices reveal how
PBMs are vertically integrated enterprises that control vast swathes of
the drug supply chain create an anti-competitive marketplace,
ultimately driving up the cost of drugs to public health programs and,
ultimately, to patients themselves.
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\194\ See, e.g., In re Express Scripts, Inc., PBM Litigation, 2008
WL 2952787 *5 (E.D. Mo. July 30, 2008).
\195\ See, 3Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis, January
30, 2020, accessible online: https://www.3axisadvisors.com/projects/
2020/1/29/sunshine-in-the-black-box-of-pharmacy-benefits-management.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
10.1 Who Is Impacted?
10.1.1 Harm to Patients
Spread pricing harms patients by increasing premiums and drug
prices.\196\ As with many other PBM pricing strategies, spread pricing
has the perverse tendency to drive drug prices up as the higher the
overall drug cost is, the greater opportunity for the PBM to earn a
larger spread. In addition, because pricing strategies put in place by
PBMs that are not equitable or uniform across different drugs, and
perverse financial incentives can be created, putting patients at risk
of having pharmacy providers prioritize certain patients with certain
disease states over others based on the arbitrary profitability that a
PBM applies to the therapy.\197\ Finally, in the context of generic
drugs, where patients expect to realize the greatest pricing relief,
spread pricing artificially increases the cost of such drugs, thus
negating such price relief.\198\
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\196\ See generally, Neeraj Sood, et al., ``The Association Between
Drug Rebates and List Prices,'' 2020, accessible online: https://
healthpolicy.usc.edu/wp-content/uploads/2020/02/Schaeffer
Center_RebatesListPrices_WhitePaper.pdf.
\197\ 3Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis, 1, 3-4,
January 30, 2020 https://static1.squarespace.com/static/
5c326d5596e76f58ee234632/t/5e384f26fc490b221da7ced1/1580748598035/
FL+Master+
Final+Download.pdf. See also, Community Oncology Alliance, Letter to
Defense Health Agency, ``The Perverse Financial Impact of Pharmacy
Benefit Managers on Our Military Service Members Covered by the TRICARE
Program,'' 2019 (noting how spread pricing incentivizes use of high
cost drugs even when less expensive and more efficacious drugs are
available).
\198\ See, 46 Brooklyn, New Pricing Analysis Reveals Where PBMs and
Pharmacies Make Their Money, April 21, 2019, https://
www.46brooklyn.com/research/2019/4/21/new-pricing-data-reveals-where-
pbms-and-pharmacies-make-their-money (observing that despite lower
payouts to pharmacies and a deflating generic market, Ohio's generic
drug unit costs increased 1.8% in SFY 2017 and, of the total state
spending on generic drugs, 31.4% went to PBMs via spread pricing).
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10.1.2 Harm to Plan Sponsors
Plan sponsors, and in particular, state Medicaid programs, have been
immensely harmed in the inflated prices they--and ultimately the
taxpayers--have paid to PBMs because of spread pricing. Ohio was one of
the first states to audit PBMs after a Columbus Dispatch expose
revealed the extent of spread pricing in the state's Medicaid
program.\199\ Shortly after the news broke, the Ohio Department of
Medicaid released a summary of its spread pricing analysis which showed
PBMs grabbing $223.7 million in hidden pricing spreads within the
Medicaid managed care program from Q2 2017 to Q1 2018, accounting for
8.8% of overall (pre-rebate) spending on prescription drugs.\200\
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\199\ See, Lucas Sullivan and Catherine Candisky, `Cost-cutting'
middlemen reap millions via drug pricing, data show, The Columbus
Dispatch, https://stories.usatodaynetwork.com/sideeffects/cost-cutting-
middlemen-reap-millions-via-drug-pricing-data-show/site/dispatch.com/.
\200\ See, Catherine Candisky, State report: Pharmacy middlemen
reap millions from tax-funded Medicaid, The Columbus Dispatch, https://
stories.usatodaynetwork.com/sideeffects/state-report-pharmacy-
middlemen-reap-millions-from-tax-funded-medicaid/.
The Ohio revelations have led to other states and the federal
government investigating spread pricing practices within their states,
as well as independent efforts. State government work in Kentucky,
Georgia, Virginia, and Maryland has definitively quantified spread in
their states' Medicaid programs, while 3Axis Advisors--an independent
pharmaceutical policy think tank--has uncovered evidence of spread
pricing in New York, Illinois, Michigan and, notably, a 200-page report
on spread pricing in the Florida Medicaid program.\201\
---------------------------------------------------------------------------
\201\ See, 3Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis, January
30, 2020 https://static1.squarespace.com/static/
5c326d5596e76f58ee234632/t/5e384f26fc490b221da7ced1/1580748598035/
FL+Master+Final+
Download.pdf.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
10.1.3 Harm to Providers
Finally, spread pricing has a direct impact on providers, who rely on
adequate reimbursement to serve Medicaid patients. In Ohio, the same
state to expose $223.7 million in excess charges through spread
pricing, many independent pharmacies were reporting such severe loses
on Medicaid prescriptions that it made it virtually impossible to
continue to participate in the program.\202\ The exposure of these
abuses led Ohio Medicaid to require certain PBMs, including CVS
Caremark, to increase the amount of reimbursements being paid to
independent providers (who up until that point, were pocketing the
immense spreads).\203\
---------------------------------------------------------------------------
\202\ See, https://www.dispatch.com/news/20180312/cvs-accused-of-
using-medicaid-rolls-in-
ohio-to-push-out-competition; https://www.ohiopharmacists.org/aws/OPA/
pt/sd/news_article/152198/_PARENT/layout_interior_details/false;
https://www.dispatch.com/news/20191210/1600-pharmacies-call-on-ohio-to-
fix-medicaid-reimbursements.
\203\ Lucas Sullivan and Catherine Candisky, ``Medicaid orders drug
price changes after more abuse reported,'' The Columbus Dispatch,
https://www.the-review.com/news/20181031/medicaid-orders-drug-price-
changes-after-more-abuse-reported.
---------------------------------------------------------------------------
10.2 What Does the Law Say?
Given the perverse impact of spread pricing upon patients, payers, and
providers, CMS' Medicaid and Children's Health Insurance Program (CHIP)
managed care's final rule \204\ adopted standards for the calculation
of Medical Loss Ratios (MLRs).\205\ More specifically, the final rule
clarified that spread pricing must be reported and included in the
calculation of MLRs, which represents the percent of premium revenue
that goes toward actual claims and activities that improve health care
quality, as opposed to administrative costs and profits. CMS
regulations require Medicaid and CHIP managed care plans to report a
MLR and use and MLR target of 85 percent in developing rates.
---------------------------------------------------------------------------
\204\ Medicaid and Children's Health Insurance Program (CHIP)
Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and
Revisions Related to Third Party Liability; Final Rule, 81 Fed. Reg.
27498 (May 6, 2016); available at: https://www.federalregister.gov/
documents/2016/05/06/2016-09581/medicaid-and-childrens-healthinsurance-
program-chip-programs-medicaid-managed-care-chip-delivered.
\205\ See, Medical Loss Ratio (MLR) Requirements Related to Third-
Party Vendors, CMCS Informational Bulletin; available at: https://
www.medicaid.gov/federal-policy-guidance/downloads/cib051519.pdf.
A number of states have implemented measures to prevent PBMs from
utilizing spread pricing schemes when contracting with state Medicaid
managed care plans. For example, Ohio Medicaid directed its five
managed care plans to terminate contracts with PBMs with spread pricing
model and enter into new contracts with PBMs with transparent ``pass-
through'' model in 2018.\206\ In similar vein, Nevada has enacted
transparency bill specifying that a PBM has a fiduciary duty to a third
party that contracts with the PBM for pharmacy benefit management
services and must notify the third party in writing of any activity,
policy, or practice of the PBM that creates a conflict of interest that
interferes with the PBM's ability to discharge its fiduciary duty.\207\
New York is also planning to no longer use PBMs and instead, to use fee
for service to pay for its prescription drugs.\208\
---------------------------------------------------------------------------
\206\ See, Guidance for Managed Care Plans, August 14, 2018, Ohio
Department of Medicaid; available at: https://issuu.com/
thecolumbusdispatch/docs/mco_pass_through_ltr_8.14.18.
\207\ Senate Bill No. 539; available at: https://
www.leg.state.nv.us/Session/79th2017/Bills/SB/SB539_EN.pdf.
\208\ See, https://health.ny.gov/health_care/medicaid/redesign/
mrt2/pharmacy_carve_out/; https://health.ny.gov/health_care/medicaid/
redesign/mrt2/pharmacy_carve_out/docs/carve_
out_ffs.pdf.
---------------------------------------------------------------------------
10.3 What Can Be Done?
The practice of spread pricing by PBMs has recently become an area of
focus for plan sponsors seeking to reign in PBM abuses and reduce
costs. Potential solutions to spread pricing include:
Legislation
Congress should enact federal legislation that
would require pass-through pricing for covered outpatient drug
prescriptions in Medicare Part D and in Medicaid (including managed
care).
States should enact laws like the Nevada law
requiring PBMs to be fiduciaries to plan sponsors (i.e., PBMs must act
in the plan sponsors' interests) and providing plan sponsors with a
cause of action against PBMs if they utilize opaque pricing not in the
plan sponsors' best interest or favor the PBMs' wholly-owned or
affiliated pharmacies over independent pharmacies or community oncology
practices, if this would ultimately be detrimental to the plan
sponsors.
States should enact laws requiring PBMs to report
drug costs charged to and paid by plan sponsors and disclosure of such
reports to providers.
Regulatory
Like in Ohio, state regulators should take
immediate action, where such action is permitted under enabling
statutes, to prevent state Medicaid plans from contracting with PBMs
using spread pricing methodology.
The FTC should enhance oversight and revise
antitrust guidance defining impermissible vertical integration
structures which could, at the very least, curb the most blatant PBM
anti-competitive behavior.
Plan Sponsor Action
Plan sponsors should implement robust Request for
Proposal procedure to select transparent PBMs.
Plan sponsors should review and negotiate
transparent contract terms including, without limitation, an exclusive
pricing benchmark.
Plan sponsors should require PBMs to provide
reporting of reimbursements paid to the pharmacies on pharmacy claims
and the corresponding charges made to the plan sponsor.
11 Copay Accumulators and Maximizers
The increased prevalence of high deductible health plans or plans
involving patient coinsurance \209\ has left more and more Americans
finding themselves with significant annual out-of-pocket copayments,
coinsurance obligations or deductibles for their medications. Many
patients struggle to meet their deductible and pay the copays for the
high-cost drugs they need to treat serious, sometimes life-threatening,
illnesses like cancer. In a study published in the Journal of Clinical
Oncology, the researchers found that drug abandonment and adherence
problems are increasingly prevalent in patients prescribed an oral
cancer medication due to higher out-of-
pocket costs.\210\ To help offset these costs--especially in the
oncology space, where copayments can range in the thousands of
dollars--many drug manufacturers have created copay discount cards to
reduce the net out-of-pocket amount to a figure that is affordable to
many patients.
---------------------------------------------------------------------------
\209\ https://www.shrm.org/resourcesandtools/hr-topics/benefits/
pages/high-deductible-plans-more-common-but-so-are-choices.aspx.
\210\ Association of Patient Out-of-Pocket Costs With Prescription
Abandonment and Delay in Fills of Novel Oral Anticancer Agents, Jalpa
A. Doshi, Pengxiang Li, Hairong Huo, Amy R. Pettit, and Katrina A.
Armstrong, Journal of Clinical Oncology 2018 36:5, 476-482.
However, beginning in 2018, several large insurance companies and PBMs
began to implement a nefarious new set of schemes called ``copay
accumulator programs.'' Copay accumulator programs restrict
manufacturer contributions to copay discount cards from being applied
to patients' annual deductibles and out-of-pocket maximums.\211\
Normally, the contributions from the drug manufacturer's copay card
would not only help offset the patient's copay at the point-of-sale but
would count toward fulfilling the patient's out-of-pocket obligations
(i.e., the deductible). Thus, after several fills of a high-cost
specialty medication, the deductible would be exhausted, and the
patient's out-of-pocket would be lowered to an affordable amount. This
is important, because many drug manufacturers' copay coupon programs
have annual limits or caps, preventing patients from receiving
unlimited copayment assistance. Without copay accumulator programs,
patients are able to afford their prescriptions throughout the whole
year.
---------------------------------------------------------------------------
\211\ https://spondylitis.org/spondylitis-plus/copay-accumulator-
programs-what-they-are-and-how-they-might-impact-your-out-of-pocket-
costs/.
Conversely, when a copay accumulator program is implemented, the
amounts of the patient's copay that have been funded by a drug company
(through a copay coupon program) no longer count towards the patient's
out-of-pocket limits. The result is that, after the patient exhausts
the benefits from the manufacturer's copay coupon program, the patient
---------------------------------------------------------------------------
is still left with excessively high copayment obligations.
The financial impact of copay accumulator programs is demonstrated well
in an example. Consider an example where a patient is prescribed a drug
that costs $36,000 per year, or $3,000 per month. The patient obtains a
copay coupon card from the drug's manufacturer, with an assistance
limit of $12,000 per year. The patient's benefit plan has a $3,000
deductible and, after the deductible has been met, a monthly copay of
$500.\212\ Without the copay accumulator program, the drug manufacturer
would cover the $3,000 deductible in month one (January), and $500 per
month each month thereafter. The patient would never run out of
benefits under the copay coupon program, and would never be saddled
with excessive out-of-pocket costs, significantly reducing the risk of
therapy abandonment.
---------------------------------------------------------------------------
\212\ https://www.managedhealthcareexecutive.com/view/coupon-
accumulators-and-coupon-maximizers-explained.
With the copay accumulator program in place, however, the patient would
use the copay coupon to cover the monthly drug costs in months one
through four (i.e., January through April), and would have no out-of-
pocket expenses during those first 4 months of the year. However,
because the copay accumulator program would prevent the amounts
received through the coupon from applying toward cost-sharing
requirements, the patient would still be required to pay the full
deductible amount ($3,000) in month five (May), and monthly copays of
$500 per month thereafter. In essence, the maximum benefits under the
copay coupon program would have been exhausted at the end of April
(having funded $3,000 per month).\213\ Here, when the patient is now
saddled with a $3,000 bill to continue therapy he or she has been on
for four months, there is tremendous risk of therapy abandonment.
---------------------------------------------------------------------------
\213\ https://www.managedhealthcareexecutive.com/view/coupon-
accumulators-and-coupon-maximizers-explained.
These programs have been called a variety of things by different
entities, including ``Out-of-Pocket Protection Programs'' (Express
Scripts), ``True Accumulation'' (CVS Caremark), and ``Coupon
Adjustment: Benefit Plan Protection Program'' (UnitedHealthcare).\214\
However, the main thrust has been to place financial roadblock in the
way of patients receiving necessary care, with dubious savings being
realized by plan sponsors.
---------------------------------------------------------------------------
\214\ https://www.goodrx.com/blog/copay-accumulator-programs-cms-
ruling/.
Another related concept that has emerged in response to the negative
patient impact from accumulators is that of ``copay maximizer
programs.'' Like copay accumulator programs, copay maximizer programs
are designed to allow payers to ``extract the full value of the
manufacturer's copay support,''\215\ but in reality, swap the
``financial cliff'' that the patients face under accumulator programs,
in favor of a slow and steady drain of resources, without any marked
benefits to the patient.
---------------------------------------------------------------------------
\215\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
For example, assume again a situation where a patient is prescribed a
drug that costs $36,000 per year, and there is a manufacturer-sponsored
copay coupon with an assistance limit of $12,000 per year (or $1,000
per month). In the context of a copay maximizer, the patient will still
have a deductible of $3,000, but instead of a standard copay, the plan
will set the monthly copay to slightly more than the coupon's value,
to, say, $1,200 per month. Each month, the patient will be responsible
for $200 out-of-pocket (the difference between what is covered by the
copay coupon and the set copay amount).\216\
---------------------------------------------------------------------------
\216\ https://www.managedhealthcareexecutive.com/view/coupon-
accumulators-and-coupon-maximizers-explained.
Worse yet, to the extent maximizer programs do actually deliver copay
savings to the patient, it invariably comes with underhanded
restrictions, obligating the patient to obtain the prescription
exclusively from the PBM-owned or affiliated pharmacy, and allowing PBM
subsidiaries to reap additional revenue.\217\ PBMs have created
``secretive and independent private companies'' to operate these
specialty drug maximizer programs, who sometimes take fees equal to 25%
of the manufacturer's copay support program.\218\
---------------------------------------------------------------------------
\217\ https://pharmaceuticalcommerce.com/brand-marketing-
communications/copay-maximizers-have-murky-financial-implications-says-
drug-channels/.
\218\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
In each of these scenarios, however, the patient is either forced to go
over the ``financial cliff'' in the middle of the year (when their
copays skyrocket) and risk drug abandonment, or is forced to utilize a
PBM-owned or affiliated pharmacy with limited real financial benefits
(or face exorbitant out-of-pocket costs).
11.1 Who Is Impacted?
Copay accumulator and maximizer programs have clear negative impact on
all stakeholders.
11.1.1 Harm to Patients
The harm of copay accumulators and maximizer programs is felt most
acutely by patients--especially cancer patients. Unlike instances where
there might be lower cost generics available to be used as alternatives
when a brand manufacturer's copay coupon benefits expire, there are no
alternatives for the high-priced oncology medications, and when
manufacturer copay coupon programs run out as a result of copay
accumulator programs, ``the individuals who need assistance the most
will be unable to receive it, and will end up paying more for their
treatments.''\219\
---------------------------------------------------------------------------
\219\ https://www.hepb.org/blog/copay-accumulators-mean-
prescriptions/#::text=In%20order
%20to%20afford%20the,paying%20more%20for%20their%20treatments.
``This poses an adverse impact on adherence to medication regimens,
especially when a support mechanism is not in place.''\220\ Studies
have shown that patients impacted by copay accumulator programs fill
their prescription 1.5 fewer times than patients who are not
impacted.\221\ More critically, data has shown that patients impacted
by copay accumulator programs have experienced a 13% drop in
adherence--that is, they've fallen off therapy--between month 3 and
month 4 of a plan year (coinciding with when they reach the annual cap
for manufacturer-sponsored copay coupon programs).\222\ This is
significant as over 75% of impacted patients have said that their
adherence will suffer as a result of these programs.\223\
---------------------------------------------------------------------------
\220\ https://www.drugchannels.net/2019/04/addressing-rising-
impact-of-co-pay.html#::
text=Co%2Dpay%20accumulators%20often%20block,mechanism%20is%20not%20in%2
0place.
\221\ https://www.drugchannels.net/2019/04/addressing-rising-
impact-of-co-pay.html#::
text=Co%2Dpay%20accumulators%20often%20block,mechanism%20is%20not%20in%2
0place.
\222\ https://www.drugchannels.net/2019/04/addressing-rising-
impact-of-co-pay.html#::
text=Co%2Dpay%20accumulators%20often%20block,mechanism%20is%20not%20in%2
0place.
\223\ https://www.mmm-online.com/wp-content/uploads/sites/2/2018/
09/Accumulator
AdjustmentProgramsThroughPatientsEyes.pdf.
These findings and observations of direct patient harm have been backed
up by literature. In a study published in the American Journal of
Managed Care, the authors found that after the implementation of copay
accumulator programs, Health Savings Account patients on certain high-
cost specialty drugs had ``significantly lower monthly fill rates,
higher risk of discontinuation, and lower [percentage of days
covered],'' suggesting that copay accumulator programs have ``the
potential to negatively affect specialty drug use.''\224\ This rings
true in the cancer context as well. According to a study in the Journal
of Clinical Oncology, nearly half of patients with cancer abandon their
prescriptions when out-of-pocket costs reach $2,000.\225\ Nonadherence
can have dire consequences to patients, and accounts for 10% of
hospitalizations and 125,000 deaths each year.\226\
---------------------------------------------------------------------------
\224\ Sherman B.W., Epstein A.J., Meissner B., Mittal M., Impact of
a co-pay accumulator adjustment program on specialty drug adherence. Am
J Manag Care. 2019;25(7):335-340, available at https://
pubmed.ncbi.nlm.nih.gov/31318506/.
\225\ Association of Patient Out-of-Pocket Costs With Prescription
Abandonment and Delay in Fills of Novel Oral Anticancer Agents, Jalpa
A. Doshi, Pengxiang Li, Hairong Huo, Amy R. Pettit, and Katrina A.
Armstrong, Journal of Clinical Oncology 2018 36:5, 476-482.
\226\ https://fortune.com/2020/07/22/copay-accumulator-adjustment-
programs-coronavirus/.
Perhaps the best evidence of patient harm is the stories from the
patients themselves. In one instance, a nurse case manager from Ohio
with multiple sclerosis had long managed her disease with medications,
and was able to afford them through copay coupon programs.\227\
However, in May 2018, she discovered that her health plan had instated
a copay accumulator program, that required her to pay $3,600 per month
for her prescription drugs until she met an $8,800 deductible, forcing
her to consider rationing her medication that allowed her to function
in her daily life.\228\ In another well-publicized incident, a 27-year-
old hemophilia patient had been able to afford the $38,000 for his
maintenance drugs with the assistance of manufacturer copay coupon
programs.\229\ However, once his health plan instituted a copay
accumulator program, he was unable to afford the $6,350
deductible.\230\ As a result of his immediate and unforeseen inability
to afford the medications, he was left with untreated bleeds, resulting
in internal bleeding, and needing additional surgeries to correct.\231\
``The patient has been in and out of the hospital, is currently in a
wheelchair, and is not working, all at a cost of $3.5 million.''\232\
---------------------------------------------------------------------------
\227\ https://fortune.com/2020/07/22/copay-accumulator-adjustment-
programs-coronavirus/.
\228\ https://fortune.com/2020/07/22/copay-accumulator-adjustment-
programs-coronavirus/.
\229\ https://www.pharmexec.com/view/making-sense-copay-
accumulators.
\230\ https://www.pharmexec.com/view/making-sense-copay-
accumulators.
\231\ https://www.pharmexec.com/view/making-sense-copay-
accumulators.
\232\ https://www.pharmexec.com/view/making-sense-copay-
accumulators.
One of perhaps the most sinister aspects of copay accumulator and
maximizer programs for patients is the overall lack of transparency.
These programs lack any semblance of transparency, and are ``often
implemented without a patient's knowledge or full understanding of
their new `benefit.' ''\233\
---------------------------------------------------------------------------
\233\ https://www.asco.org/sites/new-www.asco.org/files/content-
files/advocacy-and-policy/documents/2019-AccumulatorsPolicyBrief.pdf.
Ultimately, because patient receiving medications that have lower-cost
generic products have the ability to switch to such generic products in
the face of copay accumulator and maximizer programs, it is the sickest
patients requiring the highest-priced drugs that are most egregiously
affected by these programs, and are in essence ``subsidizing the
patients who are adequately served by lower-cost pharmaceuticals that
have low or no copays.''\234\
---------------------------------------------------------------------------
\234\ https://pharmaceuticalcommerce.com/brand-marketing-
communications/copay-maximizers-have-murky-financial-implications-says-
drug-channels/.
11.1.2 Harm to Plan Sponsors
When the PBMs created and rolled out copay accumulator programs, they
were billed as a cost savings tool for plans sponsors, such as
employers. In theory, it does make sense when applied to high-cost
branded medications, when a lower-cost, equally effective generic
product is available. These programs counteract manufacturer efforts to
retain market share for brand drugs once generics have become
available, and further the interests of pushing patients to lower cost
alternatives. However, in the oncology space, cancer care is for life
saving treatment and does not have the same risks of
``overutilization,'' nor are there cheaper alternatives available.
Instead, the result of copay accumulator or maximizer programs is that
the harms and additional costs to plan sponsors caused by drug
abandonment and non-
adherence will far outweigh any potential savings to be gained from
them. From increased hospitalizations, additional treatments, and more
catastrophic care, it is well-established that plan sponsors save money
when patients stay adherent to the drugs they are prescribed. This is
especially true in the cancer context, where studies have suggested
that the increased plan costs caused by non-adherence due to copay
accumulator programs was more than double than that of all other
disease groups.\235\
---------------------------------------------------------------------------
\235\ Cutler, R.L., Fernandez-Llimos, F., Frommer, M., Benrimoj,
C., and Garcia-Cardenas, V. (2018). Economic impact of medication non-
adherence by disease groups: A systematic review. BMJ open, 8(1),
e016982. https://doi.org/10.1136/bmjopen-2017-016982.
Worse yet, many employers and plan sponsors do not even know what they
are getting or whether such programs have been instituted. While nearly
20% of commercial medical insurance policies sold in 2018 will have
copay accumulator/maximizer programs built in, ``most employers who
have purchased/are purchasing these plans are unaware these programs
are present in the coverage'' and ``have no idea how it will adversely
affect their employees' care.''\236\ This is especially alarming
considering the secretive operations of copay maximizer programs, where
the prescription is typically required to be filled at the PBM-owned or
affiliated pharmacy, and related or affiliated companies take up to 25%
of the copayment assistance made available by the manufacturer.
---------------------------------------------------------------------------
\236\ Who's Stealing My Savings?, by Peter Pitts, January 4, 2018.
For example, with Express Scripts' SaveonSP program, a commercial plan
sponsor declares specialty drugs to be ``non-essential health
benefits,'' making them covered by the plan, but not subject to out-of-
pocket maximums mandated by the Affordable Care Act.\237\ In turn, the
patients' out-of-pocket costs are set to the maximum annual value of a
manufacturer's copay coupon program.\238\ ``For instance, a program
with a total value of $20,000 in copayment support would require a
patient to pay $20,000 annually for their drugs, without regard to the
plan's out-of-pocket maximums.''\239\ Thereafter, to avoid these
inflated costs, the beneficiaries must enroll separately in the
SaveonSP program, and have their prescriptions filled exclusively by
Express Scripts' Accredo specialty pharmacy.\240\ SaveonSP then charges
a fee equal to 25% of the copayment support, or $5,000 in the above
example.\241\ This is in addition to the profit generated by Express
Scripts' wholly-owned pharmacy by filling the prescription.\242\
---------------------------------------------------------------------------
\237\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
\238\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
\239\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
\240\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
\241\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
\242\ https://www.drugchannels.net/2020/05/why-do-cvs-and-express-
scripts-rely-on.html.
Ultimately, while copay accumulator and maximizer programs might seem
like a good short-term solution, the devil is in the details, and in
reality, these programs will ultimately increase costs for plan
sponsors in the long run, including increased hospitalizations,
---------------------------------------------------------------------------
additional care, and overall increases to drug prices.
11.1.3 Harm to Providers
Finally, community oncology practices are harmed by manipulative copay
accumulator and maximizer practices as well. When physicians prescribe
a particular oncology treatment to be dispensed out of the community
oncology practice, they undertake a ``difficult and time-consuming
process'' involved in finding financial assistance for their
patients.\243\ This includes finding manufacturer-sponsored copay
coupon programs, providing resources to patients, and potentially
providing supporting documentation to these programs. The copay
accumulator and maximizer programs will add additional complexities in
the patient coverage process and will only increase ``the
administrative burden on practice staff, who will now need to
understand the nuances of co-pay accumulators and maximizers; as well
as help explain to patients why some of the assistance is not helping
them to reach their deductible.''\244\
---------------------------------------------------------------------------
\243\ https://www.asco.org/sites/new-www.asco.org/files/content-
files/advocacy-and-policy/documents/2019-AccumulatorsPolicyBrief.pdf.
\244\ https://www.asco.org/sites/new-www.asco.org/files/content-
files/advocacy-and-policy/documents/2019-AccumulatorsPolicyBrief.pdf.
In addition, community oncology practices are further impacted when
their patients discontinue prescribed therapy due to cost. Many
community oncology practices are contracted with payers under value-
based arrangements, where they take responsibility--and sometimes
risk--for the outcomes of patients. If a patient stops taking his or
her therapy once the copay coupon program is exhausted, that patient
may wind up in the hospital or needing additional care. This will in
turn negatively impact community oncology practices' performance under
value-based contracts.
11.2 What Does the Law Say?
Federal statutory law is silent on the issue of copay accumulator and
maximizer programs.
However, in 2019, HHS finalized the Notice of Benefit and Payment
Parameters for 2020 (NBPP 2020), which only allowed health plans to
implement copay accumulator programs when both a brand and generic
medication were available. In essence, this would have allowed plans to
steer patients to less costly, generic medications when possible, but
would provide protections for patients--including cancer patients--who
did not have access to alternative, less costly medications.\245\
---------------------------------------------------------------------------
\245\ https://aimedalliance.org/hhs-allows-plans-to-implement-
copay-accumulators-without-any
-patient-protections/
#::text=NBPP%202020%20would%20have%20only,and%20generic%20
medication%20were%20available.&text=It%20limits%20patients'%20access%20t
o,costs%20to%20
the%20health%20system.
However, on May 7, 2020, HHS released its Notice of Benefit and Payment
Parameters for 2021 Final Rule, which clarified certain confusion
created by different agencies' guidance, and now allows health plans to
implement copay accumulator programs regardless of whether or not a
generic alternative is available. When patients cannot afford their
medications, they may rely on copay assistance (i.e., coupon cards from
drug manufacturers). These coupon cards not only contribute toward the
patient's copay but also count toward the patient's annual
deductible.\246\ Thus, as of July 30, 2020, HHS has not only allowed
health plans to implement these programs but has removed key
protections for cancer patients.
---------------------------------------------------------------------------
\246\ See, 45 CFR Sec. 156.130(h); https://www.federalregister.gov/
documents/2020/05/14/2020-10045/patient-protection-and-affordable-care-
act-hhs-notice-of-benefit-and-payment-parameters-for-2021.
Fortunately, however, several states have enacted their own laws
governing copay accumulators (importantly, in NBPP 2021, HHS explicitly
stated that the Final Rule does not preempt state laws that govern the
use of copay accumulator programs in state-regulated health plans). At
this time, four states (Illinois, West Virginia, Virginia, and Arizona)
have enacted copay accumulator legislation. While these apply to state-
regulated plans (and not to Exchange-based health plans), they provide
---------------------------------------------------------------------------
protection against certain PBM conduct.
For example, Virginia Statute Sec. 38.2-3407.20 requires health plans
to include any amount paid by or on behalf of a plan enrollee when
calculating an enrollee's overall contribution to any out-of-pocket
maximum or any cost-sharing requirement to the extent permitted by
federal law and regulation. Likewise, in Illinois, 215 Ill. Comp. Stat.
Ann. 134/30 requires health plans to apply any contributions (i.e.,
third-party payments, financial assistance, discount, product vouchers,
or any other reduction in out-of-pocket expenses) for prescription
drugs made by or on behalf of an enrollee toward that person's
deductible, copay, or cost-sharing responsibility, or out-of-
pocket maximum.
An additional eight states have some form of legislation pending to
address copay accumulator/maximizer programs.
11.3 What Can Be Done?
Legislative
States should enact laws that require health
plans to include any amount paid by or on behalf of a plan enrollee
when calculating an enrollee's overall contribution to any out-of-
pocket maximum or any cost-sharing requirement.
Regulatory
HHS should rescind the Notice of Benefit and
Payment Parameters for 2021 Final Rule, and institute Notice of Benefit
and Payment Parameters that, at the very least, reinstates,
strengthens, and clarifies the protections for patients receiving
medications without lower cost alternatives.
Plan Sponsor Action
Plan sponsors should inquire with PBM whether
copay accumulator and/or maximizer programs are being employed, and
demand that protections be given for oncology medications that lack
lower cost alternatives.
12 Maximum Allowable Cost (MAC) Pricing
Maximum Allowable Cost pricing, or ``MAC,'' is one of the most
significant and challenging issues facing independent pharmacies
throughout the United States today. While not as impactful to community
oncology practices providing cancer care as many of the other topics
addressed in this expose, MAC has nevertheless become one of the most
manipulated and opaque methods by which PBMs control reimbursement to
independent pharmacies and has become a catalyst for legislative
efforts to rein in PBM conduct.
MAC is typically defined as the maximum amount of money that PBM will
pay a pharmacy for certain multi-source drugs, typically multi-source
generic drugs.\247\ It is well established that generic drugs make up
the vast majority of drugs dispensed throughout the United States. For
example, according to the Association for Accessible Medicines, generic
drugs account for approximately 89% of all prescription drugs dispensed
in the United States.\248\ Thus, generic drugs constitute the majority
of drugs dispensed to patients throughout the United States meaning MAC
pricing present a significant issue as it pertains to provider
reimbursement.\249\
---------------------------------------------------------------------------
\247\ See, e.g., NY Pub Health Sec. 280-a(1)(b).
\248\ Association for Accessible Medicines, Generic Drug Access and
Savings in the U.S., 2017, https://accessiblemeds.org/sites/default/
files/2017-07/2017-AAM-Access-Savings-Report-2017-web2.pdf.
\249\ See, id., see also PCMA v. Rutledge, 240 F.Supp.3d 951, 961
(E.D. Ark. 2017) (noting that the parties agree that 70% to 90% of all
prescriptions are for generic drugs, which utilize MAC pricing); Eugene
A. DePasquale, Bringing Transparency and Accountability to Drug Pricing
(December 11, 2018), https://www.paauditor.gov/Media/Default/Reports/
RPT_PBMs_FINAL.pdf (noting that generic drugs make up roughly 85
percent of all prescriptions filled annually nationwide).
MAC began as a mechanism to save money in health care and incentivize
selective and intelligent purchasing practices, but MAC has since
evolved over time into a PBM tool that can be manipulated by PBMs to
increase revenues in several different ways.\250\ MAC pricing is a PBM
created pricing benchmark--MAC prices and MAC lists are prepared
exclusively by PBMs and considered by the PBMs to be proprietary and
confidential.\251\ Moreover, PBM-set MAC rates need not have any
relationship to a drug's market clearing acquisition cost.\252\ As
such, the creation and publication of PBM MAC prices and MAC lists are
shielded from the public and avoid public scrutiny.\253\
---------------------------------------------------------------------------
\250\ See, e.g., Linda Cahn, Don't Get Caught By PBMs' MAC
Mousetraps (September 1, 2008), https://www.managedcaremag.com/
archives/2008/9/don-t-get-caught-pbms-mac-mousetraps.
\251\ See, e.g., 3AXIS Advisors, Analysis of PBM Spread Pricing in
Michigan Medicaid Managed Care (April 2019), https://
www.michiganpharmacists.org/Portals/0/resources/3AA%20MI%20
Medicaid%20managed%20care%20analysis%20-
%20Final%2004.10.19.pdf?ver=2019-04-30-06485
6-343&ver=2019-04-30-064856-343; see also Eugene A. DePasquale,
Bringing Transparency and Accountability to Drug Pricing (December 11,
2018), https://www.paauditor.gov/Media/Default/Reports/
RPT_PBMs_FINAL.pdf (noting that PBMs consider their formulas for
reimbursement of generic drugs to be proprietary information that
amounts to trade secrets).
\252\ https://static1.squarespace.com/static/
5c326d5596e76f58ee234632/t/5e95dd726f6f770b5fc
85d04/1586879871828/2020_04+Research+Brief+FINAL.pdf.
\253\ See, id.
PBMs' ability to keep MAC lists and MAC prices from the public has
enabled PBMs to utilize MAC pricing to increase their revenues and to
effectuate certain PBM practices that lead to higher revenues,
including the PBM practice of spread pricing, wherein a PBM reimburses
a pharmacy provider one price for a drug but collects a higher amount
from the plan sponsor and retains the difference.\254\ The fact that
MAC pricing is shrouded in secrecy, and there is no requirement for MAC
rates to have any basis in real costs, creates substantial profit
opportunities for PBMs and has resulted in substantial challenges for
independent pharmacy providers over the past several years.
---------------------------------------------------------------------------
\254\ See, e.g., Eugene A. DePasquale, Bringing Transparency and
Accountability to Drug Pricing (December 11, 2018), https://
www.paauditor.gov/Media/Default/Reports/RPT_PBMs_
FINAL.pdf.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
12.1 Who Is Impacted?
PBMs' secretive MAC pricing tactics have caused harm to payers,
providers, and most critically to patients.
12.1.1 Harm to Patients
The improper use of MAC pricing tactics harm patients throughout the
United States by limiting patient care access--this specific issue is
on display in the case Rutledge v. PCMA which successfully went before
the Supreme Court of the United States in December of 2020.\255\ In
Rutledge, Arkansas enacted a law, Act 900, with the purpose of
addressing this patient-based issue, which was especially pronounced in
rural areas.\256\ MAC pricing appears to often disproportionately harm
patients in rural areas, who often do not have access to a broad
catalogue of different (sometimes cheaper) products, thereby harming
these patients specifically.\257\ ``MAC methodologies are resulting in
pharmacies closing down, especially in rural areas . . . [and]
approximately 44% of Arkansans live in rural areas.''\258\ The
potential for patient harm based upon improper pricing and
reimbursement tactics, including MAC pricing combined with spread
pricing was also discussed at length in the Pennsylvania Auditor
General's Report on PBMs, wherein it was noted that ``small pharmacies
often see the most vulnerable patients . . . [a]nd if small pharmacies
are forced out of business, these patients will have to travel greater
distances to get the medications they need[.]''\259\ Thus, there is
ample objective evidence that PBMs' MAC pricing tactics are causing
harm to patient populations throughout the United States and that this
harm may be particularly pronounced in rural settings.
---------------------------------------------------------------------------
\255\ See, e.g., PCMA v. Rutledge, 240 F.Supp.3d 951, 960-61 (E.D.
Ark. 2017).
\256\ Id.
\257\ Id. at 960.
\258\ Id.
\259\ Eugene A. DePasquale, Bringing Transparency and
Accountability to Drug Pricing (December 11, 2018), https://
www.paauditor.gov/Media/Default/Reports/RPT_PBMs_FINAL.pdf.
---------------------------------------------------------------------------
12.1.2 Harm to Plan Sponsors
In addition to harming patients, improper MAC pricing tactics by PBMs
also potentially harm all payers including Medicare, Medicaid,
employers, and taxpayers, although studies indicate this may be
particularly pronounced in the Medicaid context.\260\ ``PBMs' control
of MAC definitions allows them to manipulate the MAC concept in
whatever ways they choose.''\261\ Thus, MAC lists do not afford payers
and sponsors with the ability to have predictability or in any way
guarantee savings but instead give PBMs unfettered discretion to
control precisely which drugs are on a particular MAC list and to
ensure only those drugs which they are making money on remain on the
list and those which they are not are removed from the list. In
assessing potential harm of PBMs' MAC pricing tactics, it is important
to note that MAC pricing applies to drugs, most commonly generics, and
not to specific programs (e.g., Medicaid).\262\ The implication is that
improper MAC pricing tactics can affect all payers, including federal
and state governments, and by extension, taxpayers.\263\
---------------------------------------------------------------------------
\260\ See, e.g., 3Axis Advisors, Sunshine in the Black Box of
Pharmacy Benefits Management: Florida Medicaid Pharmacy Claims Analysis
(January 2020), https://static1.squarespace.com/static/
5c326d5596e76f58ee234632/t/5e384f26fc490b221da7ced1/1580748598035/
FL+Master+
Final+Download.pdf.
\261\ Linda Cahn, Don't Get Caught By PBMs' MAC Mousetraps
(September 1, 2008), https://www.managedcaremag.com/archives/2008/9/
don-t-get-caught-pbms-mac-mousetraps.
\262\ See, e.g., NY Pub Health Sec. 280-a(1)(b).
\263\ See 3Axis Advisors, Analysis of PBM Spread Pricing in
Michigan Medicaid Managed Care (April 2019), https://
www.michiganpharmacists.org/Portals/0/resources/3AA%20MI%20Medic
aid%20managed%20care%20analysis%20-%20Final%2004.10.19.pdf?ver=2019-04-
30-064856-343
&ver=2019-04-30-064856-343.
As mentioned, MAC pricing is one of the primary methods by which PBM
spread pricing is effectuated, wherein the PBM bills a plan sponsor one
price and reimburses the pharmacy provider a lower amount.\264\ Several
studies have shown that improper MAC pricing tactics, in connection
with spread pricing, has been prominent in the Medicaid context,
including in Florida, Georgia, Illinois, Kentucky, Maryland, Michigan,
New York, Ohio, and Virginia.\265\ Pennsylvania's report on PBMs noted
that in 2017 ``three PBMs made between $2 million and nearly $40
million on spread pricing, earning average profits between 28 cents and
almost $13 per Medicaid prescription filled.''\266\
---------------------------------------------------------------------------
\264\ See, e.g., Eugene A. DePasquale, Bringing Transparency and
Accountability to Drug Pricing (December 11, 2018), https://
www.paauditor.gov/Media/Default/Reports/RPT_PBMs_
FINAL.pdf.
\265\ 3Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis (January
2020), https://www.3axisadvisors.com/projects/2020/1/29/sunshine-in-
the-black-box-of-pharmacy-benefits-management.
\266\ Eugene A. DePasquale, Bringing Transparency and
Accountability to Drug Pricing (December 11, 2018), https://
www.paauditor.gov/Media/Default/Reports/RPT_PBMs_FINAL.pdf.
In order to implement spread pricing via MAC pricing, PBMs create
numerous different MAC lists including separate MAC lists for each
individual payer as well as separate MAC lists for PBM network
providers which enables a PBM to bill a plan sponsor one rate but pay
the pharmacy a separate and frequently a much lower rate.\267\ Florida,
Michigan, New York, and Ohio are three states that exemplify the harm
caused by PBM MAC pricing tactics to state specific Medicaid programs.
---------------------------------------------------------------------------
\267\ 3Axis Advisors, Sunshine in the Black Box of Pharmacy
Benefits Management: Florida Medicaid Pharmacy Claims Analysis (January
2020), https://static1.squarespace.com/static/5c326d5596e76f58ee234632/
t/5e384f26fc490b221da7ced1/1580748598035/FL+Master+Final+
Download.pdf.
---------------------------------------------------------------------------
12.1.3 Harm to Providers
Finally, improper MAC pricing tactics by PBMs also harm providers due
to unsustainable reimbursement by PBMs.\268\ In Rutledge, the District
Court acknowledged that numerous pharmacies had been harmed by these
tactics and were closing down,\269\ noting that ``[i]ndependent
community pharmacies have had to eliminate employees during the last 5
to 10 years due to the financial hardships they have faced.''\270\ The
court further noted that ``[i]ndependent community pharmacies in
Arkansas are in economic distress.''\271\
---------------------------------------------------------------------------
\268\ See, e.g., PCMA v. Rutledge, 240 F.Supp.3d 951, 955, 960-61
(E.D. Ark. 2017).
\269\ Id. at 955-56.
\270\ Id. at 955.
\271\ Id. at 960.
These unreasonably low MAC prices are further exacerbated by the fact
that PBMs are often slow to make price adjustments to MAC drugs when
there are market conditions that would result in the PBM reimbursing a
higher amount (i.e., an increase in acquisition cost), but relatively
quick to make price adjustments based on market conditions that would
result in the PBM reimbursing a lesser amount (i.e., a decrease in
acquisition cost).\272\
---------------------------------------------------------------------------
\272\ See generally, 3Axis Advisors, Responsiveness of Maximum
Allowable Cost to Generic Drug Inflation (April 3, 2020), https://
static1.squarespace.com/static/5c326d5596e76f58
ee234632/t/5e95dd726f6f770b5fc85d04/1586879871828/
2020_04+Research+Brief+FINAL.pdf.
---------------------------------------------------------------------------
12.2 What Does the Law Say?
Given its prevalence in commercial insurance contracts and Medicaid
programs, MAC pricing has largely been regulated by the states.
Currently, 36 states have some form of MAC law or MAC appeal law in
place.\273\ While the different state laws vary in the level of
protections they afford to pharmacies regarding MAC, there are several
general characteristics in these state MAC laws. Typically, robust MAC
laws will establish criteria for placing a drug on a MAC list,
establish an appeal process for challenging questionable MAC pricing,
and set requirements for updating MAC lists. Texas and Georgia are
example of such laws.\274\ In Texas, a PBM may not include a drug on a
MAC list unless: (1) the drug: (A) has an ``A'' or ``B'' rating in the
most recent version of the United States FDA's Approved Drug Products
with Therapeutic Equivalence Evaluations, also known as the Orange
Book; or (B) is rated ``NR'' or ``NA'' or has a similar rating by a
nationally recognized reference; and (2) the drug is: (A) generally
available for purchase by pharmacists and pharmacies in [Texas] from a
national or regional wholesaler; and (B) not obsolete.\275\ Further,
the PBM must develop a process for pharmacies to appeal MAC prices of a
drug on or before the 10th day after the claim is submitted and the PBM
must respond within 10 days.\276\
---------------------------------------------------------------------------
\273\ Rutledge v. PCMA, Pet'r Br. p. 5; see also, National
Conference of State Legislatures, 2018 Enacted State Laws Affecting
Pharmaceutical Costs, Pricing and Payment (February 2019), https://
www.ncsl.org/portals/1/documents/health/
2018EnactedLawsPharmaceuticalCosts.pdf.
\274\ Texas, V.T.C.A. Sec. 1369.353; 1369.357.
\275\ Id.
\276\ Id.
Texas' MAC appeal requirements also require that when an appeal is
successful, the PBM must (1) adjust the MAC that is the subject of the
appeal effective on the day after the date the appeal is decided; (2)
apply the adjusted MAC price to all similarly situated pharmacies as
determined by the PBM; and (3) allow the pharmacy that succeeded in the
appeal to reverse and rebill the pharmacy benefit claim giving rise to
the appeal.\277\ When appeals are not successful, the PBM must identify
and disclose (1) each reason the appeal was denied; and (2) the NDC
number from the national/regional wholesalers from which the drug is
generally available for purchase by pharmacies in Texas at the MAC
price that is the subject of the appeal.\278\ Moreover, in Texas, there
are separate guidelines governing MAC in the Medicaid context.\279\
Although there are some functions an MCO may delegate to a PBM in
Texas, there are also certain functions for which an MCO is ultimately
responsible despite the delegable nature of the function.\280\ These
expressly include ``negotiation and establishment of pharmacy provider
reimbursement rates [and] cultivation and maintenance of MAC pricing
lists.''\281\ Thus, certain laws in the Medicaid context potentially
provide additional recourse against payers in addition to PBMs as is
the case in Texas.
---------------------------------------------------------------------------
\277\ Id.
\278\ Id.
\279\ Texas HHSC Report on PBMs in Medicaid, Revised September 30,
2019.
\280\ Id.
\281\ Id.
---------------------------------------------------------------------------
12.3 What Can Be Done?
Effective responses to improper MAC pricing by PBMs require action at
various levels:
Legislative
Congress should enact legislation at the federal
level prohibiting MAC manipulation including a requirement as to
transparency in MAC pricing on both sides of the PBM--at the plan
sponsor side as well as the provider side.
States must take more aggressive action against
PBMs' MAC pricing tactics and enact new laws or else enhance existing
laws that mandate transparency in reimbursement which should include
robust laws that protect both plan sponsors and providers from
manipulative MAC pricing practices, especially as it pertains to claims
that are paid from taxpayer dollars, e.g., Medicare and Medicaid.\282\
---------------------------------------------------------------------------
\282\ See, e.g., Eugene A. DePasquale, Bringing Transparency and
Accountability to Drug Pricing (December 11, 2018), https://
www.paauditor.gov/Media/Default/Reports/RPT_PBMs_
FINAL.pdf.
For legislative efforts to be effective, the laws
enacted must provide a deterrent beyond solely relying on government
enforcement. Thus, it is imperative that states enact laws or enhance
existing laws by including or adding ``private rights of action'' to
ensure plan sponsors and providers have recourse against improper PBM
MAC pricing tactics and also make violation of MAC laws by PBMs an
unfair or deceptive trade practice act in accordance with existing
state law.\283\
---------------------------------------------------------------------------
\283\ See, e.g., AR ST Sec. 17-92-507(g).
State laws should strive for greater uniformity,
including in how MAC is defined to prevent inconsistencies in
reimbursement practices throughout the country, greater/broader appeal
rights (requiring that the drug utilized as the basis for the MAC rate
is readily available and conforms with the state's prescription
substitution laws), and to ensure that PBMs cannot take liberties in
placing drugs that do not meet a uniform definition of a MAC drug on a
MAC list.\284\
---------------------------------------------------------------------------
\284\ Compare V.T.C.A. Sec. 1369.353 and NY Pub Health Sec. 280-
a(1)(b).
MAC laws should permit providers to choose how
MAC appeals are filed rather than permitting PBMs to force providers to
use a pharmacy services administrative organization (PSAO)--this
ensures that if PSAOs are not responsive to MAC issues, pharmacy
providers can pursue the appeals on their own or hire third parties
that may be more effective at addressing MAC issues.\285\
---------------------------------------------------------------------------
\285\ See, e.g., N.J.S.A. 17B:27F-4.
---------------------------------------------------------------------------
Regulatory
There should be increased scrutiny over PBM MAC
pricing tactics at the federal level through CMS/OIG audits.
Increased scrutiny over PBM MAC pricing tactics
should happen at the state level through audits by both the Departments
of Insurance and Departments of Health and/or state Boards of Pharmacy.
Plan Sponsor Action
Plan sponsors must demand more from PBMs during
the contracting process including specific information on how
pharmacies are being reimbursed and the use of MAC lists as it pertains
to both the plan sponsors' relationship with the PBM as well as
pharmacies' relationships with the PBM to understand if spread pricing
is being used and/or whether pharmacies are being harmed by improper
MAC reimbursement.
13 Effective Rate Reconciliation
In yet another opaque and underhanded ploy, PBMs have created and
utilized the concepts of Generic Effective Rate (GER) and Brand
Effective Rate (BER) to essentially reprice drugs, and claw back
pharmacy reimbursements, sometimes more than a year after drugs are
dispensed.\286\ GER and BER (collectively known as the ``Effective
Rate'') measure the discount that the PBM contractually must deliver
for its client (i.e., plan sponsors) to a benchmark called Average
Wholesale Price (versus) for generic prescription drugs and for brand-
name prescription drugs, respectively.\287\ However, because they are
assessed retrospectively and on a network level basis, it is tantamount
to giving PBMs unbridled discretion as to how they will pay a given
pharmacy, and still technically be in compliance with the reimbursement
terms of the agreement.
---------------------------------------------------------------------------
\286\ See, Complaint, Total Care Rx, Inc. v. Epic Pharmacy Network,
Inc., No. 1:18-cv-3853 (D.Md. December 14, 2018).
\287\ See generally, 3Axis Advisors, ``Analysis of PBM Spread
Pricing in Michigan Medicaid Managed Care,'' accessible online: https:/
/static1.squarespace.com/static/5c326d5596e76f58ee
234632/t/5cc5eb7b24a6944974537e28/1556474768436/
3AA+MI+Medicaid+managed+care+anal
ysis+-+Final+04.10.19.pdf.
Worse yet, PBM methods of imposing and recouping Effective Rate
assessments are equally deceitful. Not only did many PBMs foist such
reimbursement terms on pharmacy providers retroactively without their
knowledge or consent (for example via retroactive contracts with the
pharmacy providers' PSAOs), but in many instances, the pharmacy
providers only learned of the Effective Rate reconciliation when the
PBMs, either directly or indirectly, simply began withholding payments
due to offset the alleged Effective Rate overpayments.\288\
---------------------------------------------------------------------------
\288\ See generally, https://www.dispatch.com/news/20190714/
middlemen-poised-to-grab-back-money-theyve-already-paid-to-ohio-
pharmacists.
Because of its after-the-fact assessment applied across an entire
network of pharmacy providers, Effective Rates allow PBMs to circumvent
Maximum Allowable Cost laws enacted by many states (see, Section 12,
supra), and hinders pharmacy providers' ability to challenge underwater
reimbursements on generic prescriptions.\289\ At its most basic level,
Effective Rate is not reflected at the point of sale and it provides an
opportunity for PBMs to take back a substantial amount of
reimbursements on prescription drug claims that were already dispensed
to patients.\290\
---------------------------------------------------------------------------
\289\ See, Complaint, Total Care Rx, Inc. v. Epic Pharmacy Network,
Inc., No. 1:18-cv-3853 (D.Md. December 14, 2018).
\290\ See, American Pharmacy Cooperative, Inc., ``Letter to U.S.
Department of Justice Antitrust Division,'' December 12, 2018,
accessible online: https://www.justice.gov/atr/page/file/1142771/
download.
Similarly, PBMs have also created another pricing mechanism called
Dispending Fee Effective Rate (DFER) to recoup dispensing fees already
paid to providers that provides no purpose to reduce plan sponsors'
drug spending.\291\ DFER allows a PBM to pay one dispensing fee at the
point-of-sale, and afterwards claw-back a portion of this dispensing
fee down to the contractually specified DFER. This particularly
pernicious type of effective rate undermines the cost-plus pass-through
contracts that many state Medicaid programs are contemplating, or
moving to, in response to outrage over spread pricing. DFERs could
allow the PBM to pass through the state-mandated dispensing fee, only
to claw it back after the fact, without the state's knowledge.
---------------------------------------------------------------------------
\291\ See, National Community Pharmacists Association, Letter to
United States Senate Committee on Health, Education, Labor and Pensions
``Senate HELP Committee request for comments on the Lower Health Care
Costs Act of 2019 Discussion Draft,'' June 5, 2019, accessible online:
http://www.ncpa.co/pdf/qAM/help-discussion-ncpa-comments.pdf.
---------------------------------------------------------------------------
13.1 Who Is Impacted?
13.1.1 Harm to Patients
As with many other PBM tactics, including spread pricing (see, Section
10, supra), rebates (see, Section 4, supra), and DIR fees (see, Section
5, supra), Effective Rate reimbursement frameworks have the ability to
increase the gross price for medications, notwithstanding a potentially
lower net price. For Medicare Part D patients, Effective Rate forces
them to reach ``donut hole'' and pushes patients into ``catastrophic
coverage'' at a much faster rate.\292\ As discussed in detail below,
this results in the patients being responsible for a greater share of
the costs of the medication.
---------------------------------------------------------------------------
\292\ See, American Pharmacy Cooperative, Inc., ``Letter to U.S.
Department of Justice Antitrust Division,'' December 12, 2018,
accessible online: https://www.justice.gov/atr/page/file/1142771/
download.
---------------------------------------------------------------------------
13.1.2 Harm to Plan Sponsors
While it is billed as a ``cost containment'' and pricing guarantee to
payers, in actuality, Effective Rate reimbursement schemes do little to
lower the overall costs of drugs. Effective Rate prices are invariably
tied to percentage discounts off of reported AWP (as shown in the
graphic on page 78, an inherently unreliable pricing benchmark),
enabling PBMs to deliver on savings guarantees, while not actually
lowering overall costs (as lower generic and brand-name prescription
drug costs for plan sponsors would in turn lower overall revenue for
PBMs).\293\
---------------------------------------------------------------------------
\293\ See generally, 3Axis Advisors, ``Analysis of PBM Spread
Pricing in Michigan Medicaid Managed Care,'' accessible online: https:/
/static1.squarespace.com/static/5c326d5596e76f58
ee234632/t/5cc5eb7b24a6944974537e28/1556474768436/
3AA+MI+Medicaid+managed+care+
analysis+-+Final+04.10.19.pdf.
An even more pernicious feature of Effective Rate pricing arrangements
is that they provide PBMs with the ability to collect ``spread''
between what they charge their clients (e.g., employers and plan
sponsors) and what they pay their providers (e.g., pharmacies and
community oncology practices) without having to put their clients in
traditional spread pricing contracts. Instead, PBMs can simply sign one
contract with a client guaranteeing, say, an 82% discount to AWP and a
different contract with their pharmacy network guaranteeing an 87%
discount to AWP. Both contracts are highly confidential, so the
``buyer'' (the employer) and ``seller'' (the pharmacy) of drugs does
not know what each other are paying/receiving. Even if the employer
demands a full pass-through contract, in which no spread is taken off
the claim, the PBM will simply pass-through what it charges its client
to the pharmacy at the time of the transaction, and then claw the
overpayment back at a later time through its effective rate
adjustments. At the end of the day, in this hypothetical example the
PBM has locked in 5% of AWP for its services, regardless if it collects
---------------------------------------------------------------------------
that up front or months after the transaction.
The value of Effective Rate contracts to the PBM does not end there.
That's because for generic drugs, AWP is designed to do exactly the
opposite of what prices should do over time for generic drugs--AWP is
designed to increase, not decrease over time. So, in our hypothetical
example, the hidden 5% of AWP locked in by the PBM becomes more and
more valuable each year to the PBM as AWPs diverge from true generic
acquisition costs.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
13.1.3 Harm to Providers
As noted above, Effective Rate reimbursement has had an especially
damaging impact on providers. By effectively circumventing MAC laws,
PBMs are able to reimburse many pharmacies below water on claims,
leaving them without any recourse to challenge such reimbursements
through legally-mandated appeals processes. This has particularly
effect on providers who only dispense a limited range of generic
products, such as community oncology practices. PBMs' reconciliation of
Effective Rate is a significant financial hurdle to community oncology
practices because oncologists generally treat patients with a handful
of drugs compared to other community retail or chain pharmacies who
have a broad and diverse patient population.\294\
---------------------------------------------------------------------------
\294\ See, e.g., New York Cancer and Blood Specialists, ``PBM
Delays for Cancer Drugs May Risk Lives, Warn Oncologists,'' March 13,
2019, accessible online: https://nycancer.com/blog/2019/03/13/pbm-
delays-cancer-drugs-may-risk-lives-warn-oncolo/.
13.2 What Does the Law Say?
At the federal level, in addition to the guidance on spread pricing
generally (see, section 10, supra), GER and BER reconciliations are
properly considered direct and indirect remuneration (DIR), which
Medicare Part D plan sponsors must report to CMS.\295\ This at least,
in theory, requires PBMs and Part D plan sponsors to disclose the
extent and amount of GER/BER, regardless of whether it is passed-
through to the plan sponsor or retained by the PBM.
---------------------------------------------------------------------------
\295\ See, Social Security Act Sec. 1860D-15, 42 U.S.C. [1395w-
115].
At a state level, many states have enacted laws that would prohibit
these types of post-point-of-sale reconciliations and clawbacks with
respect to private health plans. For example, Tennessee law provides
that neither a health insurance company nor a PBM may ``charge a
pharmacist or a pharmacy a fee related to a claim unless it is apparent
at the time of claim processing and is reported on the remittance
advice of an adjudicated claim.''\296\ Likewise, Indiana law explicitly
regulates the practice of ``effective rate of reimbursement,'' and
provides that a PBM may not ``[r]educe, directly or indirectly, payment
to a pharmacy for pharmacist services to an effective rate of
reimbursement. . . .''\297\
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\296\ T. C. A. Sec. 56-7-3115.
\297\ Ind. Code. Sec. 27-1-24.5-19(b)(4).
Finally, Effective Rate reconciliations may impinge on the multitude of
``Prompt Payment'' laws that exist in virtually every state in the
country. For example, Mississippi's Pharmacy Benefit Prompt Pay Act
requires PBMs to pay electronically submitted claims in full within
fifteen days.\298\ PBMs' later-in-time retraction of the amounts paid
could violate those requirements.
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\298\ See, Miss. Code Ann. Sec. 73-21-155.
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13.3 What Can Be Done?
Effective Rate reimbursement requires a response at many levels:
Legislative
States should enact laws, like Tennessee's \299\
and Indiana's \300\ that prohibit recoupment of fees on claims that
were not reflected at the point-of-sale or otherwise ban Effective Rate
reimbursement as a construct altogether.
---------------------------------------------------------------------------
\299\ T. C. A. Sec. 56-7-3115.
\300\ Ind. Code. Sec. 27-1-24.5-19(b)(4).
States should enact MAC Appeal Laws (where none
exist) or amend existing MAC laws to prohibit health insurers and PBMs
from circumventing MAC appeal rights through Effective Rate
---------------------------------------------------------------------------
reimbursement constructs.
Laws should be enacted, like New Jersey's Fair
Price law,\301\ requiring PBM pricing transparency and prohibiting
below-cost reimbursement to pharmacies.
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\301\ N.J.S.A. 17b:27f-1 to -10.
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Regulatory
CMS should audit Part D plan sponsors and
contracted PBMs to determine whether GER/BER is appropriately reported
and reconciled to CMS at the end of each Plan Year.
State Departments of Insurance should pursue
complaints against PBMs and health insurers for violations of Any
Willing Provider Laws, stemming from efforts to constructively deny
providers the right to participate in pharmacy networks based on
unreasonably low, below cost reimbursement rates.
Plan Sponsor Action
As part of the PBM contract, plan sponsors should
require PBMs to pass through any and all amounts PBMs received from the
pharmacies after the point-of-sale on a claim-by-claim level.
As part of the PBM contract, plan sponsors should
require PBMs to seek a permission prior to implementing a contracted-
rate with the pharmacies (e.g., GER).
14 Conclusion
The list of PBM abuses and games is seemingly never-ending and
evolving. But the reality is that we are only just scratching the
surface of understanding what these abusive health care middlemen are
doing. Simply put, PBMs have overwhelmingly abused their responsibility
to protect Americans from this country's drug pricing crisis, instead
exploiting the opacity throughout the drug supply chain to enrich
themselves. Their many abuses go well beyond just questionable rebate
practices, and hurt patients and plan sponsors (including employers,
Medicare, and Medicaid).
Unfortunately, their impact is only becoming more pronounced,
especially in oncology. More and more cancer drugs are coming out in
oral formulations, further shifting care away from the medical space
and into the pharmacy space. These expensive therapies are very
attractive to PBM's because of the potential for high prices that yield
high rebate revenues, high DIR fees, and eventually, high spreads--all
of which are a function of the drug's cost.
And even outside of the pharmacy benefits realm, through vertical
integration, PBMs have been able to exert considerably more influence
in the other areas, such as injectable biosimilars and intravenous
chemotherapies. Not only can PBMs can leverage these for steep
originator and rebates (thereby stifling the biosimilar industry for
their own gain), but PBMs have instituted mandatory white bagging
policies to take even in-office administration out of the hands of
community oncology practices.
The bottom line is this: today's drug supply chain is designed for
cancer patients to receive inferior treatment, while paying more out-
of-pocket.
The time for action to stop PBM abuses is now. Each day that goes by,
community oncology patients, practices, and professionals become
increasingly powerless because of horizonal PBM consolidation and
vertical integration with insurers.
Fortunately, however, solutions do exist. These include legislative
efforts at both the state and federal levels. Many states' existing
laws serve as prime examples of how they can be successfully
implemented to protect the interests of patients and health care payers
(like employers, Medicaid programs, and taxpayers). In addition, based
on many laws that are currently on the books, regulators (both state
and federal) have tremendous tools available to them, that up until
this point, have not been widely utilized.
The time is critical that regulators--including CMS, OCR, the FTC,
state Boards of Pharmacy and state Departments of Insurance--take much
need action to rein in the unchecked power of PBMs.
The time for sitting back and letting market forces address the issues
is over. The time for action to stop PBM abuses is now.
______
Questions Submitted for the Record to Jonathan E. Levitt
Questions Submitted by Hon. Ron Wyden
Question. How can Congress strengthen the Medicare statute to
improve pharmacy access and protect community pharmacies?
Answer. To improve pharmacy access and protect community
pharmacies, we recommend as a starting point, amending Medicare's Any
Willing Provider Law (``AWPL''), codified at 42 U.S.C. Sec. 1395w-104,
to expressly apply to PBMs. This will preclude PBMs from taking the
position that the AWPL does not apply to PBMs, a common argument made
by PBMs and Part D Plan Sponsor in seeking to avoid the law. We also
recommend amending the AWPL to require PBMs to admit all qualified
providers and to expressly state that the AWPL requires patients to be
permitted the option of using any qualified provider of their choice
regardless of whether that provider is a PBM affiliated provider cross
referencing to 42 U.S. Code Sec. 1395a (Free Choice by Patient
Guaranteed). We further recommend that Congress amend the AWPL to
include mandatory ``reasonable and relevant'' terms and conditions, and
to provide a framework for determining reasonable reimbursement for
Medicare pharmacy providers. We recommend that a framework include:
Reimbursement Rates. Provide that reimbursement below a
pharmacy's drug acquisition cost is per se evidence of a
violation of the ``reasonable and relevant terms and
conditions'' standard. Documentation provided by the pharmacy
provider showing that reimbursement was below acquisition cost
shall result in a presumption that the reimbursement was
unreasonable.
Reimbursement at or above cost shall be
considered but one factor in determining if reimbursement was
reasonable.
Requirement of a reasonable mandatory
dispensing fee to pay for labor, operational, and other
overhead costs associated with a provider dispensing a drug to
a patient. Prohibition on ``$0.00'' dispensing fee to fulfill
the requirement for a reasonable mandatory dispensing fee. Such
dispensing fee shall represent an amount paid for the
professional services rendered by a pharmacy and/or pharmacist
for dispensing a prescription and shall not include any payment
associated with the medication(s) being dispensed.
Performance Metrics. Any PBM implemented ``performance
metric(s)'' that impact reimbursement must be ``reasonable and
relevant'' as applied to a particular pharmacy provider to
ensure that: (1) pharmacy providers' performance is being
measured on a level playing field (e.g., not measuring
specialty pharmacies or community oncology providers'
performances against retail pharmacies' performance, not
measuring independent pharmacy performance against large chain
pharmacies); and (2) performance metrics are clearly reported
to the pharmacy provider at the claim level and such
performance metrics cannot favor the PBM corporately affiliated
pharmacies.
Dispute Resolution. Require PBM contracts to include a
practical mechanism for pharmacy providers to resolve disputes
regarding: (1) unreasonable reimbursement; and (2) the
reasonableness and relevance of PBM terms and conditions.
Dispute resolution requirements should include: (i) mandatory
minimum timeline for PBMs to respond; (ii) an ability for
providers to resolve disputes in a court of competent
jurisdiction; (iii) an ability for providers with common
disputes to resolve disputes with PBMs on a consolidated basis;
and (iv) prohibitions on retaliation, such as network
exclusion, punitive reduction of reimbursement, for such
disputes.
Differential Pricing. PBMs shall not reimburse corporately
affiliated pharmacy operations better than non-owned and/or
independent affiliated pharmacy operations.
Monetary Penalties. CMS enforcement mechanism that includes
right of pharmacy providers to report PBM non-compliance with
these obligations to CMS for further investigation with
provider protection from adverse action or retaliation by PBMs
for such reporting. Enforcement mechanisms should include the
right for CMS to impose monetary penalties for noncompliance.
Question. Do you believe PBMs reimburse PBM-owned pharmacies at
higher rates than independent pharmacies or unaffiliated chains? Have
you seen evidence of this practice through your work?
Answer. Yes, we have seen evidence that PBMs pay their own
pharmacies at higher reimbursement rates than PBMs pay to independent
pharmacies. PBMs often state that they have ``standard terms and
conditions'' for providers in their networks. But discovery or
investigation has revealed ``differential pricing.'' Differential
pricing occurs when PBMs pay their wholly owned pharmacies more than
PBMs pay to independent pharmacies. We also see evidence of PBMs
granting themselves longer ``days' supply'' for dispensed quantities,
as another favorable term. When a PBM is forced to disclose
differential pricing and terms during discovery, PBMs often settle
rather than disclose this information. PBMs also assess DIR fees in a
discriminatory manner, and engage in patient steering to send a higher
volume of prescriptions to their wholly owned pharmacies. By paying
unreasonable reimbursement rates to independents, PBMs engage in
predatory pricing. The PBM's wholly owned pharmacy can sustain
operating at a loss because the PBM makes ``spread.'' Unreasonable
reimbursement also helps the PBM decrease competition from independent
providers. We know for certain that PBMs, even in Medicare, pay their
wholly owned chain or specialty pharmacies better than independents,
including possibly in the critical arena of 340B. Gag clauses prevent
us from revealing this specific data. Even in Medicaid it has been
publicly reported that PBMs pay their wholly owned pharmacies better
than independent pharmacies.\1\ The Senate should investigate.
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\1\ 3Axis Advisors, Sunshine in the Black Box of Pharmacy Benefits
Management: Florida Medicaid Pharmacy Claims Analysis, 1, 3-4, January
30, 2020. Available at: https://www.3axisadvisors.com/projects/2020/1/
29/sunshine-in-the-black-box-of-pharmacy-benefits-management.
Question. Recent evidence suggests that specialty pharmacy is a
growing source of revenue for PBMs. Please describe how PBMs are
generating revenue through their specialty pharmacy channels.
Additionally, what tactics do PBMs use within Medicare Part D to
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increase specialty dispensing volume?
Answer. PBMs generate revenue through specialty drug distribution
channels in multiple ways. Each of the ``Big Three'' PBMs owns
(directly or indirectly) its own specialty pharmacy, and these three
pharmacies--CVS Specialty (affiliated with Caremark), Accredo
(affiliated with Express Scripts) and Optum Specialty Pharmacy
(affiliated with OptumRx)--combine for a 65-percent market share of all
specialty prescription revenues in 2021, and likely more today.\2\
Thus, each independent specialty pharmacy competes with each PBM-owned
specialty pharmacy for prescription revenue. This is particularly
distressing because PBMs are also the gatekeepers for pharmacy
networks, so they determine which competitor will be excluded or
permitted to compete. The fox is guarding the hen house.
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\2\ Drug Channels, DCI's Top 15 Specialty Pharmacies of 2021--And
Three Factors That Will Reshape 2022, May 4, 2022 (https://
www.drugchannels.net/2022/05/dcis-top-15-specialty-pharmacies-of.html).
Steering. PBMs also engage in prescription ``steering.'' Because
each PBM has a pecuniary interest in sending specialty prescriptions to
their affiliate specialty pharmacy, each PBM engages in prescription
``steering'' or ``hijacking.''\3\ PBMs use their position as claims
adjudicators to review patient information and specialty drug claims
data submitted by providers. PBMs often reject independent provider
specialty claims, and require providers to secure ``Prior
Authorization'' for the claim, then reject the claim again to compel
the patient to use the PBM's wholly owned specialty pharmacy.\4\ PBMs
often engage in substantial misrepresentations to patients in the
process of misleading them to their wholly owned pharmacies.\5\
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\3\ Frier Levitt, Pharmacy Benefit Manager Expose: How PBMs
Adversely Impact Cancer Care While Profiting at the Expense of
Patients, Providers, Employers, and Taxpayers, at 40 (February 2022).
\4\ Ibid.; see also Trone Health Services, Inc. v. Express Scripts
Holding Company, 974 F.3d 845 (8th Cir. 2020) (detailing complaint by
pharmacy against Express Scripts in which Express Scripts took patient
information to use for its own benefit).
\5\ Ibid.
Below Water Reimbursement. PBMs also engage in ``Low-Ball'' or
``Below Water'' reimbursement. PBMs use below cost reimbursement to
independent specialty pharmacies for specialty drugs to drive
competitors out of networks and drive revenue to their own
pharmacies.\6\ Specialty pharmacies will often not fill below-water
prescriptions. PBMs use outsized market power to dictate pharmacy
reimbursement, which drives independent specialty providers out of
network, thus increasing PBM pharmacy market share.\7\
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\6\ Frier Levitt, PBM Expose at 47.
\7\ Ibid.
Vertical Integration and Loss on Pharmacy Side. It makes no
difference to PBMs whether their affiliated pharmacies make a profit or
loss on reimbursement ``up front.'' The affiliated PBM need only drive
prescriptions to their own pharmacies; that is, regardless of the
profit to the pharmacy at the point of sale, the vertically integrated
PBM will profit through manufacturer discounts or spread pricing in
their capacity as PBM.\8\
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\8\ Id. at 51.
Definitions as Weapons. PBMs seek to increase their specialty
dispensing volume and costs by controlling the definition of
medications. The power to define what is categorized as specialty
medication on plan formulary is the power to profit. PBMs can
characterize specialty drugs as non-specialty for purposes of driving
lower reimbursement to pharmacy providers, while continuing to define
the same products as ``specialty'' when contracting with plan sponsors
to avoid having to meet cost savings guarantees. PBMs also require
patients to ``try and fail'' certain specialty drugs before moving on
to specialty drugs that are not on the PBM's preferred formulary, even
if the prescriber already knows the best specialty medication for their
patient. Additionally, PBMs have encouraged specialty dispensing in
Part D by overpaying on certain specialty drugs and steering those
claims to their wholly owned specialty pharmacies. These tactics all
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contribute to increased specialty costs.
Tying Arrangements. PBMs engage in ``tying arrangements'' to
generate revenue by virtue of their market dominance. Vertical
integration of a PBM, Prescription Drug Plan (PDP), specialty pharmacy,
and retail pharmacy is a recipe for disaster. PBMs decide which drugs
are placed on formulary, that drug's copay ``tier,'' and the
reimbursement rate that will be paid to pharmacies. The power to
control formulary is the power to control manufacturers and
distributors. PBMs routinely exclude pharmacies that compete with the
PBM-affilaited specialty and retail pharmacies. A PBM that wants access
to a new ``exclusive distribution drug'' at its affiliate specialty
pharmacy can threaten a manufacturer that it must provide the PBM's
specialty pharmacy access, lest the manufacturer's product not be
included on the PBM's formulary. The PBM could ``exclude'' the
independent specialty pharmacy from the network that has been granted
access to the exclusive distribution drug by the manufacturer. The
power to exclude pharmacies is the power for PBMs to grow to the
largest specialty pharmacies. CVS Health/Caremark dominates the
specialty industry with 28 percent market share. Cigna/Express Script's
specialty pharmacy controls another 21 percent. UnitedHealthcare/
Optum's special pharmacy controls 13 percent. Just these three PBMs
affiliated specialty pharmacies control 64 percent of all specialty
prescriptions.\9\ Because they are the largest pharmacies, they are
also the largest purchasers of drugs. Armed with formulary power on the
PBM side and market share on the pharmacy side, PBMs insist that
manufacturers and distributors give preferential drug acquisition cost
pricing to the PBMs' affiliate pharmacies. Manufacturers and
distributors earn very low margins selling to the PBM owned pharmacies.
Manufacturers and distributors must unfortunately make up for that low
margin by selling to independent pharmacies at elevated margins. Higher
acquisition cost for independents contributes substantially to the
inability of independents to survive. The FTC or Senate must
investigate these PBM tying arrangements. All manufacturers and
distributors are afraid to come forward because of retaliation with
formulary treatment.
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\9\ Adam Fein, Drug Channels, DCI's Top 15 Specialty Pharmacies of
2022: Five Key Trends About Today's Marketplace, https://
www.drugchannels.net/2022/05/dcis-top-15-specialty-pharmacies-of.html.
______
Questions Submitted by Hon. Mike Crapo
delinking compensation from drug prices
Question. A growing body of research suggests that compensation and
contracting structures across the prescription drug supply chain may
risk incentivizing higher list prices for medications by tying
stakeholder payments to products' list prices or to list-price-derived
benchmarks. In its March 2023 report to Congress, for instance, the
Medicare Payment Advisory Commission (MedPAC) contends that ``[a]ll
levels of the drug supply chain include incentives that drive [point-
of-sale] prices higher, particularly when payments are based on a
percentage of prices.''\10\
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\10\ See p. 400, https://www.medpac.gov/document/march-2023-report-
to-the-congress-medicare-payment-policy/.
The potential for these types of incentives has driven some experts
and supply-chain participants to propose eliminating the use of drug
prices in establishing payment rates and amounts for PBMs and other
stakeholders. A coalition of Idaho-based providers, patient advocates,
and job creators, for instance, recently wrote in support of Federal
policies aimed at ``delinking PBM compensation from the list price of
individual medications.''\11\
---------------------------------------------------------------------------
\11\ See Endnotes for a copy of the letter.
How would Federal policies delinking compensation for pharmacy
benefit managers (PBMs) and plan sponsors from drug prices in the
context of Medicare Part D affect incentives within the retail
prescription drug supply chain, and how would this type of change
---------------------------------------------------------------------------
likely impact beneficiary costs and taxpayer spending?
Answer. When a PBM's compensation, and a plan sponsors financial
modeling, is tied to a percentage of drug costs, it has the effect of
incentivizing PBMs to push for higher list prices of drugs. A PBM that
takes a 15 percent rebate earns more money on a $1,000 drug than a $100
drug. A PBM that charges a 5-percent DIR fee profits more from a $1,000
drug than a $100 drug. A plan sponsor saves money (and actually can
earn money) when patients have to pay full costs of a high-priced drug
during the deductible phase, while the plan sponsor retains a large
rebate from the manufacturer. There are many different fees that PBMs
and their affiliates charge that are tied to the list price of a drug,
including: rebates, GPO fees, transaction fees, DIR fees, spread
pricing, contract pharmacy dispensing fees, 340B third party
administration fees, and mail order pharmacy reimbursement amounts.
Policies that directed PBMs and plan sponsors to delink their
reimbursement from drug prices could serve to remove the incentive to
push for higher list prices. It could mean that PBMs and plans pursue
drugs for formulary inclusion based on effectiveness, appropriateness,
and overall cost, not based on what they stand to make off the drug.
This would also reduce incentives for PBMs and plans to raise the list
price, which informs the amount that patients have to pay in
coinsurance and deductible and allow patients to better share in the
lower net price of the drug.
It is important to note that delinking PBM and plan sponsor
reimbursement from drug prices would become far less of a problem if
some basic changes are made limiting the amount of PBM retained
rebates, reducing the amount of PBM retained spread pricing, and
limiting the means and manner of how PBMs could extract fees from drug
manufacturers. Importantly, PBMs currently seek to rely on the Discount
Safe Harbor to the Federal Anti-Kickback Statute to justify their
receipt and retention of rebates. Reconfiguring the Discount Safe
Harbor to place limitations on how PBMs can obtain and keep rebates and
other payments, other than amounts paid for the fair market value
(``FMV'') of commercially reasonable administrative services performed
by the PBM on behalf of the manufacturer in a manner that does not take
into consideration the volume or value of drugs bought and sold via the
PBM relationship, would likely have a direct and immediate impact on
the cost of drugs.
Question. Apart from PBM payments and services, where else in the
supply chain do compensation structures rely on drug pricing
benchmarks, and how should policymakers consider addressing these
dynamics?
Answer. While PBMs and affiliates stand to profit most from the
high list price of drugs--siphoning off as much as 60 percent or more
of the cost of drug in certain circumstances--other stakeholders are
also compensated based on the price of drugs, and impacts to these
stakeholders must be considered in structuring any policy reform. For
example, independent pharmacy providers are often compensated based on
the list price of a drug in that they are paid ``Average Wholesale
Price'' minus a contracted percentage (e.g., AWP - 18 percent). If list
prices are reduced overall without a modification to what is paid to
providers, it could drastically reduce what pharmacy providers are able
to take home (i.e., a 3-percent margin on a $100 drug results in far
lower gross revenue than the same margin on a $1,000 drug). Likewise,
there is great variance in the acquisition cost of drugs across
different provider types. A large chain pharmacy will certainly acquire
drugs at a lower price than a smaller independent provider. Further,
different providers have different operating cost structures (for
example, a specialty pharmacy may require significantly more overhead
than a community retail pharmacy). If there is no mechanism to account
for these different costs and pricing structures, such a policy change
could result in additional harm to independent providers. Finally, such
policy changes must also take note of differences in specific drug
products. While a reimbursement of actual acquisition cost plus a fixed
fee dispensing fee might work for a low-cost generic maintenance
medication, the same principle might not work for a high cost, complex
hemophilia medication, requiring home delivery and administration.
These concerns must be contemplated in any move towards a model that
delinks pharmacy reimbursement from drug costs.
transparency measures
Question. The shortage of meaningful transparency across the
prescription drug supply chain emerged as a key theme throughout the
March 30th hearing. Most hearing attendees signaled that patients,
policymakers, providers, plans, and researchers require additional
information and data points in order to inform decision-making and
reduce costs.
With respect to Medicare Part D, what additional information could
PBMs and their subsidiary organizations supply to plan sponsors in
order to enhance competition and drive down consumer costs without
compromising credibly proprietary trade secrets?
Answer. Plan sponsors must be given statutory rights to audit PBMs
and their subsidiary GPOs or ``rebate aggregators.'' Part D plans need
to know the total amount that the PBM or aggregator ``retains.'' Rebate
aggregators are PBM subcontracted (and affiliated) entities that serve
as intermediaries between a PBM, pharmaceutical manufacturer and plan
sponsor. The aggregator negotiates and collects rebates and other
manufacturer derived revenue. PBMs must be compelled to disclose to
Part D Plans all rebates and other manufacturer revenue, including, for
example, administrative fees and data fees, their rebate aggregators
have received on their behalf, regardless of whether they have been
retained or passed on to the Part D Plan. Of note, the annual DIR
Reports submitted by plan sponsors to CMS contemplate PBM disclosure of
both rebates and fees \12\ retained by PBMs. However, the DIR Reports
fall short of requiring disclosure of rebates retained by rebate
aggregators and do not mention other types of fees that manufacturers
remit to PBMs and rebate aggregators (e.g., data fees, price protection
fees, access fees, etc.). These forms of manufacturer derived revenue
should not qualify as trade secrets, which would allow PBMs to avoid
disclosure. All manufacturer derived revenue other than reasonable
manufacturer administrative fees should be provided to the Plan
Sponsors.
---------------------------------------------------------------------------
\12\ These fees are either reported as DIR or fees that are in
excess of bona fide service fees.
Question. What additional information could policymakers direct
plan sponsors, PBMs, and other supply-chain participants to supply to
---------------------------------------------------------------------------
beneficiaries in order to improve consumer choice and access?
Answer. Unlike nearly every other market, where a consumer can
easily compare the costs of one product against a competitor, patients
seeking to make informed decisions regarding their health care (and how
they will pay for it) are largely unable to discern the true costs of
their health care. PBMs, as middlemen, have access to information that
would enhance competition and improve consumer choice. Yet, they keep
this information largely hidden from the public eye and scrutiny.
It is recommended that PBMs be required to report to both
manufacturers and plans all ``retained rebates'' by the PBM (or its
affiliated or contracted rebate aggregator). Policymakers should
mandate that PBMs disclose instances where beneficiaries are pushed to
high cost, highly rebated brand medications rather than generic
alternatives to plan sponsors and beneficiaries. PBMs use copay
tiering, formulary exclusion and rebates to push highly rebated drugs
to the exclusions of cheaper, generic alternatives, often increasing
the cost to both beneficiaries and the Plan. Likewise, PBMs should be
mandated to provide an expansive network of specialty and mail-order
pharmacies. PBMs should not be able to ``market'' to Medicare or
Medicaid beneficiaries suggesting the beneficiary should switch
pharmacies. HIPAA should be clarified to prevent communication from
PDPs or PBMs to
Medicare/Medicaid beneficiaries that are truly ``marketing'' the PBM's
affiliate pharmacy. Regularly, PBMs require beneficiaries utilize PBM-
affiliated mail-order and/or specialty pharmacies, regardless of cost
or the best interest of the patient. PBMs should disclose to plan
sponsors the rebate and spread pricing profits the PBM and its
affiliated pharmacy earn by servicing the plan's beneficiaries,
compared to an independent pharmacy. Differential pricing (described
above) should be banned. Plan sponsors need accurate data to determine
whether utilizing PBM-affiliated pharmacies is cost effective and in
the best interest of beneficiaries, compared to independent pharmacies.
We further recommend that policymakers mandate that PBMs submit a
report of all pharmacies that have been denied access into the PBMs'
mail-order or specialty pharmacy networks, on an annual basis.
pharmacy access
Question. In your written testimony, you noted that statutory and
regulatory ``any willing pharmacy'' requirements have created
ambiguities and challenges, particularly for community pharmacies. How,
specifically, should Congress and/or relevant Federal agencies clarify
or otherwise update ``any willing pharmacy'' standards to ensure
beneficiary access and meaningful market competition?
Answer. As was mentioned in response to a question posed by Senator
Wyden, we believe there are several steps that can be taken by Congress
and/or the appropriate Federal agencies to clarify and update ``any
willing pharmacy'' standards under Medicare. Such steps would achieve
the laudable goals of (1) ensuring beneficiary access, and (2) allowing
for and increasing ``healthy'' market competition. As a threshold
recommendation, Medicare's Any Willing Provider Law (``AWPL''), which
is codified at 42 U.S.C. Sec. 1395w-104, should be amended to expressly
apply to PBMs--it currently expressly applies to PDPs. This change will
preclude PBMs from taking the position that the AWPL does not apply to
PBMs, a common argument. We also recommend amending the AWPL to require
PBMs to admit all qualified pharmacy providers and to expressly state
that the AWPL requires patients to be permitted the option of using the
pharmacy provider of their choice regardless of whether that provider
is a PBM affiliated provider. This modification is without cost to the
government because such a requirement is already codified in 42 U.S.C.
Sec. 1395a. We further recommend that Congress amend the AWPL to
include mandatory ``reasonable and relevant'' terms and conditions and
to provide a framework for determining reasonable reimbursement for
Medicare pharmacy providers. We recommend that a framework include:
Amending Medicare Part D laws, including Medicare's Any
Willing Provider Law (``AWPL''), codified at 42 U.S.C.
Sec. 1395w-104, to expressly extend such requirements directly
to PBMs.
Prohibit reimbursement to pharmacy providers below their
drug acquisition cost. If a PBM reimburses a pharmacy provider
below its acquisition cost, documentation provided by the
pharmacy provider showing that reimbursement was below
acquisition cost shall result in a presumption that the
reimbursement was unreasonable. This is already set forth to a
degree within the Part D Manual and would be largely codifying
and strengthening existing Medicare guidance.
Reimbursement at or above cost shall be considered but one
factor in determining if reimbursement was reasonable.
PBMs cannot meet the obligations of the AWPL by merely
maintaining a network with ``convenient access'' to retail
pharmacies. This ensures the PBMs cannot point to the fact that
their wholly-owned pharmacies have agreed to participate as
evidence that terms and conditions are reasonable and relevant.
Expand the scope of the application of the AWPL to other
health-care providers and not limited to licensed pharmacies.
Requirement of a mandatory reasonable dispensing fee
reflective of the value the health-care provider added in
dispensing the medication with prohibitions on ``$0.00''
dispensing fees. These dispensing fees must take into account
the type of medication (a dispensing fee for a straightforward
maintenance medication should not be the same as the dispensing
fee for a high-touch, complex specialty medication), as well as
the type of provider (the cost structure for a dual-accredited
specialty pharmacy will not be the same for a PBM-owned chain
retail pharmacy).
To the extent any performance metrics are implemented by
PBMs that impact reimbursement, such performance metrics must
be ``reasonable and relevant'' as applied to a particular
pharmacy provider to ensure (1) that pharmacy providers'
performance is being measured on a level playing field, e.g.,
not measuring specialty pharmacies or community oncology
providers' performances against retail pharmacies' performance;
not measuring independent pharmacy performance against large
chain pharmacies; and (2) performance metrics should be clearly
reported at the claim level and cannot favor the PBM
corporately affiliated pharmacies.
Require PBM contracts to include a practical mechanism for
pharmacy providers to resolve disputes regarding: (1)
unreasonable reimbursement, and (2) the reasonableness and
relevance of PBM terms and conditions. Requirements should
include (i) mandatory minimum timeline for PBMs to respond, and
(ii) prohibitions on retaliation, including network exclusion
for such challenges. This again codifies and strengthens
existing regulatory and subregulatory guidance from CMS
indicating that disputes around reasonableness and relevance
are fact sensitive inquiries best left to be resolved by the
parties.
PBMs shall not reimburse corporately affiliated pharmacy
operations in a more beneficial manner as compared to non-owned
and/or affiliated pharmacy operations, which shall include, but
not necessarily be limited to, prohibiting reimbursing an owned
and/or affiliated pharmacy operation more than non-owned and/or
affiliated pharmacy operations.
CMS enforcement mechanism that includes right of pharmacy
providers to report PBM non-compliance with these obligations
to CMS for further investigation with provider protections from
adverse action or retaliation by PBMs for such reporting.
Enforcement mechanisms should include the right for CMS to
impose monetary penalties for noncompliance.
Prohibit any retaliation by a prescription drug plan or any
entity acting on behalf of a prescription drug plan against
health-care providers challenging whether the terms and
conditions are reasonable or relevant, including by prohibiting
health-care providers from participating in prescription drug
plan networks when raising challenges to the reasonableness and
relevance of terms and conditions.
Question. What other steps should Congress consider taking to
mitigate the risk of patient steering or other alleged practices that
undermine competition?
Answer. To mitigate the risk of patient steering and other PBM
practices that undermine competition, Congress can enact legislation
banning PBM patient steering. In fact, several States have enacted such
legislation which provides a good template for legislation on the issue
of patient steering. One such example is Georgia. Specifically,
Georgia's anti-steering law, Ga. Code Ann. Sec. 26-4-119, prohibits
pharmacies from presenting claims for reimbursement that were received
pursuant to a referral from an affiliated PBM, and Ga. Code Ann.
Sec. 33-64-11 prevents PBMs from forcing patients to get their
prescriptions filled at a PBM-affiliated pharmacy including specialty
pharmacies, with a limited exception regarding certain limited
distribution drugs. Although pharmacies can often bring a claim against
a PBM based on compliance with laws contractual provisions, some PBMs
have been successful in defeating these kinds of claims.\13\
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\13\ See, e.g., United/Xcel-RX, LLC v. Express Scripts, Inc., 2019
WL 5536806, at *4 (E.D. Mo. Oct. 25, 2019).
As with any legislation governing PBMs, pharmacies would need a way
to enforce such laws, either through a private right of action, or a
direct complaint process to the agency responsible for enforcing the
law (or both) which would require the agency to investigate complaints.
Such a process would also include a reasonable deadline for a final
decision, and a right of judicial review for aggrieved parties. At the
same time, Congress should require PBM contracts with pharmacy
providers to include a practical mechanism for pharmacy providers to
resolve disputes regarding: (1) unreasonable reimbursement, and (2) the
reasonableness and relevance of PBM terms and conditions. This is a
codification and strengthening of existing CMS regulations and sub-
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regulatory guidance.
Additionally, Congress can enact a ban on the use of patient
information to engage in trolling and hijacking activity, like that
conduct at issue in the Trone Health Services v. Express Scripts matter
that the Eighth Circuit failed to find gave rise to a cause of
action.\14\ Congress can and should create a prohibition on PBMs
requiring patient information that is not necessary to adjudicate
claims, because this is the information that PBMs use to troll and
hijack patients to force them into the PBMs' own specialty pharmacies.
Additionally, the Health Insurance Portability and Accountability Act
(``HIPAA'') should be clarified to prevent communication from PDPs or
PBMs to Medicare/Medicaid beneficiaries that are truly ``marketing''
the PBMs' affiliate pharmacies.
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\14\ Trone Health Services, Inc. v. Express Scripts Holding
Company, 974 F.3d 845 (2020).
With respect to the greater overall problem of PBM market dominance
that itself undermines competition, Congress should consider strong
antitrust legislation that prevents the kind of consolidation causing
these issues, and legislation that mitigates the oversized market power
currently recognized by PBMs, such as legislation guaranteeing
reasonable reimbursement for pharmacies, and creating causes of action
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for pharmacies that suffer these kinds of abuses.
Question. Innovative contracting mechanisms can drive better value
for consumers and taxpayers. That said, performance-based contracts
should assess providers on meaningful metrics aligned with both
clinical and cost considerations. How, specifically, could Federal
policymakers provide sufficient flexibility for performance-based
contracting between PBMs and pharmacies while increasing clarity and
cohesion?
Answer. To the extent any performance metrics are implemented by
PBMs that impact reimbursement, such performance metrics must be
reasonable and relevant as applied to a particular provider to ensure
(1) providers' performance is being measured on a level playing field,
(e.g., not measuring specialty pharmacies or community oncology
providers' performances against retail pharmacies' performance; not
measuring independent pharmacy performance against large chain
pharmacies); (2) performance metrics should be clearly reported at the
claim level and cannot favor the PBM associated pharmacies; and (3)
providers are not penalized financially for medical decision making
that is in a patient's best interest and, in many cases medically
necessary.
As noted above, Federal policymakers should require PBM contracts
to include a practical mechanism for providers to resolve disputes
regarding (1) unreasonable reimbursement, and (2) the reasonableness
and relevance of PBM terms and conditions. Requirements should include
(i) mandatory minimum timeline for PBMs to respond; (ii) an ability for
providers to resolve disputes in a court of competent jurisdiction;
(iii) an ability for providers with common disputes to resolve disputes
with PBMs on a consolidated basis; and (iv) prohibitions on retaliation
for such disputes, such as network exclusion or punitive reduction of
reimbursement.
PBMs must not be permitted to reimburse wholly owned and/or
affiliated pharmacy operations in a more beneficial manner as compared
to non-owned and/or affiliated pharmacy operations which shall include,
but not necessarily be limited to, prohibiting reimbursing an owned
and/or affiliated pharmacy operation more than non-owned and/or
affiliated pharmacy operations.
Congress should provide CMS with enforcement mechanisms that
include a right of providers to report PBM non-compliance with these
obligations to CMS for further investigation with provider protections
from adverse action or retaliation by PBMs for such reporting.
Enforcement mechanisms should include the right for CMS to impose
monetary penalties for noncompliance.
pbm-owned group purchasing organizations/rebate aggregators
Question. Recent years have seen the emergence of a number of PBM-
owned or affiliated group purchasing organizations (GPOs), often known
as rebate aggregators, through which certain PBMs have reportedly
outsourced some of their functions, including with respect to
manufacturer negotiations. How do these organizations differ from
traditional GPOs, what are their implications for the broader
prescription drug supply chain (and for patients), and what additional
information should policymakers seek to collect and/or monitor with
respect to these entities?
Answer. Rebate aggregators owned by or affiliated with PBMs are not
purchasing an item or service and do not share any meaningful
similarities with traditional GPOs. Traditional GPOs were established
to help recognize cost savings and efficiencies by aggregating
purchasing volume. Rebate aggregators owned by PBMs, which are
sometimes misleadingly referred to as GPOs, are aggregating claims to
extract rebates from the manufacturers. Rebate aggregators do not meet
the definition of GPO under the AKS GPO Safe Harbor, which specifically
states, ``[n]ote that for purposes of paragraph (j) of this section,
the term group purchasing organization (GPO) means an entity authorized
to act as a purchasing agent for a group of individuals or entities who
are furnishing services for which payment may be made in whole or in
part under Medicare, Medicaid or other Federal health-care programs,
and who are neither wholly-owned by the GPO nor subsidiaries of a
parent corporation that wholly owns the GPO (either directly or through
another wholly-owned entity).'' In many instances (if not all)
instances, rebates and fees paid by manufacturers to the rebate
aggregators are not visible to the plan sponsors/plans (unless the
plans are PBM-owned/affiliated plans). The rebates and fees that are
retained by the rebate aggregators contribute to ever increasing drug
spend and patients' out-of-pocket expense.
It was reported that the gross-to-net bubble would exceed $200
billion in the calendar year 2021.\15\ The term ``gross-to-net bubble''
refers to the dollar gap between gross sales of brand-name drugs at
list prices and their sales at net prices after rebates and other
reductions. In other words, the gross-to-net bubble is demonstrative of
the rebates paid by manufacturers to PBMs in exchange of having their
drugs on the PBM's drug formulary. However, it is clear that at least a
portion, if not most of these rebates are retained at the PBM level,
rather than passed through to the benefit of plans and patients.
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\15\ Drug Channels, Warped Incentives Update: The Gross-to-Net
Bubble Exceeded $200 Billion in 2021, https://www.drugchannels.net/
2022/03/warped-incentives-update-gross-to-net.html#
::text=March%2022%2C%202022-
,Warped%20Incentives%20Update%3A%20The%20Gross%2Dto
%2DNet%20Bubble%20Exceeded,after%20rebates%20and%20other%20reductions.
The Securities and Exchange Commission should mandate that PBMs
disclose in their SEC filings revenue and expense derived from rebate
aggregators including the rebates and the rebates passed through to
plans. The retained rebate should be considered profit, no matter how
creatively the PBM defines the revenue. Also, policymakers can require
PBMs and their rebate aggregators--regardless of whether they maintain
headquarters in foreign countries--to report the same data to
government agencies and plan sponsors. By way of example, the
Consolidated Appropriations Act can be modified to impose prescription
drug spend reporting obligations upon PBMs and rebate aggregators (the
current version of the Act imposes reporting obligations upon the
plans). Those reporting obligations should be a plan specific and not
on an aggregate basis. Similarly, the Employee Retirement Income
Security Act of 1974 requires entities like PBMs to disclose the
sources of all direct and indirect compensation that PBMs and their
subcontractors (which would include rebate aggregators) will receive.
However, this provision would be strengthened by explicitly requiring
PBMs to disclose the precise amount of compensation rebate aggregators
retain from manufacturers rather than an aggregated total amount of
compensation. Such disclosure requirements should also be extended to
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brokers and/or consultants.
______
Questions Submitted by Hon. Maria Cantwell
market manipulation
Question. The three largest PBMs control 80 percent of the total
market share by adjusted claims. We know that market competition leads
to lower prices and better quality outcomes for consumers, and the PBM
market is no different. In addition to consolidating market share, PBMs
have also been merging with other players in the drug distribution
chain. Today, the four largest PBMs also own their own affiliate
insurers and pharmacies, which creates an obvious conflict of interest.
PBMs are responsible for developing and maintaining formularies for
health insurers, while contracting with individual pharmacies to
reimburse for drugs dispensed.
How are PBMs supposed to act in good faith when there is a clear
financial incentive to, for example, include higher priced drugs in
their formularies even though a cheaper generic is available, so that
its affiliate insurers can charge a higher premium or coinsurance? The
answer is, they don't.
With their massive market influence and vertically integrated
structure, the big PBMs exert pressure on every part of the drug
distribution chain. They can demand more rebates from manufacturers,
exclude pharmacies from their networks if they don't fully comply with
their one-sided terms, and require insurance companies to utilize step
therapy or prior authorization. All of this means that the patient at
the end receives inferior care, while also paying more.
I am very concerned about the situation where PBMs use
anticompetitive tactics such as spread pricing to drive smaller
independent pharmacies out of business. Then they buy the pharmacies to
integrate them into their sprawling businesses.
I am working on a bill with Senator Grassley, the Pharmacy Benefit
Manager Transparency Act, which would shine a light on bad PBM
practices. Does my bill have adequate enforcement authority to address
the anticompetitive practices PBMs use on pharmacies that I mentioned?
Answer. The Pharmacy Benefit Manager Transparency Act of 2023 would
make material improvements to the transparency of the U.S. health-care
system, including by eliminating the use of spread pricing and
arbitrary, unfair, and deceptive fees and reimbursement reductions on
providers. The bill provides the Federal Trade Commission and the
States (through State Attorney Generals or other State officials)
authority to enforce the provisions of the Act. The Act also provides
for whistleblower protections for employees reporting violations of the
Act to government officials. However, PBMs have demonstrated a record
of refusing to comply with applicable laws or challenging the
implementation of any law that negatively impacts them financially. As
such, Congress should consider including private enforcement mechanisms
into the statutory text of the Act. Reliance on the Federal Trade
Commission and State officials is not enough, as in many cases the
specific parties injured by PBM violations of the Act will be health-
care providers who are at the forefront of providing care to patients.
In addition, Congress should include antiretaliation protections for
providers who assert claims under the Act against PBMs, similar to the
protections included in the current text of the bill offered to
whistleblowers.
Question. Which other part of the drug distribution chain can this
bill be used to address anticompetitive practices on?
Answer. The Pharmacy Benefits Transparency Act of 2023 addresses
many of the significant anticompetitive practices used by PBMs
including, but not limited to, arbitrary and unfair fees and clawbacks
charged to unaffiliated pharmacies, complicated and opaque provider
reimbursement methodologies, and formulary rebates. The Federal Trade
Commission's PBM Inquiry seeks information related to these same
anticompetitive practices. In addition, the Act could be used to
address PBM anticompetitive practices related to patient steering; a
practice whereby PBMs directly or indirectly channel patients and
prescription volume to PBM-affiliated pharmacies and away from
unaffiliated pharmacies. These practices include, but are not limited
to, requiring patients to use a particular mail-order pharmacy,
exclusive provider networks, ``preferred'' provider networks that are
only accessible by PBM-
affiliated pharmacies, and discounts to patients offered only if they
receive their prescription from a PBM-affiliated pharmacy. Note that
due to the limited distribution model of the specialty drug
distribution chain, certain exceptions might be necessary for limited
distribution specialty drugs.
______
Questions Submitted by Hon. Chuck Grassley
Question. The Pharmacy Benefit Manager (PBM) Transparency Act (S.
127) requires transparency reporting by PBMs (or an affiliate,
subsidiary, or agent of a PBM) to shine sunlight on prices and fees
associated with prescription drugs. Why is transparency reporting by
middlemen, such as PBMs, important to ensuring taxpayers and patients
are getting the lowest drug price and associated fees possible?
Answer. Transparency reporting by PBMs is critical for patients to
make fully informed decisions about all options truly available to
them, not just the options available according to the patient's PBM.
True transparency will facilitate a better understanding of the true
and actual costs of patients' medications. Once a patient has such an
understanding, they can select the provider of their choosing. The
current lack of transparency in the PBM industry has led to hidden fees
(such as DIR fees assessed on pharmacies and manufacturers but
improperly excluded from Medicare Part D Bids), inflated drug prices,
and conflicts of interest. PBMs negotiate drug prices with
manufacturers, set reimbursement rates for pharmacies, and decide which
drugs are covered under a plan's formulary, but hold no obligation to
share this highly relevant information with the patients and public it
impacts. In the absence of transparency, it is difficult for patients,
providers, and plan sponsors to understand the factors that influence
drug pricing and access to medications.
Question. The Prescription Pricing for the People Act (S. 113) and
PBM Transparency Act (S. 127) require the Federal Trade Commission
(FTC) to look into the vertical integration that is occurring in the
pharmaceutical supply chain. Why is that important?
Answer. Requiring the FTC to look into vertical integration in the
pharmaceutical supply chain is important because the FTC is the agency,
next to the DOJ, best equipped to understand the anticompetitive
effects of vertical integration. The FTC also is charged with enforcing
section 5 of the FTC Act prohibiting Unfair Competition and is
therefore the appropriate agency to enforce any violations. Using this
enforcement power, the FTC should focus specifically on the unfair
trade practices PBMs use to dominate the marketplace and further
consolidate power to the exclusion of independent providers.
These unfair trade practices include, but are not limited to PBMs'
power to control formularies for plans, thereby channeling lucrative
rebates to themselves and affiliated plans; controlling network access
for independent pharmacies that the PBMs compete with through their
affiliate pharmacies; controlling benefit design to their own
advantage; profiting from ``no-bid'' contracts from affiliate plans;
setting draconian and inefficient purchasing limits and restrictions on
who network providers may source drugs from; and engaging in
``differential'' pricing that advantages their affiliated pharmacies
over competitors. All of these unfair trade practices and more can be
investigated, and the FTC can use its section 5 authority to regulate
against such practices.
Question. How does vertical integration impact the prices patients
and taxpayers pay for prescription drugs?
Answer. Evidence suggests market consolidation, including vertical
integration, has contributed to rising costs and lower-quality
care.\16\ Vertical integration affects the prices patients and
taxpayers pay for drugs in multiple ways. When vertically integrated
payers use their market leverage to demand higher rebates from
manufacturers, distortions occur. Manufactures that do not comply with
the PBM's rebate demands will see their drugs have higher copay, prior
authorization, step edits or claims denials. More efficacious, less
toxic, and cheaper drugs are often disincentivized by PBMs in exchange
for more highly rebated drugs. This results in other less rebated
drugs--including generic and biosimilar drugs--being placed on lower
formulary tiers, or having higher copay, step edit, prior authorization
or being entirely excluded.\17\ Drugs with a lower list price are
excluded from formulary because the PBM receives a higher rebate from a
more expensive drug. This costs patients and taxpayers more when their
coinsurance is based on the list price, or when patients with a high-
deductible plan must pay out of pocket for drugs at list price. In the
context of Medicare Part D, higher list prices for covered prescription
drugs pushes beneficiaries through the Part D benefit phases quicker,
and into the Part D ``donut hole'' and catastrophic coverage phases,
where patients, taxpayers and drug manufacturers pick up large portions
of the tab, while the plan sponsors pay less.
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\16\ Purchaser Business Group on Health, Vertical Integration Isn't
Great for Health Care Consumers or Purchasers, August 23, 2021, https:/
/www.pbgh.org/despite-claims-vertical-integration-isnt-great-for-
health-care-consumers-or-purchasers/.
\17\ Frier Levitt, PBM Expose at 12.
Question. Do spread pricing and clawbacks performed by PBMs (or an
affiliate, subsidiary, or agent of a PBM) impact the prices patients
and taxpayers pay for prescription drugs? If so, how? Additionally, how
do spread pricing and clawback practices differ within the commercial
insurance market compared to within the
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Medicaid/Medicare programs?
Answer. Yes, both spread pricing and clawbacks harm patients and
taxpayers by raising prices at the point of sale ``pharmacy counter.''
Spread pricing increases premiums and drug prices for patients.\18\
Because spread pricing creates a perverse incentive for PBMs to set an
overall higher price for drugs, including generic drugs (from which
patients normally expect to see the highest savings), patients face
higher prices than they would if the PBM was not incentivized to raise
prices in this manner.\19\
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\18\ Frier Levitt, PBM Expose at 60.
\19\ Id.
Clawbacks, including DIR fees and ``effective rates'' (Generic
Effective Rates, or GER, and Brand Effective Rates, or BER), also harm
patients through raising their out-of-pocket costs in multiple ways.
With DIR, recall that the price reported to CMS as the ``negotiated
price'' at the point of sale does not include the DIR fees. Therefore,
the patient pays coinsurance (which is a percentage of the list price)
based on the higher list price, which is later reduced by DIR after the
patient paid their coinsurance. If the patient paid coinsurance on the
lower, post-DIR price, the patient would have a lower coinsurance. DIR
fees would otherwise lower the negotiated price if applied at the point
of sale--but from 2016 through 2023, PBMs were able to profit from DIR.
This means patients--especially vulnerable patients with the most
serious disease states--pay a higher out-of-pocket coinsurance based on
the artificially inflated prices paid at the point of sale, created by
the DIR. This harms the patient, but also harms taxpayers, because it
forces the patient into the ``donut hole'' and catastrophic coverage
more quickly, where the government bears a higher price burden and PBMs
bear a lower burden.\20\
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\20\ Frier Levitt, PBM Expose at 25.
Effective rates also harm patients in the same way DIR fees do--by
raising the gross price of medications and forcing patients to pay
higher out-of-pocket fees at the point of sale before the effective
rate is clawed back from the PBM.\21\ Unlike DIR fees, which apply only
to Part D, effective rates affect commercial patients as well as
Medicare beneficiaries.
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\21\ Frier Levitt, PBM Expose at 76.
Question. Does the current consolidated PBM market hurt or help
community pharmacies who serve rural or underserved areas? When a
community pharmacy closes or a patient cannot access a community
pharmacy due to being out of network, how does this impact patient
---------------------------------------------------------------------------
access?
Answer. The current PBM market hurts community providers in rural
areas. PBMs' excessive market power results in low reimbursement that
often does not cover the cost of goods.\22\ Such low reimbursement from
PBMs means that these pharmacies cannot sustain their business.
Additionally, rural pharmacies are disproportionately affected by MAC
pricing, because these pharmacies typically do not have access to the
products receiving lower MAC pricing, causing underwater reimbursement
for the pharmacies.\23\ This results in rural pharmacies being forced
to close.\24\
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\22\ Frier Levitt, PBM Expose at 47.
\23\ See, e.g., PCMA v. Rutledge, 240 F.Supp.3d 951, 960 (E.D. Ark.
2017).
\24\ Id.
Additionally, even urban pharmacies can represent underserved
communities. One such pharmacy--Mission Wellness, based in San
Francisco--is a minority- and woman-owned pharmacy serving a population
of underprivileged, often unhoused persons suffering from HIV/AIDS and
hepatitis. In 2019, Mission Wellness brought an arbitration against
Caremark because the underwater rates caused by Caremark's DIR program
was putting the pharmacy out of business. Mission Wellness eventually
won an award of its full damages and attorneys' fees against Caremark,
but Caremark has moved to vacate that award (as is typical for Caremark
when it loses in arbitration), thus prolonging Mission Wellness's wait
for the infusion of money it desperately needs to remain afloat. All
this information is available--including the arbitration award--on the
public docket in the Federal action to confirm (and Caremark's cross-
motion to vacate) the arbitration award. The case and related
proceedings can be found at Mission Wellness Pharmacy LLC v. Caremark
---------------------------------------------------------------------------
LLC et al., No. CV-22-00967-PHX-GMS (Dist. Ariz.).
When a community pharmacy closes or a patient cannot access the
pharmacy, this negatively affects patient access. ``[S]mall pharmacies
often see the most vulnerable patients . . . [a]nd if small pharmacies
are forced out of business, these patients will have to travel greater
distances to get the medications they need[.]''\25\
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\25\ Eugene A. DePasquale, Bringing Transparency and Accountability
to Drug Pricing (December 11, 2018), https://www.paauditor.gov/Media/
Default/Reports/RPT_PBMs_FINAL.pdf.
Question. Since 2017, 23 States have passed various forms of
prescription drug transparency laws that require PBMs to report certain
data (according to National Academy for State Health Policy). Do any of
these States have effective PBM transparency laws that should be
---------------------------------------------------------------------------
replicated at the Federal level? Why are they effective?
Answer. Although Senator Grassley's and Cantwell's PBM Transparency
Bill is thorough and would provide much-needed PBM transparency in its
present form, State transparency laws are particularly effective to the
extent they give providers audit rights. For example, Indiana passed an
act (2020 Ind. Legis. Serv. Pub. L. 68-2020 (S.E.A. 241)), effective
July 1, 2020, which, among other things, prohibits PBMs from
reimbursing PBM-affiliated pharmacies more than unaffiliated
pharmacies, requires PBMs to disclose the amount of rebates they
receive for drug products, and provides yearly audit rights for all
parties contracting with a PBM to view the rates at which any other
pharmacy in the network is being reimbursed and the amount of rebates a
PBM has received for drug products. This provides for some direct
transparency to independent pharmacies and plans, allowing each to
independently determine whether the PBM is complying with the law. This
level of transparency at the Federal level would greatly strengthen
transparency for both providers and plans.
Question. Beginning in 2016, the Texas Department of Insurance
began public reporting on the use of manufacturers' rebates and other
payments to PBMs. Similarly, beginning in 2020, the Iowa Insurance
Division began publicly reporting on the use of manufacturers' rebates
and other payments to PBMs. Other States have conducted similar public
reporting. According to an analysis of the Texas data (https://
www.tdi.texas.gov/reports/report3.html), PBMs retained 7 percent to 21
percent of manufacturers' rebate and other payments between 2016-2021.
Similar data has been reported in Iowa (https://iid.iowa.gov/pbm-
annual-reports). Is this public reporting accurately capturing the
amount of rebates and other payments retained by PBMs (or an affiliate,
subsidiary, or agent of a PBM)? If not, how might policy makers
accurately capture the amount of revenue retained by PBMs (or an
affiliate, subsidiary, or agent of a PBM)?
Answer. The public reporting does not always fully or accurately
capture the amount of rebates and other payments retained by PBMs and
rebate aggregators. For example, the Texas Insurance Code section
1369.502 requires PBMs to file a report with the Texas Insurance
Commissioner concerning rebates, fees, and other payments received by a
PBM. However, the statute only requires PBMs to submit, among other
things, the aggregated rebates, fees, price protection payments, and
any other payments collected from pharmaceutical drug manufacturers to
PBMs.\26\ Thus, portions of manufacturer revenue retained by PBM
affiliates, subsidiaries, or agents are not captured by the mandatory
reports. States should require plan specific, NDC-level reporting of
rebates and fees paid by manufacturers to PBMs and PBMs' rebate
aggregators.
---------------------------------------------------------------------------
\26\ See Tx. Ins. Code Sec. 1369.502.
Question. Why do PBMs own or operate affiliated organization such
as group purchasing organizations or rebate aggregators? What do these
---------------------------------------------------------------------------
entities do?
Answer. PBMs created rebate aggregators as another level of opacity
and possibly to avoid mandatory statutory reporting that expressly
applies to PBMs, but has not ``caught up to'' the creation of rebate
aggregators. See above for the problem as it relates to Medicare
reporting of retained rebates. PBM contracts with plan sponsors are
carefully drafted by PBMs. PBMs contractually promise to turn over to
the plan sponsor all ``rebates'' that the ``PBM receives.'' PBM
contracts conceal that the PBM has subcontracted to its affiliate
company--the rebate aggregator--the task of actually receiving the
rebate from the manufacturer. PBMs do not reveal to the plan sponsor
the amount of rebate retained by the aggregator.
The advent of the rebate aggregator may also be connected to a
desire by PBMs to avoid the reach of United States laws. Two of the
major rebate aggregators are based in foreign countries. (Express
Scripts/Ascent Health Services in Switzerland; OptumRx/Emisar Pharma
Services in Ireland).
It is also worth noting that, in the Ohio Attorney General's
complaint recently filed against Ascent Health Services, among others,
the Attorney General alleges that Express Scripts and Prime created
Ascent Health Services to ``use it as a vehicle to share pricing, to
the detriment of other market participants, including individual
purchasers of medications like insulin.'' Indeed, PBMs often utilize
affiliated rebate aggregators as a means to keep certain manufacturer
derived revenue, including, but not limited to rebates, hidden from
their plan sponsor clients to preserve the illusion that plan sponsors
are receiving 100 percent of rebates paid by manufacturers. Regularly,
PBM-affiliated rebate aggregators retain a portion of rebates paid by
manufacturers, but PBMs keep the rebate aggregator-retained portion
hidden from plan sponsors. This occurs with respect to Medicare Part D
plans as equally as it does in commercial contexts.
Question. In 2013, the Department of Health and Human Services
(HHS) Office of Inspector General (OIG) published a report (titled,
``Gaps in Oversight of Conflicts of Interest in Medicare Prescription
Drug Decisions'') recommending that each Medicare Part D plan's
Pharmacy and Therapeutics Committee (P&T) have members who are free of
conflict from PBMs. HHS OIG specifically recommended that a Medicare
Part D plan's P&T committee should be free of conflict with any PBM
that manages the plan's prescription drug benefit. Since this
recommendation was issued in 2013, CMS updated some conflict of
interest policies, but not this recommendation. Should CMS require some
(or all) P&T committee members be free of conflict with any PBM?
Answer. Yes. CMS should require Medicare Part D Plan P&T committee
members to be free of conflict with any PBM. P&T committee are
primarily responsible for making formulary decisions, significantly
affecting beneficiary access to specific prescription drugs. PBMs use
formulary exclusion and rebates to push highly rebated drugs to the
exclusions of cheaper, generic alternatives, often increasing the cost
to both beneficiaries and the Plan. This preference for high-cost brand
drugs stems from consistently increasing drug rebates from
manufacturers, which PBMs typically only earn on branded drugs. Thus,
because of the perverse incentives for PBMs to select expensive branded
medications over cheaper alternatives, CMS should require that Medicare
Part D P&T committee members--who are directly responsible for the
selection of which branded and generic medications will be covered on
the formulary--be free of any conflict with any PBM.
______
Questions Submitted by Hon. Tim Scott
Question. I have heard concerns from Federally Qualified Health
Centers in my State that some PBMs may be intentionally reimbursing
340B pharmacies at lower rates than non-340B pharmacies for
prescription drugs simply because these health centers receive a 340B
discount. Is this the case and, if so, why is that and how common is
this practice?
Answer. The 340B program's purpose is ``to enable covered entities
to stretch scarce Federal resources as far as possible, reaching more
eligible patients and providing more comprehensive services.''\27\ It
is fundamental to 340B that Covered Entities, which include Federally
Qualified Health Centers, are credited for their ability to ``provide
direct clinical care to large numbers of uninsured Americans''
regardless of the patient's ability to pay.\28\ The Health Resources
and Services Administration (``HRSA''), the agency charged with
administering 340B, has opined that 340B is designed so that Covered
Entities would ``pass all or significant part of the discount to their
patients.''\29\ Thus, the clear purpose of 340B is that uninsured,
poor, and otherwise vulnerable patients would benefit by receiving
discounted drugs or charity care.
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\27\ H.R. Rep. No. 102-384, pt. 2 at 12 (1992).
\28\ See H.R. Rep. No. 102-384, pt. 2, at 12 (September 22, 1992).
\29\ HRSA, Notice Regarding section 602 of the Veterans Health Care
Act of 1992; Contract Pharmacy Services, 61 Fed. Reg. 43551 (August 23,
1996).
PBMs, however, have warped the incentives of the 340B program by
intentionally reimbursing 340B pharmacies at rates lower than the PBM's
reimbursement rates for non-340B claims. Relatedly, many PBMs also
require 340B pharmacies to identify which claims are 340B at the time
of claim adjudication, to enable the PBM to apply the reduced 340B
reimbursement rate. These practices are common across many of the
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Nation's largest PBMs.
For example, the PBM OptumRx's 2023 Provider Manual, which is a
publicly available document, explicitly States that OptumRx has the
right to adjust its reimbursement rates for 340B pharmacies:
To the extent Network Pharmacy Provider, during the term of any
renewal term of the Agreement, is owned operated or contracted
with an eligible 340B [Covered Entity] to purchase outpatient
Drug Products from drug manufacturers or wholesalers at reduced
prices for use by eligible members under the Public Health
Service Act, section 340(B) program, Network Pharmacy Provider
shall immediately provide [OptumRx] with written notice of such
eligibility.
The parties acknowledge/agree [OptumRx] shall be entitled to
modify the rates, fees, as well as other reimbursements offered
to Network Pharmacy Provider hereunder in accordance with the
[Provider Manual] and/or Agreement to the extent Network
Pharmacy Provider becomes eligible to purchase Drug Products
under the Public Health Service Act, section 340(B) program.
Failure of Network Pharmacy Provider to notify [OptumRx] of its
340(B) eligibility as stated above shall constitute a material
breach of the Agreement.\30\
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\30\ See 2023 OptumRx Provider Manual, section V.U, 340(B) Program.
The OptumRx Provider Manual is a quintessential contract of
adhesion, offered to pharmacies on a take it or leave it basis, and
with no opportunity to meaningfully negotiate. Similarly, the PBM
Express Scripts Inc. issued notice in February 2021 requiring 340B
pharmacies to retrospectively identify 340B claims. Thereafter, Express
Scripts began to impose significantly lower reimbursement rates for
340B claims, essentially usurping the savings that should have flowed
to Covered Entities, even when a PBM-owned or -affiliated pharmacy may
---------------------------------------------------------------------------
not have been the Contract Pharmacy.
Contrary to the stated intent of the 340B program, reducing
reimbursement to 340B pharmacies allows the PBMs to capture the
prescription drug revenues intended to benefit the 340B Covered
Entities and the poor, uninsured, and otherwise indigent patients they
serve. In effect, PBMs are essentially transferring the benefit of the
340B program from safety net providers to for-profit payors. Notably,
although many States have enacted legislation prohibiting PBMs from
reducing 340B pharmacy reimbursement, there is currently no Federal
analogue to prohibit these PBM practices. As such, these practices
provide a particular area of concern that could be appropriately
addressed through Federal legislation and rulemaking regarding the
Federal 340B drug pricing program.
Question. Regarding dispensing, what barriers exist for patients
seeking to purchase their preferred medication at their pharmacy of
choice? What patient groups are most impacted?
Answer. There are several barriers that exist for patients. For
example, patients are regularly steered away from their preferred
provider and instead are pushed to PBM-owned pharmacies. Patients are
also limited in their availability to seek care from their preferred
providers when PBMs pay unreasonably low reimbursement to independent
pharmacies. When a pharmacy cannot operate with a reasonable profit,
patients may be referred over to PBM owned pharmacies even if this is
not preferred.
Unfortunately, the most impacted patient groups are among the
sickest members of society that require closely coordinated care
utilizing specialty medications. This includes patients with cancer as
well as those experiencing health conditions only treated by specialty
medications that are often some of the costliest medications, which is
typically indicative of the complex conditions they treat.
Questions Submitted by Hon. James Lankford
finger-pointing
Question. In this industry, the blame for high drug prices is
always on someone else:
The pharmaceutical manufacturers blame PBMs for increasing
their list prices through rebates.
The PBMs blame the pharmaceutical industry for setting
prices too high, the PSAOs for taking a cut of the rebate and
not working appropriately on behalf of their pharmacy clients,
and health plans for demanding certain access and pricing
standards.
PSAOs and pharmacies certainly blame both PBMs and health
plans for setting low reimbursement rates, for decreasing
patient access to certain drugs, and for clawing back DIR fees.
Meanwhile, patients do not know who to blame and they likely
do not care as long as prices remain high. Patients primarily
want to be able to afford the drugs that their doctor
prescribed to them and to be able access those drugs at the
pharmacy of their choice.
When many of the players in the supply chain are making claims in
direct opposition of one another, consumers are more confused and more
frustrated. Which of the above arguments are true? Are they all
partially true?
Answer. While all of the stakeholders mentioned in the above
question owe sacred obligations to patients and taxpayers to ensure the
costs of health care are reasonable, the three largest PBMs (which
control 80 percent of the prescription drug marketplace) are owned by
corporations which also own (a) health insurance plans; (b) retail and/
or mail order pharmacy operations; (c) massive specialty pharmacy
operations; (d) drug wholesalers; and (e) rebate aggregators. As one
example, CVS Health, as a parent corporation, currently owns and
operates the following entities: Aetna and SilverScript (health
insurance plans); CVS Caremark (largest PBM); CVS Retail Pharmacy
Operations (approximately 9,600 locations); CVS mail order pharmacy
operations; CVS Specialty Pharmacy; and Zinc (rebate aggregator).
PBMs bear the brunt of responsibility for the high drug prices.
PBMs are uniquely situated (and heretofore uniquely unchecked) to
extract money from every other stakeholder in the chain of pharmacy
operations or alternatively ensure that money that changes hands
remains in one of the corporately affiliated entities' ``pockets''
identified above. PBMs benefit from high list prices set by
pharmaceutical manufacturers because a drug with a high list price can
afford higher rebates to secure favorable placement on drug formulary.
PBMs leverage their control and influence over nearly every aspect of
the prescription drug supply chain to force unfavorable pricing on
pharmacies and PSAOs (the pharmacies' contracting agents). The
companies that own PBMs also own a substantial portion of national
insurance companies (benefiting from lower provider reimbursement), and
even where PBMs and plan sponsors are separate entities, PBMs still
benefit from high drug prices through spread pricing practices and by
retaining outsized portions of drug manufacturer rebates though the use
of rebate aggregators/GPOs. Ultimately, patients lose out because PBM
revenue is used to enrich the largest US companies instead of
decreasing drug prices at the pharmacy counter. PBMs further decrease
patients' options to obtain care from independent providers and instead
force patients to receive medications from their wholly owned pharmacy
(often through mail order).
dir fees
Question. I have worked with my colleagues on and off this
committee to end the abusive practice of DIR fee clawbacks for several
years. I am very thankful that CMS took some level of action with their
final rule last year, which goes into effect at the start of next year,
requiring that pharmacy price concessions be moved to the point of
sale. However, CMS did not go as far as I would argue is necessary by
not including all fees in a definition of ``negotiated price,'' by not
establishing standardized pharmacy performance metrics, and by not
requiring PBM transparency.
Do you agree that the standardization of how pharmacies are treated
by PBMs and transparency of a PBM's reimbursement to a pharmacy is a
necessary final step in making the impact of the CMS DIR final rule
truly impactful to patients and pharmacies?
Answer. Yes. CMS's actions to change the definition of ``Negotiated
Price'' did not go far enough to curb PBM abuses. In fact, recent Part
D network enrollment forms offered for 2024 include new kinds of fees
being charged against pharmacies that may prove to violate the new
definition of ``negotiated price,'' though the customary lack of
transparency from the PBM that created the new network makes it
difficult to determine the legality of the program, short of litigation
and discovery. The fact that PBMs have created a program they believe
is justifiable under the new ``negotiated price'' definition that
nevertheless continues to take additional fees from pharmacies above
and beyond the point of sale reimbursement underscores the incomplete
nature of the new definition and Rule.
Additionally, with respect to standardization--to the extent that
PBMs should measure metrics in a manner that is standard and approved
by reputable organizations that employ peer-reviewed and proven methods
for performance measurement--yes, CMS should further require such
standards. To the extent that these metrics are employed for all
pharmacies, regardless of whether that pharmacy is a corner retail
pharmacy or a sophisticated community oncology provider, we disagree
that the same metrics should be applied to all. Retail metrics simply
do not and cannot apply to specialty providers, and PBMs refuse to
develop metrics that can apply to such providers. This appears to be
the case going into 2024, as the new programs lack transparency,
uniformity, and predictability, and treat specialty pharmacies as
though they are retail.
Congress and CMS should take steps to ensure that current law
clearly applies to PBMs, mandate additional transparency, prohibit PBM
practices that provide preferential treatment to their own pharmacies--
including differential pricing and steering--to the detriment of
patients and independent providers, and requiring greater transparency
across the board to prevent PBM abuses. Legislators and CMS should take
steps to prohibit confidential arbitrations of disputes regarding
Medicare Part D, explicitly allow a private right of action by those
harmed by PBM actions, prohibit class action waivers and allow disputes
to be heard in Federal courts to increase necessary transparency in the
industry, among other recommended changes.
tiering
Question. Currently, some plans have no real order to their
formulary tiers--placement is simply based on who gave them the highest
rebate--whether the product is a low-cost generic or a high-cost brand-
name drug. When a branded drug is rebated so heavily that it is placed
on a more favorable tier than a generic, patients not only lose out on
a lower-cost drug and often end up paying more in coinsurance, but the
market for generics is deteriorated.
The government has worked on policies and the pharmaceutical market
has put in years of work to incentivize the creation of more accessible
and affordable generic and biosimilar products. However, the current
system is sending a message to generic manufacturers--that no matter
how cheap you sell a drug for, you will still lose out to branded drugs
and patients will lose out on access to low-cost drugs because an
artificially lower price through rebates is more affective at reaching
patients than an actual lower price because of PBM practices.
How would changes to the way plans and PBMs are structuring
formularies open up possible savings to patients and what incentives
may it provide for the increased production of lower-cost generic
products?
Answer. The anticompetitive effects and downstream consequences
faced by beneficiaries of Federal health plans caused by PBMs'
manipulation of plan formularies to favor branded medications is well
documented. As a result, although the Federal Government's policies
have expanded the availability of generic drugs in the marketplace,
patients are precluding from fully realizing the financial benefits of
generic medications in part through PBM formularies that are profit
oriented. These PBM formularies prioritize branded medications over the
cheaper generic alternatives because these branded medications carry
significant rebates with them, which the PBMs are paid by the branded
manufacturers in exchange for favorable formulary placement. PBMs keep
a share of these rebates, increasing their bottom lines, and pass the
remainder on to the plans they manage. Notably, generic medications, on
the other hand, typically do not pay rebates to PBMs. As a result of
this rebate structure, PBMs are incentivized against managing their
formularies to obtain the most cost effective benefits for the plan and
its beneficiaries.
Although this issue is complex and multifaceted, the following
represent areas where, if material changes are made, the perverse
incentives for the preference of expensive branded medications on PBM
formularies can be alleviated:
1. Federal restrictions on the rebates PBMs may retain
(directly or indirectly) from drug manufacturers would remove
the financial incentive for PBMs to prefer branded medications
over generics. These Federal restrictions could take the form
of a minimum aggregate rebate amount that a PBM may retain from
drug manufacturers, or a prohibition on the retention of
rebates entirety. If PBMs are restricted by Federal law from
retaining manufacturer rebates, there is less financial
incentive for PBMs' preference of the costly branded drugs that
carry these rebates.
2. Impose fiduciary requirements on PBMs to act in the best
interests of the plan sponsors and their beneficiaries.
3. Federal legislation that sets standard and fixed
methodologies through which PBMs can calculate and collect
their fees. For example, and generally speaking, PBM contracts
with plan sponsors often provide that the PBM's fees are
calculated based on a percentage of drug cost. Thus, PBMs are
further incentives to place higher cost medications on their
formulary, and capture a higher fee from the plan.
4. Federal requirements that PBMs include at least one generic
alternative at or above the same formulary tier as the branded
drug analogues.
5. Promote transparency to shed light on the manufacturer
rebates the PBM is receiving through use of pass-through
contracting, which requires the amount charged to the PBM from
the plan to be equal to amount paid to the provider, net any
rebates.
______
Prepared Statement of Karen Van Nuys, Ph.D., Senior Fellow, Leonard D.
Schaeffer Center for Health Policy and Economics; and Executive
Director, Value of Life Sciences Innovation Program, University of
Southern California
Key Points:
PBMs play a central role in the economic system that
distributes and pays for lifesaving drugs in the United States.
Evidence indicates they leverage their position to extract
profits in ways that are detrimental to patients, payers, and
the drug innovation system more broadly.
PBMs in some cases increase drug costs to patients and
taxpayers; our study suggests Medicare pays 21 percent more for
the most common generic drugs than they would if purchased at
Costco.
The rebate system by which PBMs negotiate with manufacturers
to gain market access distorts incentives; indeed, it increases
list prices for brand drugs, which can have significant adverse
impact on patients.
PBMs sometimes steer patients toward more expensive drugs;
there are many examples of PBMs providing more favorable
formulary placement to expensive brand drugs than to lower cost
generics, presumably in exchange for larger rebates.
Research on the economic rents earned by different sectors
of the distribution system indicates PBMs and other
intermediaries earn excess returns after adjusting for risk.
Increased transparency could shed light on how widespread
such practices are, and their overall impact on drug prices and
spending. Greater transparency could also provide purchasers
better information about the prices and alternatives they face,
and help lower costs to patients and taxpayers.
Chairman Wyden, Ranking Member Crapo, and honorable members of the
committee, thank you for the opportunity to testify today about the
practices of pharmacy benefit managers (PBMs) and their impacts on
patient costs and drug spending. My name is Karen Van Nuys, and I am an
economist and senior fellow at the Leonard D. Schaeffer Center for
Health Policy and Economics at the University of Southern California,
where I also direct the Value of Life Sciences Innovation research
program. The opinions I offer today are my own, and build on previous
statements made to the Federal Trade Commission \1\ and in other
publications.
---------------------------------------------------------------------------
\1\ https://healthpolicy.usc.edu/article/comments-to-the-federal-
trade-commission-on-pharmacy-benefit-managers/.
---------------------------------------------------------------------------
background
At the Schaeffer Center, my colleagues and I have been studying
prescription drug markets for well over a decade, with particular
emphasis on the economic system that distributes and pays for
lifesaving drugs. That system includes several intermediaries or
``middlemen,'' who each play a role in getting the physical product
(the drugs) from the manufacturer to the patients who need them, and
then managing the financial flows that ensure that everyone along the
way is paid for playing their part in that system. The Schaeffer Center
was among the first research institutions to highlight this complex
market and quantify its role in drug prices, with one of our earliest
studies \2\ demonstrating that, out of $100 spent on retail
pharmaceuticals in 2013, $41 went to distribution system
intermediaries.
---------------------------------------------------------------------------
\2\ https://healthpolicy.usc.edu/research/flow-of-money-through-
the-pharmaceutical-distribution-system/.
Pharmacy benefit managers (PBMs) play an important role in that
system. They can, and often do, provide much-needed services to drug
companies, insurers, employers and patients. PBMs sit in the middle of
nearly all of the financial transactions in that drug delivery system,
a position that provides them with extraordinary information access and
---------------------------------------------------------------------------
leverage.
Their position has only solidified as PBMs have merged with other
distribution system participants over the last decade, resulting in an
industry that has become more vertically integrated. The top three PBMs
are each part of a corporate structure \3\ that also includes an
insurer, specialty pharmacy, and health-care provider. Some include
retail pharmacies as well. Those three companies ranked #4, #5 and #12
on Fortune's list \4\ of the largest public companies in America last
year. Using a different yardstick, the top three PBMs handle 80 percent
of all U.S. prescription volume.\5\
---------------------------------------------------------------------------
\3\ https://www.drugchannels.net/2022/12/drug-channels-news-
roundup-december.html.
\4\ https://fortune.com/ranking/fortune500/.
\5\ https://www.drugchannels.net/2022/04/the-top-pharmacy-benefit-
managers-of.html.
While their size may make PBMs more formidable when negotiating
with drug manufacturers and enable them to bring about lower drug
prices, it can also position them to suppress competition, capture
excess profits and raise drug costs. Which of these two possibilities
prevails is ultimately an empirical question that much of our research
---------------------------------------------------------------------------
seeks to answer.
Estimating pharmaceutical market money flows can be challenging,
because much of the data on pharmaceutical prices is confidential,
proprietary, masked, or otherwise opaque to outside researchers.
Without transaction prices, it is difficult to conduct a broad,
comprehensive analysis that could prove definitively whether PBMs are
lowering drug costs. Instead, drug price researchers like myself must
conduct studies using the incomplete data available to us to shine
slivers of light into the dark corners of the system, and from these
glimpses, assemble a kind of collage of the overall picture. I
summarize some pieces of the picture here:
pbms' impact on generic drug costs
An analysis we published in JAMA Internal Medicine in 2021 \6\
compared what Medicare paid for 184 of the most common generic drugs
with what those same prescriptions would have cost cash-paying members
at Costco. We found that Medicare could have saved $2.6 billion in 2018
on just those 184 drugs if they had been purchased without insurance at
Costco. Somehow, involving the PBM and the health plan in the
transaction increased drug costs by 21 percent.
---------------------------------------------------------------------------
\6\ https://jamanetwork.com/journals/jamainternalmedicine/
fullarticle/2781810.
PBMs use several commercial tactics that together may explain those
higher costs. One is the copay clawback, in which PBMs collect a
patient copay that exceeds the total cost of the drug, keeping the
excess. My colleagues and I used data from a short-lived Federal survey
in 2013 (the national average retail price, or NARP) to compare
patients' copayments with the reimbursement pharmacies collected to
settle the claims. We found \7\ that 23 percent of prescriptions
incurred a copayment that exceeded the PBM's cost of the drug. When an
overpayment occurred, it averaged $7.69 per claim, which went to the
PBM. The practice was especially common on generic prescriptions, with
28 percent of generic scripts involving a clawback. Many of the most
common generic prescriptions involved overpayments \8\ on more than
half of claims, including prednisone (50 percent), simvastatin (52
percent), amlodipine besylate (60 percent) and zolpidem tartrate (60
percent).
---------------------------------------------------------------------------
\7\ https://jamanetwork.com/journals/jama/fullarticle/2674655.
\8\ https://healthpolicy.usc.edu/research/overpaying-for-
prescription-drugs/.
Federal legislation passed in 2018 banned the gag clauses that
prevented pharmacists from telling clients when their copayment
exceeded the cash price of their prescription. This has likely curbed
some copay clawback activity, but the fact that Federal legislation was
necessary to stop PBMs from blocking pharmacists who wanted to help
patients save money is telling. PBMs frequently claim they are ``on
patients' side,'' \9\ but gag clauses, and the one in four
prescriptions with a copay clawback, appear to favor PBMs rather than
patients.
---------------------------------------------------------------------------
\9\ https://onyourrxside.org/.
A second PBM tactic that raises drug costs is ``spread pricing,''
in which the PBM pays the pharmacy one price to fill a prescription,
then charges the health plan a higher price to settle the same claim,
pocketing the difference. The Ohio State auditor found \10\ that PBMs
charged, on average, 31 percent spreads for generic drugs in that
State's Medicaid managed care program between 2017 and 2018.
---------------------------------------------------------------------------
\10\ https://ohioauditor.gov/auditsearch/Reports/2018/
Medicaid_Pharmacy_Services_2018_
Franklin.pdf.
---------------------------------------------------------------------------
the flow of money: pbms impact drugs' list prices
While PBMs may increase the cost of generic prescriptions, branded
drugs account for most of drug expenditures,\11\ making PBM impacts on
prices in those markets especially important. To better understand how
middlemen impact brand drug markets, my Schaeffer colleagues and I
studied the money flows to distribution intermediaries \12\ from
insulin sales between 2014 and 2018. We found that insulin list prices
rose 40 percent in 5 years while the average net price--what
manufacturers received after all rebates, fees and discounts--decreased
by 31 percent. At the same time, the total amount spent per 100mL of
insulin barely changed, growing just 3 percent.
---------------------------------------------------------------------------
\11\ https://www.iqvia.com/insights/the-iqvia-institute/reports/
the-use-of-medicines-in-the-us-2022.
\12\ https://jamanetwork.com/journals/jama-health-forum/
fullarticle/2785932.
PBMs frequently tout the role they play in negotiating lower prices
from drug manufacturers. Given that insulin manufacturers received
lower net prices between 2014 and 2018, PBMs were clearly successful in
negotiating steep price concessions. But they were evidently not
passing those savings along to patients, since total insulin
expenditures for consumers and taxpayers remained flat. Instead,
intermediaries in the distribution chain, including PBMs, were
capturing the savings: out of every $100 spent on insulin,
intermediaries claimed $31.29 in 2014, climbing to $53.27--more than
half--by 2018. PBMs' share alone grew 155 percent, from $5.64 in 2014
to $14.36 in 2018. Price discounts do not benefit patients or premium
payers if they don't result in lower expenditures. Patients care about
the total amount they spend per 100mL of insulin, not whether their
money is going to manufacturers or to other entities in the
---------------------------------------------------------------------------
distribution system.
Manufacturers do not determine list prices on their own. List
prices are the result of a complicated dynamic that involves both PBMs
and manufacturers. The 40-
percent growth we observed in insulin list prices is the result of
strong incentives for list price increases that are embedded in the
current rebate system. Manufacturers compete with one another for
preferred formulary placement on the basis of both list prices and
rebates. PBMs consider manufacturers' offers, knowing that they will
get the rebate, while the manufacturer will get (roughly) the list
price minus the rebate (the net price). All other things equal, PBMs
have a clear financial incentive to prefer larger rebates (either
because they retain a share, or because their clients prefer higher
passed-through rebates), so if insulin manufacturers want to stay on
the formulary, they need to offer high rebates. This results in upward
pressure on list prices: as PBMs seek higher rebates, manufacturers
increase their list prices to accommodate those rebates. PBMs may also
collect administrative fees from manufacturers that are calculated as a
percentage of list prices, strengthening their incentives to push for
higher list prices.
Schaeffer researchers published a study in JAMA Network Open in
2021 \13\ that demonstrated the broader impact of these price
negotiation dynamics. They find that the most competitive drug classes,
those with both brand and generic competitors, feature the fastest
growth in list prices, presumably because PBMs can negotiate most
aggressively when there are multiple competitors to pit against one
another. The ratio of list price to net price grew fastest for drugs in
that class as well, from 2.7 in 2014 to 3.4 in 2018, compared with
drugs with only branded competitors and those without any competition.
In other words, as competition increases, manufacturers vie for
preferred formulary placement by offering PBMs larger rebates, which
creates upward pressure on list prices. This runs counter to
conventional wisdom--we typically expect greater downward pressure on
prices the more competitive the market. With drugs, we see greater
upward pressure on list prices in more competitive markets.
---------------------------------------------------------------------------
\13\ https://jamanetwork.com/journals/jamanetworkopen/fullarticle/
2779453.
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rebate-driven increases in list prices hurt patients
Increasing list prices are not purely an accounting phenomenon,
they have real consequences. Patients without insurance may pay list
prices directly, while patients who are insured may be exposed to list
prices while they are in the deductible phase of their benefit. And
coinsurance amounts paid by patients are frequently defined as a
function of the list price. The same 2021 JAMA Network Open study \14\
found that Medicare Part D participants who were exposed to cost-
sharing based on the list price had out-of-pocket spending that grew
50-percent faster for drugs with branded competitors compared with
drugs with no competition.
---------------------------------------------------------------------------
\14\ https://jamanetwork.com/journals/jamanetworkopen/fullarticle/
2779453.
PBMs have deflected blame for these rebate and list price dynamics
by pointing out \15\ that they pass through most of the rebates they
collect to health plans, who may then use them to keep premiums low for
beneficiaries. But the ultimate result of such practices is to decrease
the effective generosity of insurance by reducing premiums while
increasing out-of-pocket costs--effectively, this transfers resources
from sick people to healthy premium-paying beneficiaries. This is of
course the opposite of insurance,\16\ which is supposed to pool funds
from a large, mostly healthy group of beneficiaries and use it to
defray the costs of those who experience the misfortune of falling ill.
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\15\ https://www.fiercehealthcare.com/payer/cvs-caremark-express-
scripts-pbm-pass-through-cigna-merger.
\16\ https://www.forbes.com/sites/tomasphilipson/2014/04/01/double-
jeopardy-in-american-health-insurance/?sh=37b38e954f72.
---------------------------------------------------------------------------
pbms can steer patients toward more expensive drugs
These list price/rebate dynamics can distort formulary design in
ways that raise total spending. Most dramatically, this occurs when
patients are steered to expensive brand medications, even when a lower
cost generic equivalent is available. Researchers studying Medicare
Part D formularies \17\ found that 72 percent of them placed at least
one branded product in a lower cost-sharing tier than its generic
product; 30 percent of formularies adopted fewer utilization controls
on the branded product than its generic equivalent for at least one
drug. Among the 222 drugs studied, the median branded product price was
3.9 times higher than the generic price.
---------------------------------------------------------------------------
\17\ https://jamanetwork.com/journals/jamainternalmedicine/
fullarticle/2728446.
Other examples abound. In 2019, well before their patents were due
to expire, Gilead introduced \18\ authorized generic versions of their
branded hepatitis C cures Epclusa and Harvoni. These versions were
identical to the branded products, but had greatly reduced list prices
and rebates, giving PBMs the choice to prefer the high list/high rebate
branded version or the lower list/lower rebate authorized generics on
their formularies. At the time, the manufacturer noted that patients in
Medicare plans covering the authorized generics could save up to $2,500
in out-of-pocket costs.
---------------------------------------------------------------------------
\18\ https://www.gilead.com/news-and-press/company-statements/
authorized-generics-for-hcv.
And yet, when the Office of the Inspector General studied Medicare
formulary placement \19\ for these drugs, it found that ``[i]n 2020,
nearly half of Part D plans covered Epclusa or Harvoni but did not
cover the authorized generic versions that were specifically launched
to reduce patient costs.'' By the end of 2020, less than 20 percent of
Medicare patients receiving either branded Harvoni or its authorized
generic were receiving the cheaper version.
---------------------------------------------------------------------------
\19\ https://oig.hhs.gov/oei/reports/OEI-BL-21-00200.pdf.
Recent experiences with the pricing of new biosimilar versions of
expensive biologics demonstrate the same perverse formulary dynamics.
FDA recently approved the first insulin biosimilar that is
interchangeable \20\ with Lantus, an expensive branded insulin. The
manufacturer, Viatris, launched two versions of the drug--branded
Semglee, with a list price just 5 percent below that of Lantus, and an
authorized but unbranded version, Glargine, with a 65-percent lower
list price than Lantus. Both are interchangeable with the originator
Lantus product. The net prices to the manufacturer are likely similar
across the two versions, with the branded Semglee offering
substantially larger rebates than Glargine. Express Scripts announced
\21\ that they would prefer the biosimilar on their largest formulary,
covering 28 million lives, in 2022 and would exclude the originator
Lantus product. But the preferred product chosen was the high list
price/high rebate Semglee, while the low list price/low rebate Glargine
was excluded from the formulary.
---------------------------------------------------------------------------
\20\ https://www.drugchannels.net/2021/11/why-pbms-and-payers-are-
embracing.html.
\21\ https://www.prnewswire.com/news-releases/express-scripts-will-
unlock-20-million-in-savings-for-clients-in-2022-by-preferring-the-
first-interchangeable-insulin-biosimilar-301404121.html.
More recently, in January, Amgen launched \22\ Amjevita, the first
biosimilar to the blockbuster rheumatoid arthritis drug Humira. As in
the Semglee example, Amgen also went with two options--a high list/high
rebate version at a 5-percent discount to Humira, and a low list/low
rebate version at a 55-percent discount. Shortly thereafter, Optum
released its formulary changes for February 2023.\23\ On both its
Premium and Select formularies, Optum placed the high-list-price
version on Tier 2 (preferred brand), preferring it over the low-list-
price version. The low-price version was excluded altogether from the
Premium formulary, and placed on Tier 3 for the Select formulary,
requiring that patients first try and fail the high-priced biosimilar
and the still higher priced Humira before gaining access to the low-
list-price biosimilar.
---------------------------------------------------------------------------
\22\ https://www.reuters.com/business/healthcare-pharmaceuticals/
amgen-launches-biosimilar-version-abbvies-humira-2023-01-31/.
\23\ https://professionals.optumrx.com/content/dam/optum3/
professional-optumrx/resources/pdfs/
PharmacyPassages_Standard_Feb_2023_FINAL.pdf.
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pbms earn excess returns
In market economies, a firm's quest for profit is both expected
and, in most cases, desirable. But this quest for profits can be
harmful if the profits generated are not commensurate with the value
delivered to society; in such cases, policymakers may be expected to
intervene. In the present case, the question is whether the profits
earned by PBMs are justified. To answer it, we must evaluate whether
the money they make is ``excessive'' in some risk/reward sense. High
returns may be justified if large risks are undertaken to earn them;
manufacturers' high profit margins are often justified by the large
risks involved in developing new drugs, most of which fail to make it
to market.\24\ By contrast, PBMs' contracts with health plans do not
typically expose them to financial risk for drug spending, nor do they
assume significant inventory risk; in the retail drug market, PBMs do
not even take possession of the product.
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\24\ https://academic.oup.com/edited-volume/34491/chapter-abstract/
292630954?redirected
From=fulltext.
Schaeffer researchers studied the risk-adjusted returns of
distribution system participants in 2013-2018. Comparing the adjusted
return on invested capital to firms' weighted average cost of capital,
they found \25\ that pharmaceutical manufacturers' excess returns fall
below those of the S&P 500 (1.7 percent vs. 3.6 percent), while those
for biotech manufacturers (9.6 percent), wholesalers (8.1 percent), and
insurers/PBM/retailers (5.9 percent) remain significantly above them.
(PBMs could not be disaggregated from the insurer/PBM/retailer category
since so many of the companies in the sample were integrated across
these parts of the distribution system.) They also found that excess
returns for the insurer/PBM/retailer sector increased over the study
period, when both horizontal and vertical consolidation were also
increasing. Broadly, these results suggest that the returns earned by
companies in that category, including both standalone and integrated
PBMs, are not explained by the risks they bear, and may instead reflect
anticompetitive commercial tactics.
---------------------------------------------------------------------------
\25\ https://link.springer.com/article/10.1007/s10754-020-09291-1.
---------------------------------------------------------------------------
conclusion: greater transparency and oversight is warranted
The tactics illustrated here demonstrate some of the methods PBMs
use to leverage their market power and the opacity of the system in
ways that harm consumers and taxpayers. While it is true that PBMs also
provide valuable services, the information asymmetry inherent in their
position in the distribution system, the misaligned incentives that
govern their behavior, and the trend towards increased vertical
consolidation, should all be concerning to policymakers and regulators.
Increased transparency that gives market participants visibility
into the prices they are facing would enable them to make more informed
economic decisions and help level the playing field. And stricter
reporting requirements for more granular transaction data would allow
regulators (and potentially researchers) to analyze specific markets
and tactics, identify problems more quickly, and offer more targeted
solutions.
______
Questions Submitted for the Record to Karen Van Nuys, Ph.D.
Question Submitted by Hon. Ron Wyden
Question. What recommendations do you have for how and where to
increase transparency throughout the prescription drug supply chain?
Please specify both the transaction and the stakeholders in your
response.
Answer. The current drug pricing system is characterized by a lack
of transparency at almost every point, which enables sellers to extract
profits without fear of competitive consequences (for example, loss of
volume if they charge higher prices than competitors). Increased price
transparency in such situations helps buyers to understand when they
are being overcharged (or sellers to understand when they are being
underpaid), and where they should go for better deals. This essential
dynamic, in which buyers and sellers compare the deals they are being
offered to what alternative providers are offering, keeps prices in
check in competitive markets, but is too often missing in drug markets.
Increased transparency could strengthen this competitive dynamic at
several points in the drug distribution system, if high-
quality price benchmarks were available to market participants. Outside
researchers could also use them to identify trends and anomalies that
warrant further investigation. For example:
Pharmacy reimbursement from PBMs: PBM reimbursements to pharmacies
for filling scripts vary widely, and pharmacies lack quality benchmarks
to understand whether they are being paid a fair price for their
services. Pharmacies are now typically reimbursed based on average
wholesale price (AWP), which is not based on actual transaction prices
and is subject to manipulation and creates distorted incentives.
A better benchmark would be a national average of actual
reimbursements received by pharmacies, collected regularly and posted
publicly, similar to the National Average Drug Acquisition Cost
(NADAC)\1\ price series that CMS currently publishes. To construct
NADAC, pharmacies are surveyed about the prices they pay to acquire
prescription drugs; a similar survey could gather data about the
reimbursements pharmacies receive. Average reimbursement values could
be posted by type of payer (commercial plan, government plan, cash pay)
and type of pharmacy (independent, chain affiliated with a PBM,
unaffiliated chain, mail order, etc.) without revealing sensitive trade
secrets.
---------------------------------------------------------------------------
\1\ https://data.medicaid.gov/nadac.
Interestingly, a series similar to this (called National Average
Retail Price, or NARP) was launched alongside NADAC in 2012,\2\ but was
quickly withdrawn for reasons that are not clear. NARP was a national
survey of pharmacies that documented average drug reimbursements
received by pharmacies from payers; 6 months of data were published.
Schaeffer researchers were able to use the NARP data that were briefly
available to establish that 23 percent of commercial pharmacy claims
involved a patient copayment that exceeded the total cost of the
prescription.\3\ At the time, PBM representatives were claiming that
they did not support such practices, and that if they happened, they
were ``outliers.''\4\ Following our NARP analysis and resulting media
attention, in 2018 Congress enacted legislation banning the use of gag
clauses \5\ in PBM contracts that prevented pharmacists from alerting
patients when their copay exceeded the cash price of the drug.
Ironically, because NARP data are no longer available, we cannot
confirm whether the situation has improved for patients since gag
clauses were banned.
---------------------------------------------------------------------------
\2\ https://www.drugchannels.net/2012/10/transparency-is-here-cms-
exposes.html.
\3\ https://jamanetwork.com/journals/jama/article-abstract/2674655.
\4\ Testimony of Mark Merritt, CEO of PCMA, to Senate HELP
Committee, October 17, 2017. (See exchange with Senator Susan Collins
beginning at 1:15:55), https://www.help.senate.gov/hearings/the-cost-
of-prescription-drugs-how-the-drug-delivery-system-affects-what-
patients-pay-part-ii.
\5\ https://kffhealthnews.org/news/no-more-secrets-congress-bans-
pharmacist-gag-orders-on-drug-prices/.
As originally implemented, NARP did not capture retroactive fees
such as the DIR clawbacks that have since become widespread in Medicare
Part D. Any new pricing benchmark would ideally capture these important
revenue flows between PBMs and pharmacies, which would be difficult to
do if those fees are imposed retroactively. Fortunately, CMS is
planning to eliminate retroactive DIR fees beginning next year,
requiring that any DIR fees and other concessions be reflected in the
negotiated price at the point of sale. Thus, a NARP-like price
benchmark implemented after January 2024 could capture all revenue
flows at the point of sale and would constitute a more comprehensive
---------------------------------------------------------------------------
measure.
Another complicating factor is that pharmacies that are vertically
integrated with PBMs can report almost any reimbursement from their
affiliated PBMs, since the amount could be set arbitrarily, simply
shifting money from one pocket to the other for the parent company.
Thus, other changes, such as additional oversight of vertically
integrated entities, or limiting vertical integration, might also be
necessary, and pricing benchmarks should be reported separately for
those pharmacies affiliated with a PBM. But even an imperfect measure
provides market participants (and outside researchers) with more tools
than we currently have to make more informed economic choices, and to
better understand how money flows in the drug distribution system.
Plan payments to PBMs: Health plans could be surveyed about the
rates they pay to settle claims, and responses averaged and publicly
posted by NDC or product, with sub-group results for different payer
types (Medicare, commercial, etc.) and different PBM types (large/
small, integrated with plan/unaffiliated with plan).
As above, this measure is also imperfect. Vertically integrated
organizations could again set payments arbitrarily to realize the
revenues in whichever unit is most advantageous. Subgroup reporting,
comparing rates between plans that are and are not affiliated with a
PBM, would help disentangle this effect. Additional oversight of
vertically integrated organizations may also be useful.
Note: Any data measures collected via survey would be more useful
and closer to ``true'' transaction prices if survey responses were made
mandatory. This is true of the current NADAC survey, for which response
is now voluntary. Studies comparing NADAC to similar values collected
through a mandatory survey suggest that NADAC may overstate generic
drug acquisition costs by roughly 20 percent. Thus, Congress should
require participation in these pricing benchmark surveys as a condition
of participating in the Medicare/Medicaid programs.
Manufacturer net prices: Drug manufacturers could also be surveyed
semiannually about the average net prices they receive, after rebates
and discounts, on each of their products by NDC, and the information
made available publicly.
Medicare Part D rebate payments: CMS currently collects data from
plans about how much they receive in direct and indirect remuneration
(DIR), including manufacturer rebates. These values could be made
public. To address potential concerns about reporting proprietary
information, some degree of aggregation could be applied.
Premiums for Medicare Advantage-Part D plans (MA-PDs): CMS makes
information on Part D premiums publicly available, which is useful for
researchers and analysts to study how competition is working in the
Part D market (including, for example, the extent to which manufacturer
rebates are being used by plans to offset premiums). However, the
premium data reported for MA-PDs are net of any ``supplemental rebate
buy-down'' applied by the MA plan. (The terminology can be confusing,
because this is a different type of ``rebate'' than those negotiated
between PBMs and drug manufacturers.) When an MA plan bids below the
benchmark to cover the medical benefits for its enrollees, it receives
a portion of that difference in the form of a ``supplemental rebate,''
which the plan then uses to enhance benefits and/or reduce cost sharing
or premiums. It is very common for MA-PDs to use a portion of that
supplemental rebate to offset some or all of the Part D premium that
enrollees would otherwise pay. Indeed, in 2022, 69 percent of MA-PD
enrollment \6\ was in a plan that fully paid the Part D premium with
these supplemental rebates. Because CMS reports Part D premium data net
of any buy-down for MA-PDs, that 69 percent of MA-PD enrollees is
reported as having a $0 premium. To answer certain research questions
it is useful to know what beneficiaries actually pay, but these data
provide limited insight into market competition overall; this is
particularly limiting because the majority of Part D enrollment is in
an MA-PD. If CMS were to also make available the data on Part D
premiums before supplemental rebates are applied (as they do with
stand-alone Part D plans), this would allow for better evaluation of
dynamics in the Part D market overall.
---------------------------------------------------------------------------
\6\ https://www.kff.org/medicare/issue-brief/medicare-advantage-in-
2022-premiums-out-of-pocket-limits-cost-sharing-supplemental-benefits-
prior-authorization-and-star-ratings/.
______
Questions Submitted by Hon. Mike Crapo
delinking compensation from drug prices
Question. A growing body of research suggests that compensation and
contracting structures across the prescription drug supply chain may
risk incentivizing higher list prices for medications by tying
stakeholder payments to products' list prices or to list-price-derived
benchmarks. In its March 2023 report to Congress, for instance, the
Medicare Payment Advisory Commission (MedPAC) contends that ``[a]ll
levels of the drug supply chain include incentives that drive [point-
of-sale] prices higher, particularly when payments are based on a
percentage of prices.''\7\
---------------------------------------------------------------------------
\7\ See p. 400, https://www.medpac.gov/document/march-2023-report-
to-the-congress-medicare-payment-policy/.
The potential for these types of incentives has driven some experts
and supply-chain participants to propose eliminating the use of drug
prices in establishing payment rates and amounts for PBMs and other
stakeholders. A coalition of Idaho-based providers, patient advocates,
and job creators, for instance, recently wrote in support of Federal
policies aimed at ``delinking PBM compensation from the list price of
individual medications.''\8\
---------------------------------------------------------------------------
\8\ See Endnotes for a copy of the letter.
How would Federal policies delinking compensation for pharmacy
benefit managers (PBMs) and plan sponsors from drug prices in the
context of Medicare Part D affect incentives within the retail
prescription drug supply chain, and how would this type of change
---------------------------------------------------------------------------
likely impact beneficiary costs and taxpayer spending?
Answer. Delinking PBM and plan sponsor compensation from drug list
prices (for example by prohibiting fees and rebates that are set as a
share of list price) would reduce the upward pressure we now see on
drug list prices, which should translate into lower patient out-of-
pocket spending. The impact on beneficiary costs and taxpayer spending
of such moves is less clear, as it depends on several factors,
including the impact on manufacturer net prices and aggregate PBM fees.
If PBM and other intermediary fees are reduced by more than any
increase in drug net prices, spending could decrease. On the other
hand, if drug net prices increase by more (perhaps because PBMs have
weaker incentives to negotiate prices after delinking), overall costs
and spending could increase.
Separately however, beneficiary costs and taxpayer spending would
change as a result of delinking, because such a move would restore the
generosity of the Part D benefit. Since the Part D standard benefit
design is tied to list prices, as list prices have become increasingly
inflated, the value of Part D insurance coverage has declined over
time. Delinking PBM and plan compensation from list prices would reduce
upward pressure on list prices (and, more specifically, reduce the
wedge between list and net prices). On its own, reducing this wedge
would increase taxpayer costs because it would restore the generosity
of the Part D benefit. Restoring the generosity of that benefit to more
closely reflect net prices would increase premiums (because it is a
more valuable benefit), which would increase taxpayer costs. However,
it would also lead to more generous coverage and reduce out-of-pocket
spending, particularly for some beneficiaries.
Question. Apart from PBM payments and services, where else in the
supply chain do compensation structures rely on drug pricing
benchmarks, and how should policymakers consider addressing these
dynamics?
Answer. Pharmacies are typically reimbursed for brand, generic and
specialty medications as a percentage of Average Wholesale Price (AWP),
a benchmark that is not tied to the drug's actual acquisition cost.
This creates incentives for pharmacies to sell not the lowest cost
drug, but the one that maximizes the difference between AWP and its
acquisition costs. For brand drugs, AWP is calculated at 120 percent of
WAC (wholesale acquisition cost), the list price set by a drug's
manufacturer. For generic drugs, AWP can vary widely across similar
drugs, creating incentive distortions. Basing reimbursements on an
alternative benchmark that reflects actual transaction prices and that
is publicly available, such as the National Average Drug Acquisition
Cost (NADAC), as Dr. Gibbs from Capital Rx suggested in his testimony,
would reduce these distortions.
access to affordable biosimilars
Question. As more biosimilars have come to market, including for
Part D-covered biologics, some experts have expressed concerns over the
resulting coverage policies, as a number of plans have opted to
advantage reference products or biosimilars with higher list prices
over lower-priced biosimilars, despite the fact that beneficiaries
often pay cost sharing under Part D as a percentage of a list-price-
based benchmark. This pattern could curb incentives for biosimilar
development and market entry, undermining competition.
What concrete steps could Congress take to ensure that Part D
enrollees can benefit from lower-priced biosimilar options, as well as
to bolster cost-cutting competition among biologics and biosimilar
market entrants?
Answer. The same issues that are noted above with branded drugs--
that rebates and cost sharing linked to list prices create pressure to
increase drug prices and patient costs--apply to biosimilars in Part D
as well. The current model, in which manufacturers compete to offer the
highest rebates rather than the lowest net price, is responsible for
these dynamics. If Congress were to pursue broader reforms that reduce
incentives for high list-price, high-rebate drugs over lower-net-cost
drugs, this would give lower-cost biosimilars an advantage over higher-
cost biosimilars or reference products in Part D. But such a change
will decrease rebate payments to plans, and put upward pressure on
premiums, in large part because it would shift beneficiary spending
away from out-of-pocket costs (among users) to premiums (for all).
While this may be politically uncomfortable, it will shift financial
obligations away from sick people (lower out-of-pocket expenses) to
healthy people (higher premiums), which is the point of insurance.
Indeed, in Part B drug markets, where dynamics are driven by post-
rebate ASP prices, we have seen biosimilar entrants capture significant
market shares and drive prices down,\9\ as expected from increasing
competition, without requiring direct regulatory intervention.
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\9\ https://www.ajmc.com/view/provider-differences-in-biosimilar-
uptake-in-the-filgrastim-market.
Congress can also work with the FDA to streamline the process for
biosimilar approval and entry.
reporting measures
Question. During the March 30th hearing, you referenced the value
of additional aggregated cost and payment reporting requirements at
various junctures of the prescription drug supply chain, given the
potential transparency benefits of the resulting information for
policymakers, researchers, and stakeholders.
If Congress were to pursue policies to establish these types of
reporting and transparency measures, how should legislators go about
structuring them (i.e., at what junctures of the supply chain should
the measures be instituted, what information should be collected, and
what level of aggregation and publication would be most helpful)?
Answer. Please see my response to question 1 from Senator Wyden,
above, specifically regarding pharmacy reimbursements from PBMs and
plan payments to PBMs.
Question. What other types of reporting (i.e., to Federal agencies,
from PBMs to plan sponsors, from agencies to the public, etc.) would
help to improve prescription drug benefits under Federal health
programs? Response: Please see my response to question 1 from Senator
Wyden, above, specifically regarding manufacturer net prices, Medicare
Part D rebate payments, and premiums for Medicare Advantage-Part D
plans.
consumer overpayments
Question. In a number of past reports, you and your colleagues at
the Schaeffer Center have identified circumstances under which insured
patients have paid more than their PBMs and plans for certain
prescriptions, including with respect to some generic drugs.
What dynamics or practices seem to drive these types of
occurrences, and where in the supply chain do we see markups that
increase consumers' out-of-pocket costs? What steps could Congress take
to address these patient burdens?
Answer. In one study \10\ published in JAMA in 2018, we found that
patient copays exceeded the total cost of the claim on nearly one in
four prescriptions in a commercially insured population (and nearly one
in three generic prescriptions). Lack of transparency contributes to
this practice, because patients have no idea what their prescriptions
actually cost their insurers, and therefore do not know when their
copayment is too high. Gag clauses in the contracts between PBMs and
pharmacies facilitated such practices, because they prevented the
pharmacist from notifying the patient when their copayment was greater
than what the drug would cost with cash. Federal legislation in 2018
banned these gag clauses, although we no longer have access to the data
that would let us establish if or how much the practice has declined as
a result.
---------------------------------------------------------------------------
\10\ https://jamanetwork.com/journals/jama/article-abstract/
2674655?redirect=true.
In a second study,\11\ published in JAMA Internal Medicine in 2021,
we found that Medicare overspent on claims for the most common generic
drugs by 20.6 percent compared to what Costco members would have paid
in cash for the same drugs. Some of this may have been the result of
copay clawbacks as described above, but more was likely due to spread
pricing, in which the PBM charges the Medicare plan more than what it
pays the pharmacy to settle the claim, or vertically integrated PBMs
reimbursing their affiliated pharmacies more generously. Again, lack of
transparency is the root culprit for these practices, as plans don't
know what their PBM is paying the pharmacy to settle the claim, so they
have no way to judge whether they are being overcharged. Legislation
that bans or otherwise limits spread pricing could help, but PBMs that
are vertically integrated with pharmacies could easily reduce spread
payments by altering their internal transfer prices to realize profits
in the pharmacy division instead.
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\11\ https://jamanetwork.com/journals/jamainternalmedicine/
fullarticle/2781810.
Since much of the Part D market is made up of plans that use their
own PBM (UnitedHealth, Humana, and CVS Health are the three largest
Part D carriers and each uses its own PBM), a better understanding of
whether such overspending reflects generous payments to PBM-owned
pharmacies is needed. Therefore, a solution that provides increased
price transparency, such as collecting better drug price benchmarks
(including their variation across PBM-affiliated vs. non-PBM-affiliated
entities) and making them publicly available (as suggested above), may
---------------------------------------------------------------------------
be a more robust approach.
Questions Submitted by Hon. Maria Cantwell
rebate transparency
Question. The PBM rebate system was originally designed as a way to
leverage the PBMs' central position in the drug distribution chain to
reduce costs for consumers and patients. In theory, PBMs negotiate
rebates with drug manufacturers, and the rebates are then passed
through to the patient at the pharmacy counter. I am a big proponent of
the thinking that ``when you buy in bulk, you should receive a
discount.'' However, the rebate system is not working like it was
intended to.
Let's take insulin as an example. Insulin has been used to treat
diabetes for 100 years, and a vial of insulin costs $2 to $4 to make.
In the study that you conducted, you discovered that between 2014 to
2018, the average list price of several insulin products rose 40
percent, from $19 to $27 per unit. At the same time, total consumer
insulin expenditures remained the same, while the share of rebates and
other expenditures accredited to PBMs increased by a whopping 155
percent. This means that PBMs are demanding and keeping more of the
rebates, and drug manufacturers respond by increasing the list price.
The consumer ultimately does not get the full benefit of this system
because the PBMs pocket most of the rebates.
To complicate this issue further, we know relatively little about
the interactions and negotiations between drug manufactures and PBMs.
The PBMs claim that the information on the amount of rebates received,
and the amount passed through, are considered trade secrets that cannot
be disclosed. This shroud of secrecy is contributing to sky-high drug
prices and hampering our efforts to rein in bad practices.
I am leading a bill with Senator Grassley, the Pharmacy Benefit
Manager Transparency Act, which would crack down on PBM's opaque rebate
practices and ensure that PBMs pass on the full amount of rebates that
they receive. It would also mandate transparency disclosures to the
Federal Trade Commission so that PBMs are accountable in this process.
Do you think that my bill is a good start to tackling the opaque
practices that PBMs have hidden from the public?
Answer. I do believe it is a good start, as it places the
fundamental issue of transparency front and center. Your bill with
Senator Grassley should make it more difficult for PBMs to hide profits
from regulators, and reveal anti-competitive practices such as
differential DIR clawbacks that provide an unfair advantage to
pharmacies that are vertically integrated with PBMs. However, any
proposed policy should also consider how PBMs and other supply chain
entities are likely to respond. We have already seen the large,
vertically integrated PBMs respond to proposed legislation, such as the
2019 ``rebate rule,'' with changes (e.g., re-labeling rebate revenues
as fees and concessions, or creating offshore GPOs/rebate aggregators)
that would circumvent the proposed legislation without addressing the
underlying issue.
Question. In your opinion, what else can we do to crack down on the
complicated web of bad practices that PBMs engage in?
Answer. I believe other steps should also be taken to create a more
comprehensive solution. By themselves, laws that focus on one or two
practices or revenue flows (like spread pricing, or DIR fees, or
rebates) are likely to be gamed by the large and highly sophisticated,
vertically integrated entities that now dominate PBM markets. For
example, a prohibition on spread pricing can be sidestepped by a PBM
integrated with pharmacies by (1) steering patients to affiliated
pharmacies and (2) increasing reimbursements to affiliated pharmacies
to realize any profits in the pharmacy rather than as spread.
For this reason, I believe it is equally important that vertically
integrated entities be carefully studied to better understand and
quantify the impacts of their integration and, if needed, design policy
to limit their scope for such evasive moves and ensure robust
competition in health plan, PBM, and pharmacy markets.
Question. PBMs have argued that increased transparency will
ultimately lead to collusion in the industry and decreased
competitiveness. Do you agree with the statement? If not, why do you
disagree?
Answer. The truth is that no one is sure, as we don't have any
evidence from pharmaceutical markets. But I am not so concerned about
this issue that I would let it scuttle all efforts to increase
transparency in these industries. In the current situation, most buyers
have almost no idea what the ``true'' prices are in these markets, so
they have no hope of making informed economic choices about which
alternatives offer the greatest value. And that dynamic--agents making
informed choices among competing alternatives--is the main channel
through which competitive forces work to lower prices. Without that
transparency, and the channels it will open, the current dynamics are a
near-complete mystery, but they certainly don't appear to be reducing
health-care costs. And when one hears anecdotes about PBMs designing
formularies that prefer higher-cost versions of a drug when an
identical but lower-cost version is available, forcing patients to bear
higher out-of-pocket costs, I become even more skeptical that more
transparency will hurt rather than help.
I also do not find much of the evidence behind the claim that
increased transparency will increase collusion particularly germane or
compelling. My colleagues at USC Schaeffer and I have pointed out that
one of the often-cited empirical examples for this claim is a study
\12\ of the Danish ready-mix concrete industry in the early 1990s. As
one of the study's authors noted:\13\ ``I'm sure there are some
similarities between pricing of various health care services and ready-
made concrete in Denmark in the early 1990s, but I'm also sure there
might be huge differences.'' Indeed, one very substantial difference is
that ready-mix concrete--much like retail gasoline, another oft-cited
example--is identical no matter who is selling it, but branded
pharmaceuticals typically differ from one another in various ways. The
economics literature \14\ has found that collusion is much more likely
in industries with homogeneous goods than differentiated ones. (When
firms sell identical goods, they have more to gain from tracking their
rivals' price increases identically too. By contrast, firms selling
differentiated goods often benefit from pricing and marketing in
accordance with the unique advantages of their own product.)
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\12\ https://doi.org/10.1111/1467-6451.00057.
\13\ https://www.nytimes.com/2019/06/24/upshot/transparency-
medical-prices-could-backfire.html.
\14\ https://www.aeaweb.org/articles?id=10.1257/002205106776162681.
Finally, the critique of price transparency rests on the quaint
notion that confidential rebates yield benefits for consumers. The
evidence suggests otherwise. Powerful PBMs may extract confidential
discounts, but they do not systematically pass those savings downstream
to consumers.\15\
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\15\ https://jamanetwork.com/journals/jama-health-forum/
fullarticle/2785932.
Ultimately, the theoretical risks of rebate transparency--to the
extent they exist at all--need to be weighed against the real costs of
the current system, which provides leverage to powerful and profitable
---------------------------------------------------------------------------
intermediaries.
______
Questions Submitted by Hon. Thomas R. Carper
Question. Last year, Congress passed and President Biden signed
into law the Inflation Reduction Act--which capped insulin prices for
Medicare beneficiaries at $35 per month. Thanks to President Biden's
leadership, drug manufacturers like Eli Lilly have followed suit and
have voluntarily capped the price of insulin at $35 per month in the
commercial market as well.
What are your thoughts on expanding the insulin price cap to other
classes of drugs--for example, drugs that are older, highly rebated,
and/or treat chronic conditions? What are the key things that Congress
should think about when considering this type of policy? What are the
tradeoffs and how can we prevent costs from ballooning in other parts
of our health-care system when designing such a policy?
Answer. The recently passed Inflation Reduction Act (IRA) capped
out-of-pocket (OOP) prices (i.e., copayments) for insulin at $35.
Capping OOP costs for other drugs would create new dynamics. First,
while patients' spending for those drugs would likely fall, to the
extent those drugs continue to be highly rebated, capping OOP costs
could increase premiums (similar dynamics to what would happen if OOP
costs were tied to net prices). Second, it could also result in higher
drug prices if the current system that ties OOP costs to list prices is
depressing those prices because patients will buy less of them when
their OOP costs increase. Market and policy factors may mitigate this
effect.
Overall, capping OOP payments will produce benefits for a certain
set of patients who rely on the chosen drugs. More patients would
benefit if the overall dysfunctional rebate dynamics that drive the
current system could be addressed instead.
Question. Thanks to the testimony of our witnesses and questions
from my colleagues, we heard a good amount of discussion about the
perverse incentives that exist in the market due to how PBMs make their
money. To summarize, a significant source of revenue for PBMs are
rebates and administrative fees that are often based on a drug's list
price. This creates bizarre and perverse incentives that have been
found to lead to increased drug list prices and higher-priced drugs on
formulary lists so that PBMs can bring in more revenue. That's bad for
patients and its bad for taxpayers. Dr. Gibbs in his testimony talked
about the transparent, flat-fee pricing model that Capital Rx has put
in place.
Can we as policymakers learn from Capital Rx's pricing model and
what proposals would you recommend we pursue to align pricing
incentives in the various parts of the drug supply chain?
Answer. Capital Rx's business model contains several elements that
should be considered as you seek to align incentives in the drug supply
chain:
No vertical integration: Capital Rx is a stand-alone PBM that does
not own pharmacies or health plans. This means they cannot shift
revenues among business units to hide profits from scrutiny and
regulation. Whatever profits Capital Rx reports are earned solely
through their activities as a PBM, and can be benchmarked against what
other PBM operations are earning, to understand whether they are making
excessive profits.
Meaningful, verifiable pricing benchmarks: Capital Rx uses NADAC, a
national average pricing series that is derived from actual transaction
prices, to determine what they pay pharmacies and what they charge
health plan clients. This ensures transparent and consistent prices
that can easily be explained and verified across the entire business,
and that potential clients can compare across alternative providers.
Transparent, pass-through model: Capital Rx passes through 100
percent of manufacturer rebates, fees and discounts to their health
plan clients, so clients know and benefit directly from any price
reductions received. They charge their clients what they pay
pharmacies, so there is no spread.
Flat fees: Capital Rx charges for its services via flat fees rather
than as a share of drug costs, eliminating any incentive to steer
patients towards more expensive drugs.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. You mention in your testimony that PMBs are ``essentially
practicing medicine through `fail first' step therapy, prior
authorization requirements, or formulary exclusions, many of which
favor not the least expensive medication, but the most profitable one
for the PBM.''
Can you discuss how these practices impact patient access to
medication prescribed by their health care provider?
Answer. I believe the quote above comes from Mr. Levitt's testimony
rather than mine, but I agree with it. Of these ``utilization
management'' (UM) practices used by PBMs, formulary exclusions are the
most extreme. When a drug is excluded, the PBMs' beneficiaries cannot
access it using their insurance--they must pay cash or go without. And
over the last decade, the three largest PBMs have steadily increased
the number of drugs on their exclusion lists.\16\
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\16\ https://www.drugchannels.net/2023/01/the-big-three-pbms-2023-
formulary.html.
Prior authorization and step therapy practices also impede patient
access. A growing literature demonstrates that when patients face
utilization management requirements like these, they experience delays
in starting new medications, miss doses, and may experience negative
health consequences as a result. These effects have been documented in
diseases ranging from epilepsy \17\ to asthma \18\ to atrial
fibrillation.\19\
---------------------------------------------------------------------------
\17\ https://www.sciencedirect.com/science/article/abs/pii/
S0887899418301516?casa_token=qj
lHcSN5jKEAAAAA:MoVHLWDJqzIBr5UHwmSuNcDQMApCOr_fZq2C5ygMgc3-
IrQIOslBNY6ou
crSrQnrLxVaCwXAtVk.
\18\ https://pubmed.ncbi.nlm.nih.gov/33404389/.
\19\ https://www.ajmc.com/view/formulary-restrictions-and-stroke-
risk-in-patients-with-atrial-fibrillation.
In theory, UM practices could help PBMs manage the cost of care by
ensuring that patients use the most cost-effective alternatives, and
only use more expensive alternatives if cheaper ones don't work. But
this argument ignores the conflicting financial incentives many PBMs
currently face to use UM tools to increase their profits, and is
directly undermined by formulary examples \20\ where expensive branded
drugs are preferred over therapeutically identical authorized generic
versions that cost less.
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\20\ https://oig.hhs.gov/oei/reports/OEI-BL-21-00200.asp.
Question. You mention in your testimony that there is evidence that
some PBMs engage in a tactic known as ``spread pricing,'' which occurs
when PBMs charge health plans a higher amount than what the PBM
actually reimburses the pharmacy for a dispensed drug--with the PBM
retaining the difference. Almost 20 States, including my home State of
Maryland, have prohibited spread pricing in their Medicaid managed care
---------------------------------------------------------------------------
programs.
Can you discuss how spread pricing in public health care programs
impacts patients and taxpayers?
Answer. Spread pricing permits PBMs to earn money on each
prescription filled without disclosing the amount earned to their
clients. As a result, PBMs have been found to capture large profits
that cost Medicaid managed care programs millions of dollars through
inflated drug costs. For example, in a 2018 audit of Ohio State
Medicaid managed care programs, auditors found that the State paid $225
million in spread in 1 year; for generic scripts, the average spread
was 31 percent. The practice and the excess costs it generates is not
limited to Ohio; similar audits in other State Medicaid programs have
produced similar findings.
______
Questions Submitted by Hon. Chuck Grassley
Question. The Pharmacy Benefit Manager (PBM) Transparency Act (S.
127) requires transparency reporting by PBMs (or an affiliate,
subsidiary, or agent of a PBM) to shine sunlight on prices and fees
associated with prescription drugs. Why is transparency reporting by
middlemen, such as PBMs, important to ensuring taxpayers and patients
are getting the lowest drug price and associated fees possible?
Answer. The process of making, distributing, and paying for
prescription drugs involves numerous entities, including manufacturers,
wholesalers, insurers, PBMs, and pharmacies. Knowing the real
transaction prices, including rebates and discounts, at each stage is
essential to understanding where profits are taken across the supply
chain. Without this information, it is more challenging to target
effective policy solutions at the segments that are making excessive
profits.
Transparency is especially important in PBM transactions because of
the likelihood of hidden costs and markups due to the complex and
opaque nature of their pricing practices, and to the information
advantage they enjoy because of their involvement in several key
transactions in the system. The PBM Transparency Act would require
detailed reports from the PBMs, a major step toward ensuring patients
and taxpayers are getting the lowest prices for medicines. Increased
PBM transparency will promote competition and drive down costs as
pharmacies, insurers and drug makers gain information that will enable
them to negotiate better prices and discounts.
Question. The Prescription Pricing for the People Act (S. 113) and
PBM Transparency Act (S. 127) require the Federal Trade Commission
(FTC) to look into the vertical integration that is occurring in the
pharmaceutical supply chain. Why is that important? How does vertical
integration impact the prices patients and taxpayers pay for
prescription drugs?
Answer. Vertical integration in the pharmaceutical supply chain can
have several anticompetitive effects in PBM, health insurance and
pharmacy markets:
First, a PBM that is vertically integrated with a pharmacy
(specialty, mail, or retail) may require patients to fill the most
profitable prescriptions at its affiliated pharmacy, while allowing
less profitable prescriptions to be filled at independent pharmacies.
By steering more profitable business to its own pharmacy, the
vertically integrated PBM systematically disadvantages independent
pharmacies, who face more competitive pressure and may go out of
business as a result. This leads to increased concentration in pharmacy
markets, higher consumer prices and reduced patient access to pharmacy
services.
Second, an integrated PBM/pharmacy organization can arbitrarily
choose to realize profits in either business unit, which gives them
great scope for avoiding legislation that places restrictions or
reporting requirements on tactics like spread pricing. Suppose the
pharmacy acquires a drug for $10 and, when a patient fills a
prescription for it, the PBM charges the health plan $100. The total
profit to the integrated PBM/pharmacy is $90, but where it is realized
is determined by the (arbitrary) rate chosen to reimburse the pharmacy.
If the reimbursement is set at $10, the full $90 will be realized as
spread in the PBM unit. But the organization can sidestep spread
pricing restrictions by setting the pharmacy reimbursement at $100,
thereby realizing the entire $90 profit in the pharmacy unit, with no
reported spread.
Third, a PBM vertically integrated with a health plan can offer PBM
services to other health plans which compete with the PBM's own health
plan. The vertically integrated PBM has incentives to provide poor
quality or high cost services to rival health plans, since
disadvantaging rivals will lead to higher market share for its own
health plan. Such so-called ``input foreclosure'' leads to reduced
competition in the health plan market, increasing premiums for patients
and taxpayers.
Finally, a health plan integrated with a PBM will not seek PBM
services from independent PBMs. This limits the size of the market for
independent PBMs, leading to limited entry, reduced competition and
higher prices for PBM services.
Question. Do spread pricing and clawbacks performed by PBMs (or an
affiliate, subsidiary, or agent of a PBM) impact the prices patients
and taxpayers pay for prescription drugs? If so, how? Additionally, how
do spread pricing and clawback practices differ within the commercial
insurance market compared to within the
Medicaid/Medicare programs?
Answer. PBMs' spread pricing and clawback \21\ tactics result in
patients and taxpayers paying more for prescription drugs than
necessary. When a PBM engages in spread pricing, it charges the health
plan more than it pays the pharmacy to settle the claim, and keeps the
difference. The practice has been well documented in Medicaid
programs--in Ohio, the State auditor found average spreads of 31
percent \22\ for generic drugs in its Medicaid managed care program;
other States have documented similar results.
---------------------------------------------------------------------------
\21\ With the term ``clawback,'' I am referring to a copay that
exceeds the total cost of the prescription, with the PBM keeping the
overage, as described in our JAMA 2018 article. The term clawback is
also used to describe the direct and indirect remuneration (DIR) fees
that PBMs charge pharmacies after a drug claim is settled. These are
different from the type of clawback I am referring to here.
\22\ https://ohioauditor.gov/auditsearch/Reports/2018/
Medicaid_Pharmacy_Services_2018_
Franklin.pdf.
Using Medicare claims, my Schaeffer colleagues and I found that
Medicare overpaid by 21 percent \23\ on the most common generic
prescriptions in 2018, compared to what Costco members paid for the
same drugs with cash. The resulting $2.6 billion overpayment was more
likely due to spread and/or vertical integration than to copay
clawbacks, as the latter appeared to be relatively uncommon in our
data. I am unaware of any empirical study establishing the frequency or
magnitude of spread practices in commercial plans.
---------------------------------------------------------------------------
\23\ https://jamanetwork.com/journals/jamainternalmedicine/
fullarticle/2781810.
In a copay clawback, the patient's copayment exceeds the total cost
of the prescription, and the PBM keeps the difference. In one study of
commercial claims, we found that patient copays exceeded the total cost
of the claim on nearly one in four prescriptions, and nearly one in
three generic prescriptions. Federal legislation in 2018 banning gag
clauses in commercial and Medicare plans may have diminished the use of
---------------------------------------------------------------------------
these tactics, although we lack the data to confirm this conjecture.
Lack of transparency contributes to these cost-increasing tactics.
In the case of spread pricing, neither the payer nor the pharmacy is
aware of what the other is paid or charged, and don't see when the PBM
is capturing excessive profits from the transaction. In the case of
copay clawbacks, patients do not know the actual cost of their
medication, so they cannot see when their copayment is being siphoned
off to enrich the PBM. In the case of vertical integration, the PBM has
an incentive to pay its own pharmacies higher prices. In all these
cases, PBMs are inflating costs in the drug supply system. The amount
of money in each transaction might be small, but spread over billions
of prescriptions each year the cost to payers is significant.
Question. Does the current consolidated PBM market hurt or help
community pharmacies who serve rural or underserved areas? When a
community pharmacy closes or a patient cannot access a community
pharmacy due to being out of network, how does this impact patient
access?
Answer. In a recent study,\24\ Schaeffer colleagues and others
found that the total number of community pharmacies, after increasing
steadily since 2010, began declining in 2018. This timing coincided
with increasing consolidation in the PBM industry, with the CVS/Aetna
merger in 2017 and the Cigna/Express Scripts merger in 2018. Net
pharmacy closures were only observed among chain pharmacies, and were
primarily observed in rural areas and in predominately Black/Latinx
urban neighborhoods.
---------------------------------------------------------------------------
\24\ https://academyhealth.confex.com/academyhealth/2022arm/
meetingapp.cgi/Paper/53833.
A second study \25\ exploring a national cohort of older Americans
using cardiovascular medications found that pharmacy closures have an
immediate and persistent effect on medication adherence, including
among patients fully adherent prior to their pharmacy closing. These
declines were greater among patients living in low-access
neighborhoods.
---------------------------------------------------------------------------
\25\ https://jamanetwork.com/journals/jamanetworkopen/fullarticle/
2730785.
Question. Since 2017, 23 States have passed various forms of
prescription drug transparency laws that require PBMs to report certain
data (according to National Academy for State Health Policy). Do any of
these States have effective PBM transparency laws that should be
---------------------------------------------------------------------------
replicated at the Federal level? Why are they effective?
Answer. I have not studied recent State transparency laws, or what
impact they are having. That said, I am somewhat skeptical. In 2019, my
Schaeffer colleagues analyzed 166 State drug pricing laws that were
passed between 2015 and 2018, of which 35 had a clear transparency
component. They concluded that only 7 laws passed in 6 States could be
labeled ``informative,'' meaning they would result in disclosure of
previously unavailable information. Furthermore, since sophisticated,
vertically integrated PBMs can shift revenues internally among business
units, they can skirt reporting requirements that focus on individual
revenue flows (such as rebates, spread pricing, or clawbacks) in
isolation. To the extent that these State transparency laws are looking
at flows in isolation, I suspect they may be circumvented by large,
vertically integrated PBMs.
Question. Beginning in 2016, the Texas Department of Insurance
began public reporting on the use of manufacturers' rebates and other
payments to PBMs. Similarly, beginning in 2020, the Iowa Insurance
Division began publicly reporting on the use of manufacturers' rebates
and other payments to PBMs. Other States have conducted similar public
reporting. According to an analysis of the Texas data (https://
www.tdi.texas.gov/reports/report3.html), PBMs retained 7 percent to 21
percent of manufacturers' rebate and other payments between 2016-2021.
Similar data has been reported in Iowa (https://iid.iowa.gov/pbm-
annual-reports). Is this public reporting accurately capturing the
amount of rebates and other payments retained by PBMs (or an affiliate,
subsidiary, or agent of a PBM)? If not, how might policymakers
accurately capture the amount of revenue retained by PBMs (or an
affiliate, subsidiary, or agent of a PBM)?
Answer. It is hard to know if these reports are accurate, although
I have my doubts. There were 66 PBMs in the U.S.\26\ in 2022, while the
Texas reports contain data from 19 PBMs in 2019, 23 in 2020, and 13 in
2021. This seems like a relatively small number of respondents, and I
can't think of a reason why the number would fall so much between 2020
and 2021. I do not believe the reports are audited. We have also seen
PBMs engage in some evasive tactics when rebates are in the spotlight.
When policymakers began paying more attention to rebates around 2018-
2019, some PBMs responded by proliferating the number of ``fees,''
``concessions,'' and ``allowances'' collected from manufacturers,
without labeling them ``rebates.'' The suspicion is that by relabeling
the rebate revenue stream, PBMs were shielding it from new rebate
reporting requirements. Such seemingly evasive maneuvers raise my
suspicion that State rebate reports are not capturing the full story.
---------------------------------------------------------------------------
\26\ https://content.naic.org/cipr-topics/pharmacy-benefit-
managers#:K:text=Today.
Question. Why do PBMs own or operate affiliated organizations such
as group purchasing organizations or rebate aggregators? What do these
---------------------------------------------------------------------------
entities do?
Answer. These frequently offshore entities negotiate for and
collect rebates from drug manufacturers, retain a portion of that
revenue and distribute the remainder to their affiliated PBMs. Those
PBMs then generally pass that rebate revenue to their health plan
clients. Over time, health plan clients have been negotiating for an
increasing share of rebates--many of them have contracts that specify
100 percent rebate pass-through. By creating the offshore GPO which
retains a portion of the manufacturer revenue before it is passed to
the PBMs, these integrated organizations are able to keep more of the
manufacturer revenue for themselves, while still claiming to pass
through ``all'' or ``most'' of the rebates to health plans. Indeed,
they may pass through 100 percent of the rebates that the PBMs get, but
they are not passing through 100 percent of the rebates that the
manufacturers pay, because the GPO is retaining a share. There may be
tax advantages as well.
Question. In 2013, the Department of Health and Human Services
(HHS) Office of Inspector General (OIG) published a report (titled,
``Gaps in Oversight of Conflicts of Interest in Medicare Prescription
Drug Decisions'') recommending that each Medicare Part D plan's
Pharmacy and Therapeutics Committee (P&T) have members who are free of
conflict from PBMs. HHS OIG specifically recommended that a Medicare
Part D plan's P&T committee should be free of conflict with any PBM
that manages the plan's prescription drug benefit. Since this
recommendation was issued in 2013, CMS updated some conflict of
interest policies, but not this recommendation. Should CMS require some
(or all) P&T committee members be free of conflict with any PBM?
Answer. Yes, I believe CMS should require P&T committee members to
be free of conflict with any PBM. Current rules only define conflicts
of interest in relation to pharmaceutical companies and plan sponsors,
but PBMs can also exert influence on P&T decision-making in a way that
harms beneficiaries. Because PBMs may benefit from manufacturer
rebates, they may recommend high rebate drugs that have higher list
prices, thereby exposing beneficiaries to higher out-of-pocket costs.
Furthermore, negotiated rebates are confidential, making it
impossible for PBM-conflicted members to disclose their conflicts
related to specific drugs and manufacturers to enable committee
deliberations to specifically take those financial interests into
account. That is, disclosure--a common conflict of interest remedy--is
not a feasible remedy for conflicts in this case. Requiring that
members be free from a PBM conflict would be an efficient way to remove
potential bias from the financial influence of PBM rebates.
If a PBM's perspective is required to make a formulary decision, it
can be obtained through other channels, without requiring PBM-
conflicted members on the P&T committee. Outside stakeholder
perspectives are routinely gathered by P&T staff for specific issues
and presented to the committee for consideration. A PBM's perspective,
if needed, could be collected and presented in the same way.
______
Questions Submitted by Hon. John Cornyn
Question. Your testimony indicates that more oversight and
transparency of the PBM industry is needed as a result of the
concentrated market and the opaque system that they operate in.
What other solutions do you need as appropriate? Do you think
consolidation of the industry is the main driver of some of these
issues?
Answer. I do believe consolidation, and especially vertical
integration in this industry, has been very problematic. It has led to
many of the commercial tactics we are concerned with today, that reduce
transparency, inhibit competition, and raise health-care costs for
patients and taxpayers. It has also increased the scope these large and
sophisticated organizations have to evade transparency and other
requirements that could be effectively brought to bear if they were
standalone businesses.
For other suggested solutions I believe appropriate, please see my
responses to Senator Wyden's question 1 above.
Question. During the hearing, you mentioned one idea to take
generics out of health insurance coverage. In your Washington Post op-
ed, you write ``yet insurance coverage has enabled middlemen to feast
on billions of these prescriptions each year, keeping prices higher
than they need to be.''
Are there other intermediaries in the supply chain that are
contributing to this issue excluding PBMs?
Answer. Some pharmacies may also be contributing to the issue here,
although it is hard to disentangle definitively, especially because we
do not have good data on pharmacy DIR fees. We compared what Medicare
paid for common generic prescriptions to what Costco members paid with
cash, and found a 21-percent difference.\27\ Costco's pharmacy was
still earning a margin on those cash scripts--Costco's pharmacy margins
are not included in the 21-percent overage. But if other pharmacies are
taking a larger margin than Costco (and I find that plausible), then
that 21-percent overpayment may include some pharmacy margin as well.
---------------------------------------------------------------------------
\27\ https://jamanetwork.com/journals/jamainternalmedicine/
fullarticle/2781810.
Question. Do you think biosimilars should remain a part of health
---------------------------------------------------------------------------
insurance coverage?
Answer. Yes. Most biosimilars are still rather expensive, and many
patients would struggle to pay for them without insurance. While health
insurance coverage through the existing system probably increases the
costs of these drugs overall, those drawbacks must be weighed against
the significant benefits of insuring patients from large, unpredictable
health-care costs. By contrast, the majority of common generic
prescriptions can be purchased for less than $20 at Costco, so insuring
them does not protect patients from large, unpredictable expenditures.
______
Question Submitted by Hon. Tim Scott
Question. HHS's Office of the Inspector General issued a report in
2022 that concluded that Medicare Part D, a highly successful program,
could realize significant spending reductions with increased biosimilar
use. Additionally, an ERISA Industry survey released that same year
found that employers are concerned about rebate gamesmanship and prefer
all biosimilars to be included on formularies.
If formulary access for biosimilars continues to be restricted,
will patients see any significant savings in out-of-pocket costs?
Answer. A growing literature has demonstrated that in Medicare Part
B, biosimilar entry corresponds with greater availability and use of
lower-priced alternatives to the reference product, and falling prices
for the reference product. Forthcoming Schaeffer research additionally
finds that biosimilar prices--as measured by both the average sales
price and net manufacturer price--continue to fall the longer the
biosimilar products are on the market, particularly in markets with
multiple biosimilar competitors. This evidence suggests that market
competition in the biosimilar market is reducing prices, and that
competition can help patients see significant savings in out-of-pocket
costs. But these dynamics occur in the context of Medicare Part B,
where payment is based on the Average Sales Price (ASP), a price
benchmark that is net of rebates.
Biosimilars in Medicare Part D are a more recent phenomenon, and
may be following a different path. We have seen biosimilar
manufacturers launch the same biosimilar product with two prices--a
high-list-price/high-rebate version, and a low-list-price/low-rebate
version--and PBMs respond by preferring the high-list-price version
over the low-list-price version, or excluding the low-list-price
version entirely. Such tactics expose patients to high costs when their
out-of-pocket expenses are tied to the drug's list price. If new
biosimilars are to reduce patients' financial burden, their out-of-
pocket costs may need to be decoupled from the drug's list price,
either using a flat copayment, or tying out-of-pocket charges to the
drug's net-of-rebate price.
______
Questions Submitted by Hon. James Lankford
vertical integration
Question. Many PBMs are now a large part of massive conglomerates
that include an insurer, a retail pharmacy chain, the PBM that
negotiates between plans and drug manufacturers, and now even physician
practices.
How does this ownership structure, where the same company is able
to decide what drug is prescribed, whether a lower-cost generic is
available to a patient, what drug is covered by insurance and on what
formulary tier it is placed, how much the patient's out-of-pocket
requirements are for a drug, and where a patient can access their
prescription: (1) create an anticompetitive monopoly, and (2) impact
patient health?
Answer. Vertically integrated firms have more information and
increased opportunities for extracting economic rents at the expense of
independent pharmacies and patients. Please see my response to Senator
Grassley's question 2 about vertical integration above for more detail.
rebates
Question. When previous rules have been proposed from an
administration regarding the elimination of rebates, hysteria ensued
because some estimates showed it would increase costs for the Federal
Government and patients' premiums may increase.
Have model systems been created to test what would really happen if
rebates were removed from the pharmaceutical pricing supply chain? Do
such models show that pharmaceutical products' list prices will drop
and drugs may be able to compete using their prices for formulary
placement?
Answer. While I am unaware of any specific model system that would
test what would happen if rebates are removed, in general, these kinds
of models rely very heavily on assumptions. For example, as my USC
Schaeffer colleagues have described, the hysteria to which you refer
largely reflected CBO and CMS OACT estimates of the 2019 ``rebate
rule,'' which was based on assumptions that manufacturer rebates would
be reduced by 15 percent in Medicare Part D. We do not know how CBO and
CMS OACT arrived at those assumptions, but alternative assumptions--
such as those modeled in an analysis \28\ conducted by Milliman
prepared for the Assistant Secretary for Planning and Evaluation, U.S.
Department of Health and Human Services--projected potential Federal
savings from the rule. In the Federal Register, DHHS noted \29\ that
they engaged multiple analyses from OACT and actuarial firms precisely
because ``it is difficult to predict manufacturer and Part D plan
behavior in response to this regulation.''
---------------------------------------------------------------------------
\28\ https://www.regulations.gov/document/HHSIG-2019-0001-0002.
\29\ https://www.govinfo.gov/content/pkg/FR-2019-02-06/pdf/2019-
01026.pdf.
In fact, CBO estimates of other proposals have projected savings
from policies intended to increase transparency in PBM markets. For
example, in 2019, CBO scored \30\ the Lower Health Care Costs Act.
Section 306 would have required PBMs operating in commercial health-
care markets to (in short) provide information on costs, aggregate
rebates, and fees; fully pass rebates, fees, discounts, or other
remuneration to plan sponsors; and prohibit spread pricing. CBO
estimated these provisions would reduce average premiums in the private
insurance market and decrease the deficit by $1.7 billion over the
2019-2029 period.
---------------------------------------------------------------------------
\30\ https://www.cbo.gov/system/files/2019-07/s1895_0.pdf.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
The Finance Committee meets this morning to continue our
longstanding efforts to lower the cost of health care for taxpayers and
patients. Today the committee focuses on pharmacy benefit managers, in
particular the new strategies--like charging administrative fees tied
to the price of a drug--that these multibillion-dollar corporations
have aggressively adopted in the last 4 years since the Finance
Committee previously held a hearing about PBMs.
Pharmacy benefit managers had a strong case for themselves back in
the 1980s and 1990s. The original goal was to use their access to
limited data to negotiate lower drug prices on behalf of their
clients--insurance companies and employers. When prescription drug
coverage came to Medicare with Part D in the 2000s, PBMs shifted into
overdrive with a larger market and more sophisticated drugs.
In recent years, it's increasingly apparent that PBMs are using
their data, market power, and know-how to keep prices high and pad
their profits instead of sharing the benefits of the prices they
negotiate with consumers and the Medicare program. I believe this is an
industry that is going in the wrong direction, and that's having a big
impact on the prices Americans are paying at the pharmacy counter.
There are serious consequences for the Federal health programs the
Finance Committee is responsible for. Between Medicare, Medicaid, CHIP,
and the individual health insurance marketplace, the committee oversees
health coverage for more than half of all Americans, or roughly 180
million people. Prescription spending for these Americans constitutes a
significant portion of the amount that the United States as a whole
spends on pharmaceuticals each year--which totaled $577 billion in
2021. That's why it's so critical for this committee to examine what
needs to be done to modernize the rules of the road for PBMs.
I'm proud to say that this is a hearing with strong bipartisan
interest, and Senator Crapo and I have agreed to take on this issue
together. That means looking at pharmacy benefit manager practices with
a thorough eye and taking any legislative steps necessary to ensure
taxpayers and patients aren't getting a raw deal. The Finance Committee
has a long history of tackling big-league issues on a bipartisan basis,
and the results speak for themselves.
Before I turn it over to Senator Crapo, I want to illustrate just
one example of PBMs practices that result in high prices. In a
competitive market, if two products have equal quality, a business
should prefer the lower-cost option. However, oftentimes PBMs charge
administrative fees to drug makers which are calculated as a percentage
of a drug's list price. That means PBMs get a higher payment if they
favor higher-cost drugs. In my view, that's a clear example of the
perverse incentives PBMs have created that leave so many Americans fed
up and outraged at the health-care system in this country.
The consequences of this out-of-whack market are felt by taxpayers
and American families every time they pick up a prescription at the
pharmacy counter. Discounts negotiated by PBMs play an important role
in driving down premiums for seniors. But the games PBMs play behind
the scenes also appear to be driving up drug costs for many seniors,
who are forced to pay top dollar for their prescriptions at the
pharmacy counter while PBMs profit at their expense.
Today's hearing is an important opportunity for committee members
to get up to speed on the latest practices being employed by pharmacy
benefit managers and the impact these tactics are having on taxpayers
and Americans who count on expensive medications for a decent quality
of life.
Thank you to our witnesses for joining the committee this morning.
______
CivicaScript
2912 W. Executive Parkway, Suite 300
Lehi, UT 84043
888-304-0120
March 28, 2023
Senator Ron Wyden, Chair
Senator Mike Crapo, Ranking Member
Committee on Finance
United States Senate
Dear Chairman Wyden and Ranking Member Crapo,
Thank you for your focus on the pharmacy benefits management (PBM)
industry. While PBMs serve several important functions in our system of
drug procurement and reimbursement, the dominant business model also
creates unintended consequences that are not in the interest of
individual consumers. While much attention has been paid to the effect
of PBM rebates on the cost of branded drugs, we wish to draw your
attention to potential for increased costs to individual consumers,
health plans and the Medicare program related to generic specialty
drugs.
Civica is a non-profit generic drug company established to reduce drug
shortages and ensure a reliable supply of essential medicines to
hospitals at fair prices. CivicaScript, a public benefit corporation,
is the operating unit of Civica that was established in partnership
with health plans to lower costs for consumers at the pharmacy counter.
CivicaScript was founded in partnership with 18 BlueCross and
BlueShield plans and the BCBS Association. Additional members include
health plans Elevance (formerly known as Anthem) and HCSC and two PBMs,
Navitus and Emsana Rx.
In 2022, CivicaScript launched abiraterone 250mg. Abiraterone is a
generic oral drug used in combination to treat prostate cancer. The
average cost of a month's supply of abiraterone 250mg to Medicare Part
D in 2021 was over $3,000. However, CivicaScript's selling price is
$160. Our recommended maximum price to the consumer, allowing for a
fair pharmacy dispensing fee, is $171.\1\
---------------------------------------------------------------------------
\1\ CivicaScript is the first company to introduce quality
affordable generics with a transparent consumer price by making our
maximum retail price (MaxRPTM) of $171 publicly available including
through a QR code on the packaging.
One might hope that our health system would take advantage of the
availability of CivicaScript abiraterone at a low cost to lower costs
---------------------------------------------------------------------------
for consumers and for the Medicare program.
Unfortunately, while CivicaScript and its health plan partners have
attempted to work with all the major PBMs, most have not been willing
to deliver this drug to patients at low cost, and average costs per
claim remain high (Table 1).
Based on publicly available pricing information,\2\ it is certainly
likely that large vertical health-care companies acquire competing
products at lower cost than CivicaScript's $160. But if so, the
question remains: why are consumers, health plans and Medicare paying
such high prices?
---------------------------------------------------------------------------
\2\ On March 25, 2023, the publicly advertised cash prices for
abiraterone 250mg ranged from $186.90-$8,661.38 (GoodRx, accessed 27
March 2023). The National Average Drug Acquisition Cost (NADAC)
published by Medicaid is $229.10 for 2022.
Table 1 \3\
----------------------------------------------------------------------------------------------------------------
Average Medicare Part D
Manufacturer Market share (%) spend per claim
----------------------------------------------------------------------------------------------------------------
Novadoz 44.3 $2,778
----------------------------------------------------------------------------------------------------------------
\3\ 2021 CMS Medicare Part D dashboard. Accessed March
27, 2023.
West-Ward/Hikma 9.2 $181
----------------------------------------------------------------------------------------------------------------
Amneal 8.5 $4,766
----------------------------------------------------------------------------------------------------------------
Rising 7.6 $3,734
----------------------------------------------------------------------------------------------------------------
Apotex 7.1 $3,167
----------------------------------------------------------------------------------------------------------------
Celltrion 6.9 $379
----------------------------------------------------------------------------------------------------------------
Northstar 6.5 $2,735
----------------------------------------------------------------------------------------------------------------
Viatris 5.5 $6,703
----------------------------------------------------------------------------------------------------------------
Wockhardt 1.8 $2,647
----------------------------------------------------------------------------------------------------------------
Bluepoint 1.5 $3,219
----------------------------------------------------------------------------------------------------------------
Patriot Pharm 0.6 $3,336
----------------------------------------------------------------------------------------------------------------
Dr. Reddy's 0.3 $3,377
----------------------------------------------------------------------------------------------------------------
Glenmark 0.1 $2,466
----------------------------------------------------------------------------------------------------------------
Teva 0.1 $3,850
----------------------------------------------------------------------------------------------------------------
One possible reason is that because of its cost, abiraterone is still
classified as a ``specialty drug,'' products that are normally
dispensed through a ``specialty pharmacy.'' We note that the vast
majority of the specialty pharmacy dispensing in the United States
occurs through PBM-owned specialty pharmacies. Therefore, the same
entity that is theoretically working on behalf of health plans,
consumers, and Medicare to reduce drug costs also has an incentive to
maximize its revenues from dispensing.
CivicaScript's health plan partners have been creative in their
attempts to get PBM-owned specialty pharmacies to dispense CivicaScript
abiraterone, proposing a number of models, mechanisms and workarounds
to get this drug to consumers at low cost. To date, with the exception
of Navitus, a CivicaScript founding member, none of the largest PBM-
owned specialty pharmacies have purchased or dispensed CivicaScript
abiraterone.
Specialty pharmacy dispensing accounts for an estimated 32 percent of
total PBM gross profits.\4\ In addition to abiraterone, numerous other
specialty drugs have approved generic versions available which should
reduce the cost of medications.
---------------------------------------------------------------------------
\4\ Estimated for 2019. Drug Channels. https://
www.drugchannels.net/2020/07/pbm-owned-specialty-pharmacies-
expand.html. Accessed March 27, 2023.
Due to the oligopolies that control the generic market and benefit from
our complex and opaque system of generic drug purchasing and
reimbursement, U.S. patients, health plans and the Federal Government
---------------------------------------------------------------------------
are not realizing the tremendous potential savings that they should.
Please contact Allan Coukell, Civica's Senior Vice President for Public
Policy, for additional information: [email protected].
Sincerely,
Gina Guinasso
President
CivicaScript
______
Witness Biographies
Lawton Robert Burns, Ph.D., MBA
Mr. Burns is the James Joo-Jin Kim professor, a professor of health
care management, and a professor of management at the Wharton School,
University of Pennsylvania. He is also co-director of the Roy and Diana
Vagelos Program in Life Sciences and Management. Mr. Burns teaches on
health-care strategy, strategic change, strategic implementation,
organization and management, managed care, integrated delivery
networks, and the U.S. health-care system.
He has published books on the institutional supply chain,
technology sectors in health care, biomedical innovation, and
international health-care systems. He recently published a book on the
retail supply chain in health care (The Healthcare Value Chain:
Demystifying the Roles of GPOs) and co-authored an analysis of why many
solutions to improve health care do not work. He is the lead editor of
a major health-care management text (Healthcare Management:
Organization Design and Behavior, 2019).
Robin Feldman, J.D.
Ms. Feldman is the Arthur J. Goldberg distinguished professor of
law, Albert Abramson '54 distinguished professor of law chair, and
director of the Center for Innovation at UC College of the Law, San
Francisco. She is a leading expert on health care and access,
particularly as it relates to pharmaceutical competition and
innovation. Ms. Feldman clerked for the Honorable Joseph Sneed of the
U.S. Court of Appeals for the Ninth Circuit. She is an award-winning
scholar who has published four books and more than 70 articles in law
journals and leading economic and health-care reviews.
Ms. Feldman frequently testifies before legislative and regulatory
bodies. Her work has been cited in the Congressional Record, by the
White House, in governmental reports, and in court proceedings. In a
recent Supreme Court case, briefs in support of both sides cited her
work. She has also contributed to government projects beyond patent and
pharmaceutical law, including AI and cyber-threats.
Matthew Gibbs, Pharm.D.
Mr. Gibbs is president at Capital Rx, a full-service pharmacy
benefit manager that operates with a transparent, flat-fee pricing
model. He oversees several core operations at Capital Rx, such as
client services, client operations, benefit administration, customer
contact and clinical call centers, and clinical operations and
services. Mr. Gibbs is also involved in commercial activities to
support sales and the growth of the Pharmacy Benefit Administration
segment. Before joining Capital Rx, Mr. Gibbs worked in executive
positions at Walgreens, Medco, and Anthem. He also served as president
of EnvisionRx and led the Aon pharmacy consulting practice. Mr. Gibbs
maintains an active pharmacy license.
Jonathan Levitt, Esq.
Mr. Levitt co-founded Frier Levitt, a health-care law firm, in
2000. Beginning with a 2003 national class action of pharmacies against
a publicly traded pharmacy benefit manager (PBM), Mr. Levitt began his
career journey to understand the U.S. prescription drug supply chain.
He is an experienced trial attorney who represents drug supply chain
stakeholders, such as pharmacies, physician-dispensers, provider
associations, manufacturers, wholesalers, and plan sponsors. He has
represented supply chain stakeholders in numerous law suits, often
uncovering PBM tactics used to hide funds, and challenged one-sided
contracts drafted by PBMs. Additionally, Mr. Levitt assists Self-Funded
Plans with their pharmacy benefit design. He has led numerous
litigations and arbitrations involving Medicare Part D ``direct and
indirect remuneration'' (DIR) fees and represents State Medicaid
systems conducting PBM audits.
Karen Van Nuys, Ph.D.
Ms. Van Nuys is the executive director of the Value of Life
Sciences Innovation program and a senior fellow at the USC Schaeffer
Center for Health Policy and Economics. Her research focuses on the
pharmaceutical distribution system and the impact of intermediaries'
business practices on prescription drug utilization and cost. She has
conducted research on the flow of money in the insulin market, the
impact of biosimilar entry on cancer drug markets, and the social value
of novel therapies for heart failure and hepatitis C. Her work has been
published in leading journals in economics, medicine, finance, and
health policy, and cited in congressional testimony and policy reports.
Ms. Van Nuys has held positions in both consulting and academia,
and she has consulted with Fortune 50 companies ranging from insurers
and life sciences companies to automotive manufacturers and media
conglomerates.
______
Communications
----------
American Pharmacists Association
2215 Constitution Ave., NW
Washington, DC 20037
800-237-2742
https://pharmacist.com/
Chair Wyden, Ranking Member Crapo, and Members of the Committee:
On behalf of our nations over 310,000 pharmacists, the American
Pharmacists Association (APhA) is pleased to submit the following
Statement for the Record to the U.S. Senate Committee on Finance
hearing ``Pharmacy Benefit Managers and the Prescription Drug Supply
Chain: Impact on Patients and Taxpayers.''
APhA is the largest association of pharmacists in the United States
advancing the entire pharmacy profession. APhA represents pharmacists
and pharmacy personnel in all practice settings, including community
pharmacies, hospitals, long-term care facilities, specialty pharmacies,
community health centers, physician offices, ambulatory clinics,
managed care organizations, hospice settings, and government
facilities. Our members strive to improve medication use, advance
patient care, and enhance public health.
APhA applauds the Committee's ongoing leadership and recognition
federal legislation must be passed to address pharmacy benefit
managers' (PBMs) harmful business practices that are increasing
prescription drug costs at the expense of patients and creating
``pharmacy deserts'' in minority and underserved communities, where the
neighborhood pharmacy may be the only health care provider for
miles.\1\ PBMs' business practices have undermined the community
pharmacy business model, resulting in many pharmacies having to make
the challenging choice of taking a loss when filling a prescription to
ensure patients are not denied access to their needed medications. As
the most accessible healthcare professional, pharmacists should be able
to provide the high-quality care they are trained to provide without
fear it will cause them to go out of business. In a February 2023
national survey conducted by APhA, 91.5% of respondents reported that
current PBM practices negatively impact their practice and ability to
provide patient care.\2\ As explained during APhA's recent PBM 101
briefing for congressional staff,\3\ there are already mountains of
data for Congress to take action from Medicare, Medicaid and commercial
plans on PBMs' uncompetitive and deceptive trade practices that target
patients with chronic conditions, and force them to use PBM-owned
specialty and mail order pharmacies rather than their local pharmacy.
It's way past time to put patients over PBM profits, and Congressional
action is overdue.
---------------------------------------------------------------------------
\1\ https://www.japha.org/article/S1544-3191(22)00230-8/fulltext/.
\2\ https://www.pharmacist.com/APhA-Press-Releases/apha-releases-
survey-results-quantifying-the-impact-of-pbms.
\3\ https://nam10.safelinks.protection.outlook.com/
?url=https%3A%2F%2Fapha.msgfocus.com%2
Fc%2F11HbcOknPGFkG5EnaeGtULx9O4KoUj&data=05%7C01%7Cmbaxter%40aphanet.org
%7C
93f200d5701a4088bcde08db21aed8a7%7C6577def6f03f4adba697e1535f172506%7C1%
7C0%7C63
8140807069554809%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2l
uM
zIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=hhBrgcsMgLnW4Sg4
%2F%2ByGVtZf6qC9XtdCzkz66e0l7UY%3D&reserved=0.
---------------------------------------------------------------------------
Background
PBMs originally emerged over 40 years ago as middlemen between
health plans and pharmacies to adjudicate claims.
Over the years, three PBMs have come to control 80% of the total
market share \4\ and have vertically integrated with insurers, chain
pharmacies and specialty pharmacies.
---------------------------------------------------------------------------
\4\ Pharmacy Benefit Managers: Market Landscape and Strategic
Imperatives. Hirc. Available at https://www.hirc.com/PBM-market-
landscape-and-imperatives.
---------------------------------------------------------------------------
Numerous reports from pharmacists and media over the years have
documented unfair and anticompetitive practices from PBMs on community
pharmacies. These include clawbacks (known under Medicare as direct and
indirect remuneration (DIR) fees which PBMs often assess weeks, or even
months, after Part D beneficiaries' prescriptions are filled, resulting
in pharmacies realizing only long after the prescription was filled
that they did not recoup their costs), gag clauses (preventing sharing
cash prices with patients), spread pricing (overcharging the payer,
underpaying the pharmacy and keeping the spread), patient steering to
PBM-owned pharmacies, mandatory mail-order raising patient safety
concerns, and many other concerning practices.
In December 2020, the U.S. Supreme Court unanimously ruled on
Rutledge v. PCMA in the pharmacy communities favor, opening the door
for state oversight of PBMs.\5\
---------------------------------------------------------------------------
\5\ Supreme Court of the United States. Rutledge, Attorney General
of Arkansas v. Pharmaceutical Care Management Association. Available at
https://www.supremecourt.gov/opinions/20pdf/18-540_m64o.pdf.
Why PBM Reform is Needed
The pharmacy reimbursement and drug pricing scheme in the U.S.
has grown out of control, with misaligned incentives that neither
benefit the patient nor lead to better health outcomes. These
misalignments are causing pharmacies across the country to shut their
doors, leaving patients without access to their local pharmacies.
As a result of the predatory practices of PBMs:
Patients' access to medications from their local
pharmacist across the country has declined,\6\
---------------------------------------------------------------------------
\6\ Rose J., Krishnamoorth R. Why your neighborhood community
pharmacy may close. The Hill. Available at https://thehill.com/blogs/
congress-blog/healthcare/530477-why-your-neighborhood-community-
pharmacy-may-close.
---------------------------------------------------------------------------
Taxpayer dollars have been funneled into
corporate profits,\7\ and
---------------------------------------------------------------------------
\7\ 3Axis Advisors. Analysis of PBM Spread Pricing in New York
Medicaid Managed Care. Available at http://www.ncpa.co/pdf/state-advoc/
new-york-report.pdf.
---------------------------------------------------------------------------
Generationally owned community pharmacies have
been driven out of business.\8\
---------------------------------------------------------------------------
\8\ Callahan C. Mom-and-pop pharmacies struggle to hang on. Times
Union. Available at https://www.timesunion.com/hudsonvalley/news/
article/Mom-and-pop-pharmacies-struggle-to-hang-on-16187714.php.
---------------------------------------------------------------------------
Patients' access to their medications and their trusted
healthcare professional, the pharmacist, should not be jeopardized due
to misaligned incentives in the PBM industry that prioritize profits
over patients.
The unsustainable reimbursement model for medications caused by
PBMs has contributed to negative workplace conditions for pharmacists
and pharmacy teams.
PBMs are Costing Medicare and the U.S. Taxpayer
Between 2010 and 2020 the Centers for Medicaid and Medicaid
Services (CMS) reports that pharmacy direct and indirect remuneration
(DIR) fees increased by more than 107,400 percent.\9\ The increase in
point-of-sale and retroactive pharmacy price concessions have
contributed to an unsustainable environment for community pharmacies to
keep their doors open.
---------------------------------------------------------------------------
\9\ Medicare Program; Contract Year 2023 Policy and Technical
Changes.
---------------------------------------------------------------------------
This month, the Medicare Payment Advisory Commission's (MedPAC)
March 2023 report found that pharmacy DIR payments to PBMs in Medicare
Part D were an astounding $12.6 billion for 2021--which represents a
$3.1 billion (+33%) increase from the 2020 figure of $9.5 billion.\10\
---------------------------------------------------------------------------
\10\ Medpac. March 2023 Report to Congress--Medicare Payment
Policy. Page 399. https://www.medpac.gov/wp-content/uploads/2023/03/
Mar23_MedPAC_Report_To_Congress_SEC.pdf
#page=427.
---------------------------------------------------------------------------
Congressional Ask
Transparency: APhA supports transparency and accountability in
reimbursement and pricing to ensure consistent practices throughout the
drug supply chain.
Sustainability: APhA supports pricing models that allow for the
fair reimbursement of drug products and dispensing fees that can
support a sustainable business model within community pharmacies.
Accountability: APhA encourages appropriate oversight from state
and federal agencies to prohibit pricing manipulations and
anticompetitive practices that harm patient access to their medications
and their pharmacist.
Legislation
APhA supports the amended Pharmacy Benefit Manager Transparency
Act (S. 127) that recently passed the Senate Commerce, Science and
Transportation Committee. Initial estimates from the Congressional
Budget Office (CBO) found that S. 127 saves taxpayers $740 million. We
would also support removing the exemption for passing along 100 percent
of rebates to health plans or payers as this provision does not
guarantee plans and payers will pass these ``savings'' on to patients
or ensure adequate pharmacy reimbursement.
APhA also supports the Drug Price Transparency in Medicaid Act,
which would reign in PBMs' unfair use of ``spread pricing.'' Spread
pricing is a practice in which a PBM charges the state or health plan
more than they pay the pharmacy for a medication and then keeps the
``spread'' as a profit, often reimbursing the pharmacy for less than
their cost to acquire the drug. This hurts pharmacies' ability to stay
in business and provide care to the vulnerable Medicaid beneficiaries
whom they serve. This legislation would also move all state Medicaid
managed care programs to a market-based reimbursement model that more
closely reflects the true acquisition costs of prescription drugs in
Medicaid plus a fair professional dispensing fee. APhA previously
sponsored a study that found that utilizing a model of Medicaid's
National Average Drug Acquisition Cost (NADAC) plus a professional
dispensing fee offered an overall point-of-sale spending decrease for
prescription drugs at pharmacies, which would result in billions of
projected savings to Medicare beneficiaries as a result of their
reduced cost-sharing obligations.\11\
---------------------------------------------------------------------------
\11\ https://www.pharmacist.com/About/Newsroom/new-study-medicare-
could-save-seniors-billions-by-fixing-part-d-incentives.
---------------------------------------------------------------------------
Patient Need
Patients are harmed by insurer and PBM practices that mask the
real prices of medications, increase the amount they pay at the
pharmacy counter, and interfere with pharmacists' ability to provide
patient care.
As a result of anticompetitive practices, PBMs have caused
pharmacies to close, contributing to pharmacy deserts which are
especially prominent in racial and ethnic minority communities.\12\
---------------------------------------------------------------------------
\12\ Fewer Pharmacies in Black and Hispanic/Latino Neighborhoods
Compared With White or Diverse Neighborhoods, 2007-15. Health Affairs.
Available at https://www.healthaffairs.org/doi/10.1377/
hlthaff.2020.01699.
---------------------------------------------------------------------------
These practices impact taxpayers as they contribute to inflated
prices of medications reimbursed under public health plans. A study
found that PBM tactics forced Oregon Medicaid to overpay $1.9M on a
single drug, where PBMs marked up the drug by 800 percent.\13\
---------------------------------------------------------------------------
\13\ https://oregonpharmacy.org/2022/10/27/oregon-report/.
APhA would like to thank the Committee for the opportunity to comment
on the importance for Congress to pass PBM reform legislation. APhA
looks forward to working with the Committee to restore transparency,
accountability, competition, and equity to our nation's supply chain
and health care marketplace. Please contact Doug Huynh, JD, APhA
Director of Congressional Affairs, at [email protected] if you have
---------------------------------------------------------------------------
any additional questions or additional information.
______
American Society of Health-System Pharmacists
4500 East-West Highway, Suite 900
Bethesda, MD 20814
301-657-3000
https://www.ashp.org/
March 30, 2023
The Honorable Chairman Ron Wyden
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510-6200
The Honorable Ranking Member Mike Crapo
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510-6200
Re: Pharmacy Benefit Managers and the Prescription Drug Supply Chain:
Impact on Patients and Taxpayers (March 30, 2023).
Dear Chairman Wyden and Ranking Member Crapo:
Pharmacy Benefit Managers (PBMs) play an important role in managing
participants, beneficiaries, and enrollees' individual and group plan,
as well as Medicare Advantage and Medicaid Managed Care plans, and
prescription drug benefits. However, some PBM practices have put
participants, beneficiaries, and enrollees' health and safety at risk,
as well as restricted underserved individuals' access to safe and
affordable prescription drugs. ASHP is the largest association of
pharmacy professionals in the United States, representing over 60,000
pharmacists, student pharmacists, and pharmacy technicians in all
patient care settings, including hospitals, ambulatory clinics, and
health-system community pharmacies. Our members have seen firsthand how
PBM practices can limit and put at risk patient care.
Bring Transparency to PBM Rebates: Manufacturer drug rebates for
patient out-of-pocket (OOP) expenses that are being taken by PBMs are
opaque and need greater transparency. At a minimum, rebates intended
for patients' OOP expenses should be provided at the point-of-sale
(POS) and instituted in a manner designed to simplify reimbursement and
promote transparency for both patients and pharmacies. Often the
negotiated rate between a PBM and a manufacturer so adversely impacts a
pharmacy's ability to cover its acquisition cost for a product, the
cost to the pharmacy is greater than a dug's acquisition cost. POS
reimbursement should, in all cases, be sufficient to cover a pharmacy's
acquisition cost for a drug. Additionally, we recommend that all
contracts clearly outline prescription and pharmacy performance
measures, fees, and expectations, as they relate to reimbursement.
There should be complete transparency about expectations and comparator
benchmarks related to performance and outcomes.
Pharmacy Fees: Pharmacy fees have increased exponentially over the last
few years. According to data released by CMS, ``performance-based
pharmacy price concessions, net of all pharmacy incentive payments,
increased, on average, nearly 170 percent per year between 2012 and
2020 and now comprise the second largest category of DIR received by
sponsors and PBMs, behind only manufacturer rebates''\1\ These fees
were originally created to incentivize quality. However, they have
become arbitrary in nature and purpose and quite extensive. For
instance, many times the quality metric a pharmacy fee is based on is
irrelevant to the setting and medical condition a drug is used to
treat. Pharmacy fees are also usually unknown until a drug is dispensed
and the claim adjudicated. Until recently, these fees were enforced
retroactively, placing pharmacists in financial peril. While the
retroactive collection of fees is expected to terminate based on CMS's
recent ruling, vague administrative fees and unclear performance
measures may not be impacted.\2\ We recommend that no administrative,
prescription, quality, performance, or other care-related fees be
collected retroactively, but clearly outlined at the POS. We also
recommend an individual or group plan, and its PBM, be prohibited from
enforcing pharmacy fees except when the quality measure on which a fee
based is directly relates to the condition a patient is being treated
and is appropriate for the setting the patient is being treated in.
Lastly, we recommend that any fee to be collected and related to
performance be clearly outlined in scope and magnitude within the
contract with a pharmacy, allowing pharmacies to properly forecast
budgeting and understand expectations.
---------------------------------------------------------------------------
\1\ Federal Register, Vol. 87, No. 89, Monday, May 9, 2022, Rules
and Regulations; page 27834.
\2\ Id.
Prohibiting White and Brown Bagging: White bagging occurs when a PBM
requires patient medications be distributed through a narrow network of
specialty pharmacies that are often affiliated with the PBM before the
pharmaceuticals are then sent to a site of care, such as a hospital,
where they will be dispensed by a provider. Hospitals have strict
quality controls and by circumventing the traditional and regulated
hospital supply chain, white bagging raises patient safety risks by
enabling diversion and heightening the possibility of drug spoilage/
wastage. Brown bagging occurs when a PBM ships medications to a
patient, who then must take the pharmaceutical to the provider for
administration. These medications typically require special storage and
handling. White bagging and brown bagging put pharmaceuticals at risk
of spoilage, contamination, and diversion, putting patients' health at
risk. We recommend Congress prohibit PBMs from imposing white and brown
---------------------------------------------------------------------------
bagging.
Protecting the 340B Program and Providers Against Discrimination:
Safety net hospitals rely on the 340B Drug Pricing Program to provide
healthcare services, including care for uninsured and underinsured
patients. However, PBMs have been discriminating against 340B
providers, including excluding them from networks or making them use
their software and other services at additional costs with the intent
of reducing reimbursements for 340B purchased drugs. We recommend
Congress prohibit PBMs from discriminating against 340B providers with
the intent of reducing reimbursements for 340B purchased drugs,
including such practices as excluding 340B providers from networks or
requiring payment of fees or the use of specific claims software as a
means of increasing drug costs beyond 340B levels.
Expanding Access to Biosimilars: Uptake of biosimilars lags behind
coverage of small molecule generic drugs. Insurers and their PBMs
typically only cover one preferred brand of any given biologic product,
excluding all other biosimilar products. This is contrary to how plans
cover small molecule drugs where they are required to cover all
commercially available generics. We recommend Congress require that an
individual or group plan, and its PBM, that covers multiple generic
small molecule drugs in a formulary, treat biosimilars in a similar
fashion. Thus, an individual or group health plan, and its PBM, that
cover a reference (brand name) biologic or any biosimilar of the
reference product, must cover all biosimilars of that product.
ASHP thanks you for considering these recommendations regarding PBMs,
which will ensure participants, beneficiaries, and enrollees have
access to safe and effective drugs. We look forward to continuing to
work with you on this issue. If you have questions or if ASHP can
assist in any way, please contact Frank Kolb at [email protected].
Sincerely,
Tom Kraus
Vice President, Government Relations
______
Association for Clinical Oncology
2318 Mill Road, Suite 800
Alexandria, VA 22314
T: 571-483-1300
F: 571-366-9530
https://asco.org/
Statement of Lori J. Pierce, M.D., FASCO, Chair of the Board
The Association for Clinical Oncology (ASCO) is pleased to submit this
statement for the record of the hearing entitled, ``Pharmacy Benefit
Managers and the Prescription Drug Supply Chain: Impact on Patients and
Taxpayers.'' ASCO is pleased that the U.S. Senate Committee on Finance
is exploring this issue.
ASCO represents more than 45,000 oncology professionals who care for
people living with cancer. ASCO works to ensure that all individuals
with cancer have access to high quality, equitable care; that cancer
delivery systems support optimal cancer care; and that our nation
supports robust federal funding for research on the prevention,
screening, diagnosis and treatment of cancer.
ASCO has endorsed the Pharmacy Benefit Manager Transparency Act of
2023. This bill, which advanced out of the U.S. Senate Committee on
Commerce, Science, & Transportation, would provide transparency and
hold pharmacy benefit managers (PBMs) accountable for unfair and
deceptive practices that may lead to an increase in prescription drug
prices for patients with cancer.
Cancer drugs are a critical component of treatment for many cancer
types as well as for the prevention and control of symptoms. They also
represent an increasing component of cancer care costs. While PBMs were
originally created to serve as third-party administrators of pharmacy
claims, they now leverage their market power to obtain lower prices on
drugs, often without passing those savings along to patients.
Further, ASCO members have reported that some patients have had their
medication or dosage changed by PBMs without prior approval by or in
consultation with the treating physician. PBMs are also increasingly
shifting drug dispensing away from physicians and toward pharmacies
they own, which can negatively impact patient access to treatment. In
these ways, PBMs are interfering with the doctor-
patient relationship and lowering the quality of care for people with
cancer.
ASCO supports efforts to shed light on PBM practices and prohibit
unfair or deceptive practices that impact patients with cancer. For a
more detailed understanding of our policy on this issue, we invite you
to read the ASCO Policy Brief: Pharmacy Benefit Managers by our
affiliate, the American Society of Clinical Oncology. We are committed
to working with you as Congress continues to have meaningful dialogue
about these issues. If you have any questions, please contact Kristine
Rufener, Director of Congressional Affairs, at
[email protected] or 571-483-1547.
______
Letter Submitted by David Bagot, RPh
Chairman Wyden, Ranking Member Crapo, and Members of the Committee,
My name is David Bagot. I own and operate a small community
pharmacy that services Rural Menard County, in Central Illinois. I want
to thank you for holding this hearing today, and implore you to craft
bills to curb the damaging business practices used by the PBM industry.
It would take me way longer than the amount of time I have to write
this statement to describe all of the things I know about PBMs and how
they are degrading the quality of health care in this country while
simultaneously driving up the cost. So, I will just make a short
statement.
PBMs make brand named medication more expensive by charging Big
Pharma companies for formulary access. I do not believe I have to
explain why that makes them more expensive. These kickbacks should be
illegal and I hope that is the first thing done to reign in PBMs,
remove their ``Safe harbor'' from laws that make kickbacks illegal.
PBMs damage everyone who is involved in the transaction surrounding
a patient buying a prescription drug:
The patient. Must pay more for expensive prescriptions, must
settle for what drug the PBM wants them to have and not what
their doctor wants them to have, are told where and when they
can get their prescriptions. Is cut off from medications not
paying kickbacks to their PBM.
Pharmacy. The pharmacy is under paid (spread pricing, AWP
minus contracts, claw backs like DIR fees . . .), patient
steering and the list goes on and on.
Drug manufacturer. Must pay kickbacks to get their drug
covered and are then watch their reputation smeared by PBMs
saying they alone are the reason for high prices. If they do
not pay a high enough kickback their drug doesn't make the
formulary and is not used.
Payers. Employers, government and folks purchasing Market
Place Plans. Everyone pays higher premiums because drugs cost
more than twice as much in the USA than anywhere else in the
world.
PBMs have driven the price of many generic medications so low that
they are no longer produced in our country. They have done this by
under paying pharmacies, who then turn to their wholesaler for cheaper
prices who then turn to the manufacturers for lower prices. Pretty
soon, the only way the manufacturer can lower their price is by moving
production to countries with super cheap labor. This is bad for all the
obvious reason.
Please fix our broken health care system, it is way past time!
Thank you again for having this hearing, I look forward to
listening in.
David Bagot, RPh
______
Big Y Foods Inc.
2145 Roosevelt Ave.
Springfield, MA, 01104
413-504-4494
https://www.bigy.com/
Statement of Steven M. Nordstrom, Director of Pharmacy
Introduction
Big Y Foods, Inc. appreciates the opportunity to submit a statement for
the record for the United States Senate Committee on Finance on
``Pharmacy Benefit Managers and the Prescription Drug Supply Chain:
Impact on Patients and Taxpayers.''
Big Y is a family owned and operated supermarket chain located in
Massachusetts and Connecticut. We operate 72 grocery stores with 33
locations offering pharmacy services. Big Y is one of the largest
independently owned grocery chains in New England. The company was
started in 1936 by founders Paul and Gerry D'Amour. The third
generation of D'Amours are actively involved in the day to day
operations of the business.
Great Concern about Pharmacy Benefit Manager Tactics
We are extremely concerned about pharmacy benefit manager (PBM) tactics
that have significant negative effects on patients, communities,
taxpayers, employers, and pharmacies. PBMs are hired by insurance plans
and others to negotiate lower drug prices. Unfortunately, they
manipulate the system and keep billions in profits while:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--harming not only the
pharmacy but also the patients and communities that rely on them.
The dominance of PBMs is significant. Three PBMs control 80 percent of
the prescription drug market. These are the practical effects of PBM
tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy & Economics found that Medicare Part
D standalone plans paid $2.6 billion more in one year for 184 common
generic medications compared with prices for the same drugs available
to cash-paying customers of one retailer.
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.
Putting the squeeze on pharmacies: The Centers for Medicare &
Medicaid Services found that direct and indirect remuneration (DIR)
fees charged by PBMs and payers to pharmacies have exploded by 107,400%
over the last decade.
Big Y continues to grow as a company, building clean modern stores
while adding jobs in the communities we serve. Unfortunately, we have
not opened any new pharmacy locations in several years due to the
incredible financial pressures being placed on the pharmacy industry by
unfair PBM practices. As these behaviors go unchecked, operating a
pharmacy becomes increasingly more difficult. Many independent
pharmacies have been forced to close in our market area, unable to keep
the doors open with rising costs and declining reimbursements. Big Y
had to make the tough decision to close several pharmacies in 2019
facing those same rising costs and declining reimbursements, making
these pharmacies no longer viable. As more and more pharmacies close,
customer access to convenient, friendly service is being limited,
leaving only the big chains with long lines for many.
During the pandemic, our pharmacy team was a vital part of vaccinating
our communities along with providing treatments to those infected and
offering test kits as they became available. Incredibly, our 33
pharmacy locations were able to administer 120,000 COVID vaccinations
over the last two years. Teams of our pharmacists and technicians
visited nursing homes, schools, and businesses to administer a variety
of vaccinations, including COVID and Flu. Several of these locations
reached out to us as the big chains would not service them because they
were unable to meet the chains' minimum requirements. As independent
pharmacies continue to close, this kind of service will go away; people
will be left vulnerable and underserved.
At Big Y, the health and wellness of our employees and customers is our
highest priority. Offering Pharmacy services is paramount to that goal.
We would love to play a larger role providing those services, but we
are limited by current PBM practices. Although the industry was excited
by the CMS ruling on the elimination of D.I.R. claw backs starting in
2024, we are already seeing PBMs enacting unfair business practices to
recoup those lost profits. New contracts are being submitted with
reimbursements well below our cost of goods and cost to dispense. These
negative terms will force us to decline participation, in some cases
limiting consumer access. This could lead to more potential job loss
with scripts going to the major chains. Pharmacies need to be protected
from these tactics in order to keep us as a viable business model. Our
ask is simple; require PBMs reimburse us at a fair rate allowing us to
provide our employees great pay and benefits while offering great
service to our communities
We want to take this opportunity to define ``PBM reform.'' This is
important to maximize the effectiveness of Congress' work in this area
for patients, and to roll-back the current jeopardy posed by PBMs to
pharmacies. For this purpose, we call to your attention the Principles
of PBM Reform advocated by the National Association of Chain Drug
Stores:
Stop explosive retroactive fees. Stop PBMs and payers from using
``DIR fees'' and other tactics to grab back the payments made and owed
to pharmacies--often many months after the fact and often resulting in
below-cost pharmacy reimbursement.
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
In closing, we want to put to rest one of the myths perpetuated by
PBMs. It is shocking that they have been able to stave off reform
efforts by alleging that premiums will increase. This is nothing short
of a scare tactic, and one that cannot be allowed to be used so
flippantly and without substantiation. PBM reform will reduce
prescription drug costs by cracking down on middlemen's manipulation.
It does not follow logically that reductions in prescription drug costs
will result in increased premiums. It is time to address the
manipulative business practices of PBMs, as well as to end the negative
effects of their tactics.
Big Y thanks the Committee for the opportunity to provide our
perspective on PBM reform. For questions or further discussion, please
contact Steve Nordstrom, at [email protected] or, at 413-222-7653.
______
Biosimilars Forum
800 17th St., NW, Suite 1100
Washington, DC 20006
tel: (202) 828-1895
https://biosimilarsforum.org/
Humira' Biosimilars: Opportunities and Barriers for
Patient Access Placement
Common Sense Policies for Pharmacy Benefit Manager Reform
At least eight lower-cost, FDA-approved biosimilars for
Humira' (adalimumab) are expected to become available to
patients by the summer of 2023. Their launches will be consequential in
determining the future success of the biosimilars market in the U.S.
and could save patients and the U.S. healthcare system more than $5
billion dollars a year, if--and only if--patients can actually access
these medications at affordable costs.\1\
---------------------------------------------------------------------------
\1\ Rebate walls may thwart biosimilar savings. Published September
13, 2022. Accessed March 23, 2023, https://www.modernhealthcare.com/
supply-chain/humira-biosimilar-savings-may-face-delays.
As Congress and the Federal Trade Commission (FTC) examine pharmacy
benefit manager (PBM) reform, recent biosimilar launches show how PBMs
prioritize profits and backend rebates over patients. Most notably, the
recent launches of Humira' (adalimumab) and insulin
biosimilars highlight the market challenges presented to patients that
---------------------------------------------------------------------------
need them.
Actions must be taken now to accelerate biosimilar preferential
placement on formularies as they become available. The following policy
solutions and market reforms to address market challenges would
increase access to lower-cost biosimilars for patients, promote
prescription drug affordability, and support health equity.
Existing PBM Practices: Perverse Incentives for Biosimilar Adoption
As Humira' (adalimumab) biosimilars launch, PBMs are
expected to continue to favor the branded Humira' reference
product by either placing it on a preferable formulary tier or
requiring fewer restrictions for a patient to access it relative to it
biosimilar competitors. This lack of access to lower-cost treatment
options will stifle free market competition, limit patient savings, and
harm the long-term viability of the biosimilars industry.
PBMs also often use rebates from biosimilar manufacturers to control
formulary placement and uptake. Biosimilar manufacturers intend to
offer patients significantly more affordable treatments options, but
they are forced into rebates with PBMs to earn formulary access. These
rebates increase the price of the biosimilar and patients' out-of-
pocket costs.
Biosimilar developers can be forced to launch biosimilars with high
list prices, in order to accommodate PBM demands for the high rebates
when the biosimilar developer would prefer to make the treatment
available to patients at a lower list price. In an attempt to support
patients, dual pricing strategies have emerged from biosimilar
manufacturers. These pricing strategies focus on the traditional higher
price/high rebate compared to using a lower list price strategy that
could lower overall costs for patients and the healthcare system.
However, a lower list price strategy will only benefit the patient if
the PMB chooses the most competitive lower list price version to place
on a preferred position on the formularies. This would mean giving up
retroactive rebates in favor of point of sale discounts. When given
this choice, the PBM has continued to prefer high WAC options.\2\ These
PBM schemes thwart robust, transparent competition that will lower
overall drug costs for patients and taxpayers.
---------------------------------------------------------------------------
\2\ Lessons from Semglee: Early Perspectives on Pharmacy
Biosimilars. Published November 2022. Accessed March 29, 2023, https://
www.iqvia.com/locations/united-states/library/white-papers/lessons-
from-semglee-early-perspectives-on-pharmacy-biosimilars.
---------------------------------------------------------------------------
High List Prices Hurt Patients
For example, Semglee', an insulin biosimilar, was
launched at two different prices. The unbranded version (insulin
glargine) carries a wholesale acquisition cost (WAC) of $147.98 for a
package of five 3-ml pens. That price is 65% cheaper than the reference
product's list price.
Brand-name Semglee', meanwhile, has a WAC of $404.04
per package of five 3-ml pens. That version comes in only slightly
cheaper than the reference product, which carries a list price of
$425.31 for five pens.
Uptake for the unlabeled Semglee' was slow for the
first 10 months prior to the launch of labeled Semglee',
with Lantus holding onto 99% of the market share through November 2021.
After interchangeable Semglee' launched, market share jumped
to 15% of commercial prescriptions by March 2022. Authors of a recent
IQVIA paper noted that payer formulary constraints were the main
driver.\3\
---------------------------------------------------------------------------
\3\ Lessons from Semglee: Early Perspectives on Pharmacy
Biosimilars. Published November 2022. Accessed March 29, 2023, https://
www.iqvia.com/locations/united-states/library/white-papers/lessons-
from-semglee-early-perspectives-on-pharmacy-biosimilars.
---------------------------------------------------------------------------
This dual pricing strategy effectively provides payers with the
option to choose between a high price, high rebate product, etc., that
carries a lower price and features a lower rebate.
A recent study showed that patients would rather pay slightly
higher insurance deductibles to save out-of-pocket costs at the
pharmacy.\4\
---------------------------------------------------------------------------
\4\ Faced with High Cost Sharing for Brand Medicines, Commercially
Insured Patients with Chronic Conditions Increasingly Use Manufacturer
Cost-Sharing Assistance. Published June 2020. Accessed March 23, 2023,
https://phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/D-F/
Faced-with-High-Cost-Sharing-for-Brand-Medicines.pdf.
Opaque volume-based rebate agreements that favor high list prices that
do not save patients money when there is a lower list price option
available is contrary to the intent of the U.S. healthcare system.
Biosimilar manufacturers want to serve patients, but when our customers
are plans and PBMs that have opposite goals than that of the patient,
that task is impossible. The end result of not rebalancing the market
will jeopardize healthcare costs long term.
Changes Required to Promote a Path Forward for Biosimilar Access
PBMs must be willing to place biosimilars on their formularies--
as they are approved, including mid-year--in preferred positions
without restrictions and make them accessible to patients and
providers.\5\ Merely listing biosimilars on a formulary at parity with
the brand biologic is not enough to ensure full patient access or
maximum affordability.
---------------------------------------------------------------------------
\5\ Rebate walls may thwart biosimilar savings. Published September
13, 2022. Accessed March 23, 2023, https://www.modernhealthcare.com/
supply-chain/humira-biosimilar-savings-may-face-delays.
---------------------------------------------------------------------------
PBMs must prioritize patients over profits and backend rebates
by placing Humira' (adalimumab) biosimilars on formulary
tiers that are affordable and unrestricted for patients. This will
achieve full cost-savings for patients, instead of using them as
leverage for larger rebates. For example, as it stands, brands may have
opaque agreement that guarantees volume in exchange for a retroactive
rebate at the end of the year. This takes decision-making away from
patients and providers and disallows multiple points of competition
from biosimilars.
This situation results in limited formulary coverage for the
biosimilar, as the reference product is ``preferred'' on formularies
because of sizeable and anti-competitive volume contracting strategies.
Currently, the launch of the first wave of pharmacy benefit
biosimilars (Semglee' and AmjevitaTM) has shown
list prices close to that of the brand necessary to gain access to the
PBM formulary. This may continue with the launch of additional Part D
biosimilars and is not conducive to lowering drug prices for patients
in 2023, as the patient will pay a percentage of high-rebated list
price and lose most of the savings they could have had with the low-
rebate list price
Policy Solutions Needed
Lawmakers must lead in looking at savings in the long-term, which will
be achieved with robust free-market competition, even if there are
short-term costs with changing the current system. Increased patient
access and cost-savings can be achieved by the following strategies.
Congress Should Demand the Federal Trade Commission (FTC) Immediately
Investigate PBM Actions Specifically Toward Biosimilars
PBM rebate walls create de facto exclusivity and foreclose
biosimilars from effectively competing with the reference product. The
FTC's policy statement on Section 5 of the Federal Trade Commission Act
(FTC Act) (15 U.S.C. 45) states that ``de facto . . . exclusive
dealing, or loyalty rebates that use market power in one market to
entrench that power or impede competition in the same or a related
market'' is anticompetitive and a clear violation of Section 5.\6\ We
encourage the FTC to act quickly and decisively to bring challenges to
this anti-competitive behavior.
---------------------------------------------------------------------------
\6\ Federal Trade Commission, Policy Statement Regarding the Scope
of Unfair Methods of Competition Under Section 5 of the Federal Trade
Commission Act, Commission File No. P221202 (November 10, 2022) at 14.
---------------------------------------------------------------------------
The FTC must require PBMs to issue a market share report of
patient uptake, by plan and drug mix, to establish biosimilar Humira
access and uptake by January 1, 2024, with a final report and
recommendations by January 1, 2025.
Policymakers and Regulators Must Implement Commonsense Solutions to
Promote Biosimilar Access in Medicare Part D
The Biden Administration, Congress, and federal regulators must
ensure biosimilars are available to Medicare patients by allowing them
the chance to compete on list price for preferred positions on
formularies.
CMS and policymakers must support a clear and expedited pathway
to add biosimilars to Medicare Part D formularies.
Policies must not support artificial barriers
that do not allow replacement of the reference product from
Part D formularies.
Policies should not favor the ability for
formularies to prefer reference products and interchangeable
products over biosimilars without the interchangeable
designation. This includes policies related to biosimilar
formulary substitution and utilization management that favor
reference products and interchangeable biologics over
biosimilars.
Enact Federal Legislation for Point-of-Sale Rebates to be Passed to
Patients
Congress must pass legislation to remove barriers that prevent
patients from accessing lower-cost biosimilars. These efforts could
include:
De-linking fees for PBMs that have a direct
relationship with high list prices.
Promoting health equity and patient convenience
by disallowing anti-
competitive vertical integration maneuvers, such as driving
patients to specialty pharmacies owned by the corresponding
PBMs and plans.
Charging PBMs more if they use other providers.
Lawmakers must mandate that rebates are provided at the point of
sale so that patients benefit from the cost-savings--not PBMs.
Policymakers must promote transparency to patients, and
employers on what agreements are taking place between PBMs, plans, and
manufacturers.
Biosimilars Provide Significant Potential Cost-Savings
Humira' has had a 470% price increase \7\ since first
introduced. Humira' and Enbrel' (etanercept)
accounted \8\ in 2019 for more than $5.7 billion in Part D spending--
more than 14 times the $405 million that Part D spent that year for
reference products with available biosimilars.
---------------------------------------------------------------------------
\7\ House committee uncovers how Humira's price spiked by 470% as
AbbVie execs cashed bonuses tied to the hikes. Endpoint News. Published
May 18, 2021. Accessed July 2022, https://endpts.com/house-committee-
uncovers-how-humiras-price-spiked-by-470-as-abbvie-execs-cashed-
bonuses-tied-to-the-hikes/.
\8\ Medicare Part D and Beneficiaries Could Realize Significant
Spending Reductions With Increased Biosimilar Use. U.S. Department of
Health and Human Services Office of Inspector General. Published March
29, 2022. Accessed July 2022, https://oig.hhs.gov/oei/reports/OEI-05-
20-00480.pdf.
---------------------------------------------------------------------------
Medicare could have saved \9\ an estimated $2.19 billion on
Humira' over 4 years had biosimilar competition been
available.
---------------------------------------------------------------------------
\9\ Medicare Part D and Beneficiaries Could Realize Significant
Spending Reductions With Increased Biosimilar Use. U.S. Department of
Health and Human Services Office of Inspector General. Published March
29, 2022. Accessed July 2022, https://oig.hhs.gov/oei/reports/OEI-05-
20-00480.pdf.
---------------------------------------------------------------------------
Part D spending on biologics with available biosimilars could
have decreased \10\ by $84 million, or 18%, if biosimilars had average
uptake.
---------------------------------------------------------------------------
\10\ Medicare Part D and Beneficiaries Could Realize Significant
Spending Reductions With Increased Biosimilar Use. U.S. Department of
Health and Human Services Office of Inspector General. Published March
29, 2022. Accessed July 2022, https://oig.hhs.gov/oei/reports/OEI-05-
20-00480.pdf.
---------------------------------------------------------------------------
The Biosimilars Forum
The Biosimilars Forum is a nonprofit organization working to advance
biosimilars in the United States with the goals of expanding access and
availability and improving healthcare outcomes. Since its inception,
the Forum has worked to expand the uptake of biosimilars throughout the
healthcare system through policies that will increase access for
patients and lower costs through increased competition. Forum members
represent companies with the most significant U.S. biosimilars
development portfolios.
______
FOR IMMEDIATE RELEASE
March 30, 2023
Biosimilars Forum Applauds the U.S. Senate Finance Committee for
Holding PBMs Accountable for Prioritizing Profits over Patients
Juliana M. Reed, executive director the Biosimilars Forum, released the
following statement about the United States Senate Finance Committee
hearing ``Pharmacy Benefit Managers (PBMs) and the Prescription Drug
Supply Chain: Impact on Patients and Taxpayers.'' At least eight lower-
cost, FDA-approved Humira' (adalimumab) biosimilars are
expected to become available to patients by the summer of 2023. Their
launches will be consequential in determining the future success of the
biosimilars market in the U.S. and could save patients and the U.S.
healthcare system more than $5 billion dollars a year, if--and only
if--patients can actually access these medications at affordable costs.
``The members of the Biosimilars Forum and I applaud the Senate Finance
Committee for holding PBMs accountable for their opaque and anti-
competitive pricing schemes that force higher prices on patients, while
denying them access to the treatments they need.
``Biosimilars can save the health care system $133 billion by 2025 if
they are fully available and accessible to the patients who need them.
Unfortunately, PBMs often prevent patients from accessing these lower-
cost, FDA-approved treatments by forcing biosimilar manufacturers to
launch biosimilars with high list prices and high rebates to gain
access on their formularies. PBMs have proven time and time again that
they prioritize higher list prices with high rebates over making
treatments more affordable and accessible for patients.
``PBMs must be willing to support free market competition and place
biosimilars on formularies--as they are approved, including mid-year
updates--in preferred positions without restrictions. Particularly,
PBMs must prioritize patients over profits and backend rebates by
placing biosimilars--especially Humira' (adalimumab)
biosimilars--on formulary tiers that are affordable and unrestricted
for patients.
``Even though biosimilar manufacturers would prefer to make treatments
available to patients at a lower list price, they are often forced to
meet PBM demands for higher rebates to gain formulary access. This has
led to dual pricing structures that focus on the traditional higher
price and high rebates compared to using lower list prices for
patients. These PBM schemes thwart robust, transparent competition.
``PBM transparency is not enough. Lawmakers and regulators must ensure
biosimilars have preferential placement on formularies as they become
available. This would increase access to lower-cost biosimilars for
patients, promote prescription drug affordability, and support health
equity.''
For more information on the Biosimilars Forum's work to increase access
to lower-cost biosimilars, visit biosimilarsforum.org.
MEDIA CONTACT:
Scott Lusk
Signal Group, Vice President
202-288-3233; [email protected]
______
Center for Fiscal Equity
14448 Parkvale Road, #6
Rockville, Maryland 20853
[email protected]
Statement of Michael G. Bindner
Chairman Wyden and the Ranking Member Crapo, thank you for the
opportunity to submit these comments for the record.
This testimony relies on my experience as a member of the Cost
Management Systems project of what was then called Computer-Aided
Manufacturing--International, now the Consortium for Advanced
Management--International. The project produced Cost Management for
Today's Advanced Manufacturing. I created a handbook based on the
project, the U.S. Air Force Orientation Guide to Advanced Cost
Management.
A key concept in cost management, supply chain management and cost
accounting is non-value-added cost. Pharmacy Benefit Managers are a
non-value-added cost. While they do have an impact on the price
manufacturers can charge, they are the primary, if not the sole,
beneficiaries.
The answer to this problem is some form of single payer healthcare,
whether it be through Medicare for All, an expanded Public Option (to
replace Medicaid) or having employers pay for medications, healthcare
workers (and education) and specialist/hospital care either directly or
as a part of the organization. Please see our Single Payer Attachment
for more on this issue.
The other significant driver of drug prices is the question of funding
orphan drugs. The answer is easy. Keep control of orphan drug
intellectual property in the hands of the National Institutes of
Health. Let them, and other agencies such as the National Science
Foundation, fund grants and research contracts to generate
breakthroughs, as well as to manage clinical trials for FDA approval
(if appropriate for the population that needs the drug). When the drug
is approved, NIH can then contract for its manufacture and
distribution.
This methodology will get more done faster, without relying on
profiteering to do what is necessary to help our most vulnerable
patients.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
Attachment: Single Payer discussion from HHS Budget FY 2022
We address the funding of the Affordable Care Act, the need for an
immediate COLA for retirees, funding the Social Security
Administration's non-fund costs, and the idea of cost savings for
Social Security.
So far, the Administration has not yet addressed changes to the
Affordable Care Act, at least not publicly. We suggest that the
Committee ask the Secretary about any such plans.
At minimum, the individual and employer mandates, with associated
penalties, that were repealed must be restored. The President
campaigned on restoring and perfecting the Act, adding a public option.
We agree, although the public option need not be self-supporting. It
must be subsidized through a broad-based consumption tax. Such a tax
burdens both capital and wage income.
The current funding stream seems to have been designed to draw
opposition from wealthier taxpayers. It is an open secret that the
Minority does not oppose most of the Affordable Care Act (which was
designed by their own Heritage Foundation as an alternative to Mrs.
Clinton's proposals). Broaden the tax base to fund the program and the
nonsense on repeal will end.
The current funding stream from student loan initiation and interest,
which was included in the baseline, should also be ended. Graduates
(and non-graduates) with student loan debt cannot afford both their
loan payments and insurance payments under the Affordable Care Act.
When they apply for lower loan payments, which are always granted, they
face either a balloon interest payment or capitalized interest, which
makes their funding situation worse. No one should have to retire with
student loan debt, yet quite a few soon will (or already have).
Forgive capitalized interest and apply any overpayments to principal.
There should not be a one-size-fits-all subsidy. Also, when payments
are deferred, return to the practice of deferring interest (or allow
debts to be discharged, at least partially, in bankruptcy).
To deal with these issues, whatever is budgeted for analytical support
in the Department should likely be doubled.
The following analysis comes from the Single Payer attachment that has
previously been provided. Because of the President's preference for
establishing the public option, we will repeat those analyses here.
Aside from a broader base of funding, other compromises are necessary
to enact a public option.
To set up a public option to end protections for pre-existing
conditions and mandates. The public option would then cover all
families who are rejected for either pre-existing conditions or the
inability to pay. In essence, this is an expansion of Medicaid to
everyone with a pre-existing condition. As such, it would be funded
through increased taxation, which will be addressed below. A variation
is the expansion of the Uniformed Public Health Service to treat such
individuals and their families.
The public option is inherently unstable over the long term. The profit
motive will ultimately make the exclusion pool grow until private
insurance would no longer be justified, leading-again to Single Payer
if the race to cut customers leads to no one left in private insurance
who is actually sick. This eventually becomes Medicare for All, but
with easier passage and sudden adoption as private health plans are
either banned or become bankrupt. Single-payer would then be what
occurs when insurance companies are bailed out in bankruptcy, the
public option covers everyone and insurance companies are limited to
administering the government program on a state by state basis.
The financing of the Affordable Care Act should be broadened. It should
neither be funded by the wealthy or by loan sharking student loan
debtors. Instead, it should be funded by an employer-paid consumption
tax, with partial offsets to tax payments for employer provided
insurance and taxes actually collected funding a Public Option (which
should also replace Medicaid for non-retirees). Medicaid for retirees
and Medicare should be funded by a border adjustable goods and services
tax, which should be broad based.
Why the difference? The goal is to not need a public option as
employers do the right thing and cover every worker or potential
worker. Using an employer-based tax is an incentive to maximize
employee coverage. Medicare, however, is an obligation on society as a
whole.
______
Chronic Care Policy Alliance
1001 K St., 6th Floor
Sacramento, CA 95814
916-444-1985
https://chroniccarealliance.org/
Re: Full Committee Hearing: Pharmacy Benefit Managers and the
Prescription Drug Supply Chain: Impact on Patients and Taxpayers
Dear Chairman Wyden and Ranking Member Crapo:
On behalf of patients with chronic conditions, the Chronic Care Policy
Alliance applauds the Finance Committee's focus on Pharmacy Benefit
Managers (PBMs) and the role they play in the healthcare marketplace.
While patients and families struggle to access the medications needed
to manage their health and chronic conditions, PBMs exacerbate those
challenges by driving up costs, limiting access to medications, and
instituting harmful policies that limit the usefulness of financial
assistance. We urge this committee to investigate the role of PBMs and
institute policies that protect against measures that shift cost
burdens to patients.
While PBMs were originally designed to create greater efficiency in
processing pharmacy claims, their role has expanded over time. Taking
advantage of a lack of transparency and oversight into their role, PBMs
have implemented policies that create barriers for patients seeking to
access medications and shift a greater share of the cost burden onto
patients, all in the interest of increasing profits for PBMs.
For example, PBMs negotiate rebates on prescription drugs with
manufacturers in the interest in lowering costs. Unfortunately, rather
than pass these rebates on to patients, PBMs instead recoup the profits
of these rebates. Meanwhile, patients who are already struggling to
afford needed medications are left paying the original, undiscounted
price for their medications.
Additionally, PBMs work alongside insurers to implement policies within
health plans that further limit patient access to medications.
Practices including limited drug formularies, adverse tiering,
requirements for prior authorizations, and other discriminatory
practices make it more difficult for both doctors and patients to
identify effective therapies and maintain drug treatments.
Alongside these policies, we have also seen a sharp increase in copay
accumulator rules within health plans. These rules exclude certain
copay assistance programs from counting towards patient deductibles and
out-of-pocket maximums. Millions of patients rely on copay assistance
programs to help them afford their critically needed medications;
therefore, these copay accumulator policies drive up patient costs and,
in some instances, can put medications out of reach for patients.
If PBMs continue to have the ability to implement discriminatory
practices and fail to share rebates with patients, they will be
partially responsible for millions of patients foregoing their
treatment regimens. Therefore, we urge this committee to protect
patients by bringing transparency to these operators.
Sincerely,
Liz Helms
Founder/Director
______
Cystic Fibrosis Foundation
4550 Montgomery Avenue, Suite 1100N
Bethesda, MD 20814
301-951-4422
800.FIGHT.CF
Fax: 301-951-6378
https://www.cff.org/
April 12, 2023
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
221 Dirksen Senate Office Building 239 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
On behalf of the nearly 40,000 children and adults with cystic fibrosis
in the United States, we write to share additional perspectives on the
topics discussed at the recent hearing on pharmacy benefit managers
(PBMs), including concerns about the opaque influence of PBMs and the
confusing, labyrinthian system they have created for patients.
The Cystic Fibrosis Foundation is a national organization dedicated to
curing cystic fibrosis (CF). We invest in research and development of
new CF therapies, advocate for access to care for people with CF, and
fund and accredit a network of specialized CF care centers. Cystic
fibrosis is a life-threatening genetic disease that causes the body to
produce thick, sticky mucus that clogs the lungs and digestive system,
which can lead to life-threatening infections. As a complex, multi-
system condition, CF requires targeted, specialized treatment and
medications. If left untreated, infections and exacerbations caused by
CF can result in irreversible lung damage, and the associated symptoms
of CF lead to early death, usually by respiratory failure.
Transformative therapies--such as CFTR modulators--have been paramount
in changing what it means to live with CF. However, PBM cost
containment strategies have created a convoluted system that patients
struggle to navigate and often results in significant barriers to care.
PBMs manage prescription drug benefits on behalf of health insurers,
Medicare Part D drug plans, large employers, and other payers. By
negotiating with drug manufacturers and pharmacies to determine drug
coverage and reimbursement, PBMs can exert significant control over
total drug costs for insurers, patients' access to medications, and how
much pharmacies are paid.\1\ PBMs often focus cost mitigation
strategies on specialty drugs because of their high cost but low
utilization within the overall population. PBM practices and the
opacity of the system are extremely problematic and burdensome for
chronic conditions like CF that primarily use specialty drugs.
---------------------------------------------------------------------------
\1\ https://www.healthaffairs.org/do/10.1377/hpb20171409.000178/
full/healthpolicybrief_178-1660136543567.pdf.
---------------------------------------------------------------------------
CF Community's Experience with PBMs
Overall, PBMs cause significant barriers to care for people with CF in
navigating insurance. This is largely due to the lack of understanding
of the role of PBMs in coverage decisions and evolving strategies that
PBMs put in place to mitigate their own costs and those of their
clients, which add out-of-pocket costs or administrative burden for
patients.
Transparency
There is a lack of transparency on the role of PBMs, insurers, and
subcontracted third-party entities in coverage and cost-sharing
decisions, especially in the self-funded insurance market. This causes
confusion on the appropriate point of contact for coverage decisions,
increasing administrative burden on both patients and their care teams,
and causing gaps in access to important therapies. PBMs and insurance
companies both regularly claim that the other entity makes the final
determinations on coverage for a therapy, resulting in an avoidance of
responsibility from both parties and delays and confusion for the
patients they cover. Patients and care teams frequently report being
``passed back-and-forth'' between the two entities when seeking to
understand coverage decisions. The result is that people with CF do not
know who is ultimately responsible for decisions about their drug
coverage, or where to appeal in order to access their essential
treatments.
Third-party entities such as maximizers--many of which are owned by
PBMs--and alternative funding programs add complexity to an already
opaque system. Maximizers often outsource a patient's drug coverage to
a third-party entity that sets the patients' cost-sharing at a level to
maximize use of manufacturer copay assistance. Alternative funding
programs also rely on third-party entities that seek to enroll patients
in manufacturer patient assistance programs that provide free drugs,
which are usually intended for people without insurance. Without
transparency on the
decision-maker (PBM vs. payer vs. third-party), patients often face
unnecessary, confusing, and time-consuming administrative barriers and
unacceptable and inappropriate treatment gaps. New coverage tactics
emerge frequently, requiring patients and care teams to consistently
learn and adapt to new, opaque, and confusing policies. PBMs are often
at the center of these challenges.
Increased Out-of-Pocket Costs
In addition to maximizers and alternative funding programs, PBMs and
insurers are increasingly implementing accumulator programs--which
prevent third-party payments from counting towards deductibles and out-
of-pocket limits and therefore increasing out-of-pocket costs for
patients. Many people with CF rely on third-party financial assistance
to cover some of the costs associated with their care, as CF is an
expensive disease. The CF Foundation recognizes that copay that copay
assistance programs mask bigger cost and affordability issues; however,
cost containment strategies like accumulator programs that further
burden patients are unacceptable.
Recommendations
The CF Foundation appreciates the committee's attention to this issue.
We urge Congress to ensure that the legislative proposals seek to
improve the experience for patients, in addition to regulating the
business and financial structure of PBMs. We provide the following
recommendations:
HELP Copays Act: The CF Foundation recommends including the Help Ensure
Lower Patient Copays Act (HELP Copays Act; HR 830) in to
any PMB reform legislation. This bill reduces patient
administrative and financial barriers imposed by PBMs and
payers by (1) requiring payers to apply third party
assistance to out-of-pocket maximums and other patient
cost-sharing requirements; and (2) ensuring any item or
service covered by a health plan is considered part of
their essential health benefits (EHB) package. Together,
these policies would prohibit accumulators, maximizers, and
alternative funding programs in federally-regulated
insurance plans, eliminating some of the most problematic
PBM practices for patients.
Transparency: CF Foundation recommends Congress direct the FTC and HHS
to expand transparency measures for PBMs and insurers to
ensure patients receive better information about coverage
policies for specialty drugs, including relationships with
third-party entities. Specifically, Congress should direct
the FTC and HHS to require PBMs and payers to provide
enrollees with notices and disclosures on which entity is
responsible for coverage determinations and provide clear
contact information.
Oversight and Enforcement: The CF Foundation supports efforts by
Congress to require the FTC to determine whether there is
more information about PBMs that should be available to
consumers and whether there are any legal or regulatory
obstacles the FTC currently faces in enforcing the
antitrust and consumer protection laws in the PBM
marketplace.
Thank you for your leadership on this important issue. The CF
Foundation stands ready to work with you to ensure patients' health and
financial well-being are not sacrificed in the ongoing systemic debate
among payers, PBMs, and drug manufacturers.
Sincerely,
Mary B. Dwight
Chief Policy and Advocacy Officer
Senior Vice President, Policy and Advocacy
______
EmployersRx Coalition: Employers' Prescription
for Affordable Drugs et al.
U.S. Senate
Committee on Finance
Chairman Wyden, Ranking Member Crapo, and Members of the Committee, on
behalf of the Employers' Prescription for Affordable Drugs
(EmployersRx), and our undersigned members, we want to thank you for
holding this important and timely hearing on Pharmacy Benefit Managers
(PBMs) and the drug supply chain. We offer our appreciation to all of
the witnesses and Members focused on the impact unaffordable
prescription drugs have on Americans and thank you for your actions in
support of meaningful PBM reform. EmployersRx stands ready to help as
you begin this critical work.
EmployersRx is a nationwide effort led by the Purchaser Business Group
on Health that includes The ERISA Industry Committee (ERIC), American
Benefits Council, National Alliance of Healthcare Purchaser Coalitions,
Silicon Valley Employers Forum, HR Policy Association, and the Small
Business Majority. Our members share a common goal--to bring more
transparency to health care, ensuring employers and their employees are
empowered by information. This is especially important with regards to
PBM transparency to ensure employees have access to affordable
prescription drugs.
Growing awareness around the lack of transparency, layers of
complexity, and the many activities PBMs have devised that contribute
to our country's spiraling drugs costs has created an unprecedented
opportunity to compel change. The U.S. has a health care affordability
crisis and employers, workers, and clinicians are all struggling in a
health care system that incentivizes high cost, low quality care.
This crisis is greatly exacerbated by health care industry
consolidation, including the fact that the three largest PBMs, which
control 80 percent of the market, are now integrated with the country's
largest health insurers as well as affiliated pharmacies and provider
organizations. Their collective market power to determine where
patients receive care, which drugs they can access, how much they pay
and where their prescriptions are filled raises real questions about
conflict of interest.
PBMs and their insurer parents exert enormous and often-harmful
influence over drug cost and access for the 158 million Americans
receiving health care through employer-sponsored coverage.\1\ Employers
have a legal responsibility as plan fiduciaries--we are bound by law to
act in the best interest of the plan beneficiaries and to be
financially responsible of plan assets. For PBMs, the exact parameters
of their responsibilities should align with the best interest of plan
beneficiaries.
---------------------------------------------------------------------------
\1\ ``Improving and Strengthening Employer-Sponsored Insurance,''
Bipartisan Policy Center, October 2022, https://bipartisanpolicy.org/
download/?file=/wp-content/uploads/2022/10/BPC-Improving-and-
Strengthening-Employer-Sponsored-Insurance-Oct-2022.pdf.
Selecting and monitoring good health care services for workers and
their families and paying for reasonable plan expenses is not only an
employer's obligation under the law, but also good business as it helps
companies recruit and retain top talent. However, despite being the
primary customers for PMBs and even some of the country's largest
companies and purchasers of health care--employers are no match against
PBMs' significant market power. Employers continue to encounter
barriers to PBM pricing and other data and simply lack the bargaining
---------------------------------------------------------------------------
power to require it.
For all these reasons, employers strongly believe the market is not
functioning as intended and Americans are being denied access to
affordable health care, including needed medicines. Therefore federal
action is essential to address the anticompetitive aspects of the PBM
business model by establishing clear regulatory oversight of the
industry.
These actions should include:
1. Strong transparency and reporting requirements. Transparency
for the primary customers of PBMs--employers--is a critical aspect to
reform. Contracts between PBMs and employers typically do not provide
details about fee or rebate schedules or amounts, prices, and fees
generated from manufacturers and other parties, drug definition
criteria, or amounts charged to pharmacies. Sometimes PBM control of
information extends to an employer's effort to enforce contract
compliance, as they may either prohibit an employer from auditing the
PBM or require a PBM-designated auditor.
2. Prohibition or limits on spread pricing. PBMs should not be
allowed to charge employers, health plans, or patients more for a drug
than the PBM paid the pharmacy for that drug. Confidentiality clauses
make it difficult for employers to identify what pharmacies pay and
vice versa. This strategy has been especially profitable to PBMs, as
exposed in numerous state Medicaid program audits.
3. Pass-through of 100 percent of all rebates and volume or
access-based administrative fees by PBMs. The exploitation and
manipulation of manufacturer rebate revenues and fees charged to
employers for an ever-growing array of service and administrative fees
has historically been a critical aspect of a PBM's business model. Due
to significant pressure to pass rebate funds through to employers, PBMs
are creating and/or increasing fees (over and above rebates) on
manufacturers, pharmacies, other supply chain entities, and employers.
4. Prohibition on all ``workarounds.'' Falling rebate revenues has
led to the creation of group purchasing organizations (GPOs), or rebate
aggregator entities by the big three PBMs--of which two are established
outside of the U.S. These workarounds must be addressed in any
legislation put forward this year to guard against current and future
gamesmanship of a PBM's legal requirements.
5. Transparency regarding PBM-owned pharmacies. American workers
and their families rely on local pharmacies in many communities,
especially in rural and low-income neighborhoods. PBMs should be
required to submit information regarding transactions between the PBM
and any pharmacy wholly or partially owned, including mail-order,
specialty and retail pharmacies, by the PBM.
6. Definition and regulation of bona fide service fees. PBMs
should be required to disclose the fees they receive from drug
manufacturers for nonspecific services affecting plan design and costs
to employers and their plan beneficiaries.
7. Establishment of clear regulatory oversight. Employers are
required as plan fiduciaries to ensure they are good stewards of the
health care benefits they provide for their employees. To fulfill that
obligation, employers believe any legislation must require clear
oversight and accountability of PBMs and specify the exact parameters
of PBM responsibility.
The Senate Finance Committee has a key role in both uncovering the
concerning practices of the PBM industry, as well as leadership in
addressing this important issue. We support and applaud the committee's
desire to act. We also encourage you to work with your colleagues in
the other Senate and House committees of jurisdiction to ensure this
important legislation lays the critical foundation and groundwork to
reduce spending on prescription drugs and make health care more
affordable and attainable for America's workers and their families.
EmployersRx looks forward to working with you to design and enact
bipartisan, commonsense legislation that can pass Congress and be
signed into law by President Biden. Together, we can bring true
accountability and reform to the PBM industry. Please contact Alan
Gilbert, Vice President for Policy, The Purchaser Business Group on
Health at [email protected] for further information on this or any
other matter of mutual concern.
Sincerely,
Purchaser Business Group on Health
National Alliance of Healthcare Purchaser Coalitions
The ERISA Industry Committee (ERIC)
American Benefits Council
Silicon Valley Employers Forum
HR Policy Association
The Small Business Majority
______
Harmon City, Inc.
3540 S 4000 W, Suite 500
West Valley City, Utah 84120
801-969-8261
www.HarmonsGrocery.com
Statement of Gregory J. Jones, R.Ph., MBA, Director of Pharmacy and
Health/Wellness, Harmon City, Inc.
Introduction
Harmon City, Inc. appreciates the opportunity to submit a statement for
the record for the United States Senate Committee on Finance on
``Pharmacy Benefit Managers and the Prescription Drug Supply Chain:
Impact on Patients and Taxpayers.''
Harmons is a family owned chain of 20 grocery stores. 19 of the grocery
stores also have pharmacies. We have served the residents of Utah since
1932, including pharmacy patients since 1945.
Great Concern about Pharmacy Benefit Manager Tactics
We are extremely concerned about pharmacy benefit manager (PBM) tactics
that have significant negative effects on patients, communities,
taxpayers, employers, and pharmacies. PBMs are hired by insurance plans
and others to negotiate lower drug prices. Unfortunately, they
manipulate the system and keep billions in profits while:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--which obviously harms the
pharmacy and also the patients and communities that rely on them.
The dominance of PBMs is significant. Three PBMs control 80 percent of
the prescription drug market. These are the practical effects of PBM
tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy & Economics found that Medicare Part
D standalone plans paid $2.6 billion more in one year for 184 common
generic medications compared with prices for the same drugs available
to cash-paying customers of one retailer.
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.
Putting the squeeze on pharmacies: The Centers for Medicare &
Medicaid Services found that direct and indirect remuneration (DIR)
fees charged by PBMs and payers to pharmacies have exploded by 107,400%
over the last decade.
We want to take this opportunity to define ``PBM reform.'' This is
important to maximize the effectiveness of Congress' work in this area
for patients, and to roll-back the current jeopardy posed by PBMs to
pharmacies. For this purpose, we call to your attention the Principles
of PBM Reform advocated by the National Association of Chain Drug
Stores:
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
In closing, we want to put to rest one of the myths perpetuated by
PBMs. It is shocking that they have been able to stave off reform
efforts by alleging that premiums will increase. This is nothing short
of a scare tactic, and one that cannot be allowed to be used so
flippantly and without substantiation. PBM reform will reduce
prescription drug costs by cracking down on middlemen's manipulation.
It does not follow logically that reductions in prescription drug costs
will result in increased premiums. It is time to address the
manipulative business practices of PBMs, as well as to end the negative
effects of their tactics.
Harmon City, Inc. thanks the Committee for the opportunity to provide
our perspective on PBM reform. For questions or further discussion,
please contact Gregory J Jones, R.Ph., MBA, Director of Pharmacy and
Health/Wellness, at gregjones@
harmonsgrocery.com or, 801-957-8454.
______
Hy-Vee, Inc.
5820 Westown Parkway
West Des Moines, Iowa 50266
515-695-3087
https://www.hy-vee.com/
Introduction
Hy-Vee, Inc. appreciates the opportunity to submit a statement for the
record for the United States Senate Committee on Finance on ``Pharmacy
Benefit Managers and the Prescription Drug Supply Chain: Impact on
Patients and Taxpayers.''
Hy-Vee is an employee-owned company operating more than 280 retail
pharmacy locations across eight Midwestern states--Illinois, Iowa,
Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin--with
sales of more than $12.5 billion annually. We have more than 80,000
employees in our region serving millions of customers and patients each
week. We also care for patients through our national specialty
pharmacy, Amber Specialty Pharmacy, which serves vulnerable patients
across the nation who often are facing severe illnesses that can only
be treated by rare and speciality drugs.
PBM Concerns
We are extremely concerned about pharmacy benefit manager (PBM)
strategies that have significant negative effects on patients,
communities, taxpayers, employers, and pharmacies. PBMs are hired by
insurance plans and others to negotiate lower drug prices.
Unfortunately, they manipulate the system in a way that potentially
keeps billions in profits while also:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--which harms the pharmacy,
and the patients and communities who rely on them.
The astronomical increase of DIR fees, in particular, continues to have
a devastating impact on our patients as well as our company. Our
communities rely on us as often the closest provider of health care
services; however, the economic impact of the current PBM landscape is
becoming unmanageable. Hy-Vee has incurred a 309.44 percent increase in
DIR fees over the past four years, and continual increases are
unsustainable.
Hy-Vee stores serve a number of smaller, rural communities and see
other businesses in these areas struggle under the unsupportable weight
of increasing DIR fees. These fees are placing the ecosystem that
boasts unparalleled access to care--where 90% of Americans are within 5
miles of a pharmacy--in jeopardy. According to the RUPRI Center for
Rural Health Policy analysis report (Update on Rural Independently
Owned Pharmacy Closures in the United States, 2003-2021), the total
number of retail pharmacies in micropolitan and noncore areas declined
by 836 between 2003 and 2021, and the number of independently owned
retail pharmacies in micropolitan and noncore areas decreased by 9.1%
and 16.1%, respectively.
The recent Centers for Medicare and Medicaid Services (CMS) rulemaking
(Medicare Program; Contract Year 2023 Policy and Technical Changes to
the Medicare Advantage and Medicare Prescription Drug Benefit Programs;
CMS-4192-P) fell short of expectations and will further disadvantage
those pharmacists who serve the customers directly.
Critical elements were neglected in the final rulemaking, and we ask
Congress to address these key principles of PBM reform to maximize the
effectiveness of any proposed legislation and help keep our current
pharmacy network strong and stable for all Americans:
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
Our Hy-Vee pharmacies continue to be a trusted, convenient, and
equitable access point for health and wellness in urban and rural
communities. We remain a critical access point for prescription drugs,
chronic care management, wellness and prevention services, testing,
vaccines, and health and wellness education. PBM reform is crucial to
preserving pharmacies' role in their communities and to retain this
vital health care access for all patients. Without action in the near
future, our pharmacies will suffer.
In closing, we want to put to rest one of the myths perpetuated by
PBMs. It is unfortunate that reform efforts have been thwarted by
alleging that premiums will increase. PBM reform will reduce
prescription drug costs by addressing the middlemen's tactics. It does
not follow logically that reductions in prescription drug costs will
result in increased premiums. It is time to address the business
practices of PBMs, as well as to end the negative effects of these
tactics.
Hy-Vee, Inc. thanks the Committee for the opportunity to provide our
perspective on PBM reform. For questions or further discussion, please
contact Stacey Johnson, Vice President, at [email protected].
______
Letter Submitted by Edward Kitlowski
U.S. Senate
Committee on Finance
Re: Poor Health Care for Federal Employee
I am writing on behalf of my wife Mary Kitlowski, a Federal employee
with the Patent and Trademark Office. Mary is a GS12 at the PTO and has
won two Bronze medals for exemplary work. All her ratings have been
classified as exceptional. She works from home. The complaint is with
the Federal Carefirst, Blue Choice Insurance plan which has denied
covering two prescriptions Mary had when covered by Blue Cross/Blue
Shield Federal insurance. Mary's health is deteriorating and will
probably entail hospitalization in the coming week.
I am writing as she is exhausted from the scenario I will describe. As
background, she was born with a genetic condition called Primary
Ciliary Dyskinesia (PCD). Persons with this condition have flaccid
cilia, meaning the mechanisms in our body which protect and expel
irritants from the nasal and pulmonary systems do not work. This causes
infections in the sinuses and lungs which build up. The infections
cause damage to the lungs called bronchiectasis. My wife has a daily
routine that is very similar to a person with Cystic Fibrosis. PCD is
considered a rare disease, which complicates treatment. It is also a
progressive disease. More information on the disorder can be found at
Living with PCD--PCD Foundation Website.\1\
---------------------------------------------------------------------------
\1\ https://pcdfoundation.org/living-with-pcd/.
As previously stated, it is a progressive disease. She now has only 30%
lung capacity. She requires supplemental oxygen when walking and even
sleeping. She is under the supervision of Dr. O'Donnell of Georgetown
Medical and Dr. Shah of Johns Hopkins Transplant Center. On several
occasions, she has had prescriptions denied by insurance companies, and
fought to receive the treatment ordered by her doctor. Dr. O'Donnell
monitors Mary's medical care which involves prescriptions, and medical
---------------------------------------------------------------------------
devices.
When the annual health insurance renewal for Federal employees opened,
she re-evaluated her plan which was the Federal Blue Cross/Blue Shield.
She enrolled in the Federal Carefirst Blue Choice plan believing it
provided the same level of care but with different levels of
deductions. What she did not expect was the new plan denied the
prescriptions she had been taking for many years. Her health has been
deteriorating because of the policies of the insurance company.
One of the medications is Theo 24. She had been taking one tablet of
200mg a day. Carefirst denied covering the prescription. She was
informed by phone of the denial without the name and title of the
medical person who made the denial. Mary was told Theo 24 was not part
of their medical formulary. Dr. O'Donnell is a recognized expert on PCD
and Theo 24 has specific properties that are ideal for patients with
PCD. Mary has been paying out of pocket to continue taking the
medication. Carefirst has been unresponsive in responding to Mary's
appeal and contacting both Dr. O'Donnell and Mary to cover this
necessary medication. They have made statements unsubstantiated by Dr.
O'Donnell's office and do not return calls by Mary. Meanwhile, time
passes, and she is not covered for the necessary medication.
A second prescription that was denied is Budesonide, an inhaled
steroid. Mary has been taking this for over five years. It reduces
bronchospasms and allows for easier expiration of mucus from the lungs,
alleviating breathing and reducing the scarring of lung tissue,
(bronchiectasis). Again, Carefirst not has been responsive to phone
calls and emails. Mary's health has been compromised by Carefirst's
inaction.
Mary uses an Airway Clearance System, an inflatable vest attached to a
machine which provides oscillation to loosen the mucus and pus in her
lungs to facilitate expiration. There is a new device called the Volara
System which has preliminary results and anecdotal reports of increased
lung capacity from its use. It is currently classified as experimental
by the FDA, which allows insurance companies the ability to deny
coverage. Mary was denied the device by an RN. I have included
information on the system and review of the efficacy by members of the
American College of Chest Physicians.
This scenario raises numerous issues in the health insurance business,
as it is a for-profit enterprise, and specifically of a policy for
Federal employees. Insurance companies should be required to maintain
current prescriptions for transferred patients for a period of possibly
two months. When Mary reviewed the two plans, there was little to no
transparency on the prescriptions covered. Mary would not have changed
plans if she knew Carefirst would deny two of her prescriptions. Mary
is possibly going to have to be hospitalized, a cost much higher than
the price of the prescriptions. Insurance companies should not have the
preponderance of judgement in patient care.
Mary is a Federal employee having problems with a health insurance plan
for Federal employees. I believe Mary's suggestion of legislation
requiring insurance companies to continue prescriptions for at least 2
months and not be allowed to deny on-going medical coverage is
brilliant.
Senators, I am watching my wife's health deteriorate. The frustrations
with dealing with Carefirst are contributing to the decline along with
the lack of medical care. I suggest Mary is not the only person
experiencing the same issue. I am a retired Baltimore County teacher,
experiencing my own trials and tribulations with health care plans. As
a country, we can do better. I know you believe the same.
Respectfully,
Edward Kitlowski
______
I have included descriptions of the disease and medications from The
Cleveland Clinic, NIH, and the PCD Foundation.
Bronchiectasis is a condition where damage causes the tubes in your
lungs (airways) to widen or develop pouches. It makes it hard to clear
mucus out of your lungs and can cause frequent infections. Coughing a
lot with pus and mucus is the main symptom of bronchiectasis.
Bronchiectasis can't be cured but can be managed with treatment.
Theophylline is used to treat lung diseases \2\ such as asthma \3\ and
COPD \4\ (bronchitis,\5\ emphysema \6\). It must be used regularly to
prevent wheezing \7\ and shortness of breath. This medication \8\
belongs to a class of drugs known as xanthines. It works by relaxing
the muscles around the airways so that they open up and you can breathe
more easily. It also decreases the lungs' response to irritants.
---------------------------------------------------------------------------
\2\ https://www.webmd.com/lung/lung-diseases-overview.
\3\ https://www.webmd.com/asthma/what-is-asthma.
\4\ https://www.webmd.com/lung/copd/10-faqs-about-living-with-copd.
\5\ https://www.webmd.com/lung/understanding-bronchitis-basics.
\6\ https://www.webmd.com/lung/copd/what-is-emphysema.
\7\ https://www.webmd.com/asthma/understanding-wheezing-basics.
\8\ https://www.webmd.com/drugs/2/index.
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One drug Carefirst said is covered is Salmeterol (Serevent)
Long-acting beta agonists (LABAs)
These bronchodilator medications open airways and reduce swelling for
at least 12 hours. They're used on a regular schedule to control
moderate to severe asthma and to prevent nighttime symptoms. Although
they're effective, they've been linked to severe asthma attacks. For
this reason, LABAs are taken only in combination with an inhaled
corticosteroid.
Volara System
Purpose: The Volara System is a novel device that is intended for the
mobilization of secretions, lung expansion therapy, and the treatment
and prevention of pulmonary atelectasis. Oscillation and lung expansion
(OLE) therapy can be used in the acute care as well as the home
setting, in patients with cystic fibrosis [CF], chronic obstructive
pulmonary disease [COPD], Bronchiectasis, neuromuscular disease [NMD],
and other conditions requiring airway clearance therapy. In this study,
we aimed to evaluate the trends in clinical outcomes in patients
started on OLE, as documented in the OLE patient reported outcomes data
repository.
Conclusions: Patients receiving at home OLE therapy showed improved
self-reported clinical outcomes in various disease states, as evidenced
by the reduction in hospitalizations and antibiotic use, and subjective
improvement in ease of breathing in the first 6 months of therapy. This
was accompanied by high levels of patient satisfaction and adherence to
therapy. Longer term studies with established correlation with EMR data
as well as clinical studies are needed to support these findings.
Huynh T.T., Liesching T.N., Cereda M., Lei Y., Frazer M.J., Nahouraii
M.R., Diette G.B., Efficacy of Oscillation and Lung Expansion in
Reducing Postoperative Pulmonary Complication, Journal of the American
College of Surgeons (2019).
DOI: https://doi.org/10.1016/j.chest.2021.07.1670 Copyright 2021
American College of Chest Physicians.
______
National Association of Chain Drug Stores
1776 Wilson Blvd., Suite 200
Arlington, VA 22209
703-549-3001
https://www.nacds.org/
Statement of Steven C. Anderson, FASAE, CAE, IOM,
President and Chief Executive Officer
Introduction
The National Association of Chain Drug Stores (NACDS) appreciates the
opportunity to submit a statement for the record for the Senate
Committee on Finance's hearing, ``Pharmacy Benefit Managers (PBM) and
the Prescription Drug Supply Chain: Impact on Patients and Taxpayers.''
NACDS appreciates the Committee's work to explore PBMs' lack of
transparency and standardized performance measures, inflationary
effects on drug prices, restrictions on patient access, and unfair
pharmacy reimbursement practices that threaten pharmacies and the
patients who rely on them for access. The prescription drug supply
chain is largely controlled and manipulated by the three largest PBM-
insurers, with significant consequences for patients and taxpayers.
Retail pharmacies are critical healthcare access destinations for
patients and population health. The nation called on pharmacies to
deliver COVID-19 testing, vaccinations, and other critical care
services to communities during the pandemic. Pharmacies seamlessly rose
to the challenge, in large part due to more than a decade of pandemic
preparedness and collaborative planning. Consider, the nation's
pharmacies administered over 300 million COVID vaccines, performed more
than 42 million tests, dispensed nearly 7 million antiviral courses,
and were the top provider of over-the-counter COVID tests in CMS'
demonstration program. Using conservative estimates, pandemic
interventions by pharmacists and pharmacy personnel averted more than 1
million deaths, more than 8 million hospitalizations, and $450 billion
in healthcare costs.
A poll of adults conducted March 4-6, 2022, by Morning Consult and
commissioned by NACDS found that retail pharmacies received the highest
ratings for ease of access among the destinations tested. Of note, 79
percent of those surveyed also support pharmacists helping patients
prevent chronic diseases. America's pharmacies have been dealing with
these legacy issues for over a decade and it has been exacerbated by
the absence of oversight and understanding of the offensive and
competition-eroding practices of PBMs that impact timely patient
access, pharmacy sustainability, and pharmacy's innovative vision to
empower patients' total health and wellness.
NACDS applauds Chairman Wyden and Ranking Member Crapo for keeping this
issue top of mind on a bipartisan basis and for their continued
commitment to fight for meaningful reform. Comprehensive reform is
needed to instill increased transparency and accountability for PBM's,
to help ensure the economic viability of pharmacies, and to foster
increased access to care and improved health outcomes for the patients
they serve.
The Pharmacy Benefit Manager Marketplace and Impact on Pharmacies
Prescriptions filled by patients who are paying cash without any form
of insurance or discount card account for only about 3% of the total
volume of prescriptions.\1\ While approximately 91% of prescriptions
filled have a payment component coming from Medicare Part D, Medicaid,
or a commercial insurance plan, these plans are ordinarily administered
by PBMs. The top three PBMs manage about 80% of the volume.\2\ The top
six PBMs and plans manage about 96% of the volume.\3\ Five of those six
PBMs are owned by large national health insurers. This business
environment makes it very difficult for pharmacies to negotiate fair
business practices and transparency because the PBMs and health
insurers have more commercial market power and leverage in the
relationship due to their size and scale. This creates a one-way street
with negative consequences for patients, pharmacies, employers,
taxpayers, and communities--seemingly for all but the PBMs and payers.
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\1\ Source: IQVIA, National Prescription Audit and RxInsight, June
2022; Approximately 5.4% of patients use a discount card to assist with
payment.
\2\ https://www.drugchannels.net/2022/04/the-top-pharmacy-benefit-
managers-of.html.
\3\ Id.
Retail pharmacies are in crisis, facing unsustainable financial
pressures as they are increasingly reimbursed by payers below the cost
of buying and dispensing prescription drugs. Dire financial pressures
have forced an alarming number of pharmacies to take drastic steps,
such as possibly paring back hours and placing on hold innovative care
services that otherwise could improve health outcomes. Payers have
increasingly reduced reimbursements; in many cases, pharmacies dispense
prescriptions below cost. Retroactive fees and claw backs often occur
weeks or months after a transaction closes, when a payer decides to
recoup a portion of the pharmacy's reimbursement. These fees have made
the economic viability of community pharmacies increasingly difficult,
due to the unpredictability of reimbursement and the increased damage
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to bottom lines.
It is important to look at the pre-COVID pharmacy closures. According
to IQVIA, between December 2017 and December 2020, almost 2,200
pharmacies closed nationwide.\4\ Some of the PBMs' abuse of pharmacies
were abated during the pandemic and the nation's reliance on pharmacies
over the past three years further mitigated pharmacy closures. However,
the ominous situation for pharmacies is worse than ever before.
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\4\ IQVIA Data, 2020. Closures disproportionately impacted rural
areas.
The epidemic of pharmacy closures is reducing access to vital
healthcare services, especially in rural areas where options are
already limited. Communities across the nation depend on neighborhood
pharmacies among all healthcare destinations. A recent study published
in the Journal of the American Medical Association also found that
pharmacy closures led to a significant drop in medication adherence for
older adults taking cardiovascular medications, which has obvious
implications for patient health and healthcare costs. Preserving
patient access to robust pharmacy provider services and networks like
health screenings, disease state management, vaccinations (e.g., flu,
COVID-19), patient counseling, medication adherence, and testing--all
in addition to essential medication access can help improve health
---------------------------------------------------------------------------
outcomes and generate overall healthcare savings for Americans.
We look forward to continuing to work with Congress to stop the
manipulation by PBM go-betweens that increases patients' medication
costs, limits patients' choice of pharmacies, restricts access to
medicines that are right for them, and jeopardizes the pharmacies and
pharmacy teams on whom patients rely.
To that end, please see below NACDS' policy recommendations to increase
transparency and ensure comprehensive reform of harmful PBM tactics and
practices:
I. Help to Preserve Patient Access to Pharmacies by Addressing PBM's
Retroactive Pharmacy Fees
Retroactive DIR Fees/Claw Backs--Pharmacy access can be undermined
when health plans and their middlemen, PBMs, arbitrarily ``claw back''
fees retroactively from pharmacies weeks or months after a claim has
been adjudicated/processed. This manipulation of pharmacy
reimbursements may diminish access to care (e.g., pharmacies being
forced to close their doors or pare back hours and healthcare services)
when PBMs are unpredictable, not transparent, and payment falls below a
pharmacy's costs to acquire and dispense prescription drugs.
Policymakers should consider enacting laws that prohibit payers or PBMs
from retroactively reducing and/or denying a processed pharmacy drug
claim payment and obligating them to offer predictable and transparent
pharmacy reimbursement to better protect pharmacies as viable and
reliable access points of care for patient services.
II. Provide Fair and Adequate Payment for Pharmacy Patient Care
Services
Reasonable Reimbursement and Rate Floor--Pharmacy access remains at
risk when PBMs reimburse pharmacies below the cost to acquire and
dispense prescription drugs. Pharmacy reimbursement that falls below
the costs to acquire and dispense prescription drugs threatens future
sustainability for pharmacies to continue providing valuable medication
and pharmacy care services to communities. Policymakers should enact
laws to adopt a reimbursement rate floor that requires PBMs to use
comprehensive reimbursement models that are no less than the true cost
to purchase and dispense prescription drugs to help maintain robust
public access to pharmacies.
Standardized Performance Measures--A crucial part of comprehensive
DIR fee reform is advancing pharmacy quality that improves outcomes for
beneficiaries and drives value in care which are essential to
controlling costs in the healthcare system. Arbitrary performance
measures developed by PBMs assess the performance of the pharmacy
without pharmacies' input and create a moving target for pharmacies to
show value and improve health outcomes. Measures vary across the
various plans and dictate DIR fees (or claw backs at the State level)
imposed on pharmacies, as well as help create substantial system
dysfunction and unnecessary spending in the Part D program.
Policymakers should enact laws to standardize PBM's performance
measures for pharmacies to help set achievable goals for pharmacies
before signing a contract to promote harmonization in the healthcare
system and improvements in health outcomes.
III. Protect Patient Choice of Pharmacies
Specialty--Some PBMs require patients with rare and/or complex
diseases to obtain medications deemed ``specialty drugs'' from
designated ``specialty pharmacies'' or mail-order pharmacies which
impedes patient access to their convenient local neighborhood
pharmacies where specialty drugs are filled as well. Prescription drugs
should not be classified as ``specialty drugs'' based solely on the
cost of the drug or other criteria used to limit patient access and
choice--instead, should focus on clinical aspects such as requiring
intensive clinical monitoring. Policymakers should enact laws to
establish appropriate standards for defining and categorizing specialty
drugs to ensure comprehensive and pragmatic patient care and access and
prohibit PBMs from steering patients to only specialty pharmacies,
including those owned by the PBMs, for their prescription needs.
Mail Order--Medication access and care can be weakened when PBMs
manipulate the system by requiring patients to use mail-order
pharmacies only. Some plans impose penalties such as higher copays or
other financial disincentives for choosing a retail pharmacy instead of
a mail-order pharmacy which is often owned by the PBM. Policymakers
should support patient choice and access by enacting laws to prohibit
PBMs from requiring or steering patients to use mail-order pharmacies.
Any Willing Pharmacy--Due to PBMs' network and contract barriers,
pharmacies willing and ready to serve patients may be ineligible to
provide important pharmacy services and patients may experience
unnecessary delays and interruptions in patient care. Patients should
have the choice and flexibility to utilize the pharmacy that best meets
their healthcare needs. Policymakers should enact laws that require
PBMs and plans to include any pharmacies in their networks if the
pharmacy is willing to accept the terms and conditions established by
the PBM to help maximize patient outcomes, and cost savings and ensure
patient access to any willing pharmacy of their choice.
IV. Enforce Laws to Stop PBM Manipulation and Protect Pharmacies and
Patients
Audits--PBMs routinely conduct audits to monitor a pharmacy's
performance and reverse or claw back pharmacy payments when there are
alleged issues with a particular pharmacy claim. PBM audits interrupt
the pharmacy workflow, can extend wait times, and detract attention
from the quality-of-care patients receive. Policymakers should enact
laws that support fair pharmacy audit practices to ensure timely
patient care delivery at community pharmacies and bring efficiency,
transparency, and standardization to the PBM audit process.
Oversight Authority--There are growing concerns that pro-pharmacy
and pro-patient legislative successes might be undercut if PBMs fail to
comply with such laws and/or states fail to fully enforce these laws.
Such failure could significantly impact pharmacy reimbursement and
overall patient access. Policymakers should establish and enforce laws
already on the books to regulate harmful PBM reimbursement practices
that may harm patients and the healthcare system as we know it,
especially at the pharmacy counter, and empower state regulators to do
the same to enforce PBM transparency and fair and adequate pharmacy
reimbursements.
Conclusion
NACDS thanks the Committee for the opportunity to provide our
perspective on PBM reform \5\ and our support for your dedicated work.
We implore you to act on these principles \6\ and ensure proper
safeguards are established to protect pharmacies and Americans from
PBMs and to promote transparency, accountability and fairness in the
prescription drug supply chain. For questions or further discussion,
please contact NACDS' Christie Boutte, Senior Vice President,
Reimbursement, Innovation and Advocacy at [email protected] or 703-837-
4211.
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\5\ https://accessagenda.nacds.org/defendaccess/.
\6\ https://www.nacds.org/pdfs/NACDS-PBM-Reform-Principles-2-
2023.pdf.
______
National Association of Specialty Pharmacy
300 New Jersey Avenue, NW, Suite #900
Washington, DC 20001
703-842-0122
https://naspnet.org/
Statement of Sheila Arquette, President and CEO
Chairman Wyden, Ranking Member Crapo and Members of the Committee:
I write today on behalf of the National Association of Specialty
Pharmacy (NASP) to express support for the Senate Committee on
Finance's efforts to address unfair and anticompetitive practices that
narrow the pharmacy marketplace and negatively impact patients. Thank
you for holding today's hearing and for all of your efforts to work
with specialty pharmacy.
NASP represents the entire spectrum of specialty pharmacy industry
stakeholders, including the nation's leading specialty pharmacies and
practicing pharmacists; nurses; technicians; pharmacy students; non-
clinical healthcare professionals and executives; pharmacy benefit
managers (PBMs); pharmaceutical manufacturers; group purchasing
organizations; wholesalers and distributors; integrated delivery
systems and health plans; patient advocacy organizations; independent
accreditation organizations; and technology, logistics and data
management companies. With more than 170 corporate members and 3,000
individual members, NASP is the unified voice of specialty pharmacy in
the United States.
What is Specialty Pharmacy
Specialty pharmacies support patients who have complex health
conditions like rheumatoid arthritis, multiple sclerosis, hemophilia,
cancer, organ transplantation and rare diseases. Specialty pharmacies
operate as independent pharmacies, academic medical center and
hospital-health system based pharmacies, regional and national chain
pharmacies, grocery store owned specialty pharmacies, health plan-owned
specialty pharmacies and home infusion pharmacies. The medications a
specialty pharmacy dispenses are typically expensive. Historically,
there are limited generic or biosimilar alternatives to brand specialty
drugs. Specialty prescription medications are not routinely dispensed
at a typical retail pharmacy because the medications are focused on a
limited number of patients and require significant patient education
and monitoring on utilization and adherence. Typical retail pharmacies
are not designed to provide the intense and time-consuming patient care
services that specialty medications require. Though many specialty
medications are taken orally, still many need to be injected or
infused. The services a specialty pharmacy provides include patient
training in how to administer the medications, comprehensive treatment
assessment, ongoing patient monitoring, side effect management and
mitigation, and frequent communication and care coordination with
caregivers, physicians and other healthcare providers. A specialty
pharmacy's expert services drive patient adherence, proper management
of medication dosing and side effects, and ensure costly and complex
drug therapies and treatment regimens are used correctly and not
wasted.
Anticompetitive Practices and Impact on Specialty Pharmacy
While the number of specialty medications only comprises 2.2 percent of
the total number of prescriptions dispensed in the United States, these
medications represent approximately 50 percent of overall drug spend in
the U.S., which by the end of 2021, was estimated to be about $600
billion. Distribution for most specialty medications is limited, with
payers working to keep them even smaller. The market is heavily
dominated by the largest PBMs and the health insurers that own those
PBMs.
Over the years, anticompetitive market practices, including the
escalation in pharmacy DIR claw back fees have led to a significant
narrowing of pharmacy networks. Efforts by Congress are needed to
address comprehensive pharmacy DIR reform and ensure patient access to
specialty pharmacies.
Pharmacy DIR Fees and Implications for Patient Access to Specialty
Pharmacies
For many years, Medicare Part D Plans and their Pharmacy Benefit
Managers (PBMs) have opted for higher negotiated prices to pharmacies,
and in some cases, even preferred a higher net cost drug over a cheaper
alternative because they plan to collect retroactive fees from
pharmacies and rebates from manufacturers. Receipt of such fees and
rebates contributes primarily to plan profits and does nothing to lower
drug costs or drug cost sharing requirements for beneficiaries.
Retroactive fees on pharmacies include ``Direct and Indirect
Remuneration'' fees--commonly known as ``DIR Fees.'' Pharmacy DIR fees
are collected through retroactive claw back charges on specialty
pharmacy providers and other pharmacies months and sometimes a year
after the pharmacy has dispensed the drug and after a beneficiary has
already purchased the drug at a higher price. The Centers for Medicare
and Medicaid Services (CMS) issued a Medicare Part D rule in 2022,
showing that pharmacy DIR fees grew from $8.9 million collected in 2010
to $9.5 billion in 2020.\1\ Fees on pharmacies grew more than 107,400
percent,\2\ with much of that growth occurring after Part D sponsors
stood up so-called DIR ``performance-based metrics'' for pharmacy
payment arrangements. CMS data shows that pharmacies are hardly ever
paid for meeting performance metrics and are instead financially
penalized in relation to performance measures. For specialty
pharmacies, nearly all of the metrics utilized by Plans/PBMs are
irrelevant to the drugs specialty pharmacies dispense or services they
provide.
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\1\ XIL Consulting. Policy Alert: Payers and PBMs Profit from
Obscure Pharmacy Fees, While Seniors See No Relief in Prescription
Costs. February 11, 2020. https://www.xilang
consulting.com/post/policy-alert.
\2\ 87 FR 1910.
In the 2022 Medicare Part D rule, CMS took some initial steps in
addressing pharmacy DIR fees by eliminating the regulatory loophole
(exception) that has permitted the significant growth of pharmacy DIR
fees. Beginning in January 2024, CMS will require that all pharmacy
price concessions--as newly defined for the first time--be counted at
the point-of-sale, when a beneficiary receives their prescription. The
specific purpose of this change is to ensure that patient out-of-pocket
costs are assessed with all concessions applied, giving the beneficiary
the lowest possible price, and therefore, the lowest possible co-pay.
However, the 2022 Part D rule did not eliminate the practice of
pharmacy DIR claw back fees, allowing Plans to continue to impose claw
backs and the rule did not establish any standards or protections to
ensure that the negotiated price inclusive of all price concessions
---------------------------------------------------------------------------
paid to pharmacies is reasonable to cover a pharmacy's costs.
NASP supports CMS' effort to reduce prescription drug prices for
Medicare Part D beneficiaries by removing the reasonably determined
regulatory exception and adopting a revised definition of ``negotiated
price'' for a covered Part D drug that includes all pharmacy price
concessions, requiring them to be applied at the point of sale. It is
our hope that doing this will better align marketplace competition with
the interests of Medicare beneficiaries and lead to lower out-ofpocket
costs. However, NASP is concerned that the final rule did not address
comprehensive DIR reform, which is necessary to meet patient needs. To
prevent anticompetitive DIR practices, we request further action by
Congress.
Impact of the Part D Rule on Beneficiary Access to Pharmacies
Over the years, pharmacy DIR claw back fees have significantly harmed
specialty pharmacies forcing many to decline participation in Medicare
Part D networks, resulting in limiting beneficiary access and pharmacy
choice; restructuring their operations, laying off staff and cutting
back on higher-cost inventory; and ending the stocking and dispensing
of certain drugs to treat certain conditions. Other specialty
pharmacies have been forced to sell their pharmacies or be acquired due
to the harm caused by excessive pharmacy DIR claw back fees.
While the Calendar Year Part D rule is viewed as a first step toward
needed pharmacy DIR reform, we want the Committee and CMS to understand
the problems that are negatively impacting pharmacy network
participation and patient access persist. Specialty pharmacies have
faced significant 2023 upfront reimbursement reductions and continue to
see terms in their contracts that say their pharmacies will continue to
be subject to retroactive DIR claw backs.
Congress can help address these significant concerns by taking action
to pass legislation that would allow for comprehensive pharmacy DIR
reform. NASP recommends that the Senate Finance Committee work to
advance legislation that will:
Encourage CMS to ensure pharmacy reimbursement does not violate
the any willing provider statute and is reasonable to ensure network
participation by pharmacies;
Require the standardization and oversight of Part D pharmacy
performance measures; and
Ensure pharmacies are provided pricing transparency.
Any Willing Provider Statute--Reasonable Pharmacy Reimbursement to
Support Pharmacy Network Participation
NASP is very concerned that the Calendar Year 2023 Medicare Part D rule
continues to permit post-sale pharmacy price concessions. That
allowance in addition to the continued significant reductions to the
``negotiated price'' pharmacies receive, could continue to escalate
pharmacy acquisitions and closures. CMS provides no regulatory
protections for ensuring that pharmacies will not be reimbursed at such
a low level that they are unable to remain in a network, and therefore,
accessible to patients.
In other Medicare Part D rules issued over the years, CMS has
recognized that any willing provider statutory requirements permit the
agency to regulate reasonable reimbursement provisions.\3\ NASP has
commented to CMS that the agency exercise its authority in enforcing
this part of the statute to protect pharmacy payments going forward.
CMS acknowledged these comments, stating in the final Calendar Year
2023 Part D rule that the agency would consider future rulemaking to
address stakeholder concerns over CMS establishing safeguards to
guarantee that pharmacies participating in Medicare Part D receive a
reasonable rate of reimbursement.\4\ Considering that the final rule
did not address the impact that retroactive DIR fees have had on
pharmacy viability and beneficiary access to pharmacies, we are pleased
that CMS acknowledged the need for this long-overdue rulemaking, and we
urge the Senate Finance Committee to request that the agency begin the
rulemaking process immediately through legislative action or direct
request.
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\3\ 79 Fed. Reg. 1918, 1970 (January 10, 2014).
\4\ 87 Fed. Reg. at 27845 (May 2022).
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Pharmacy Performance Evaluations and Metrics
The final Calendar Year 2023 Part D rule continues to permit contract
agreements between pharmacies and plans that allow for performance-
based evaluations to determine price concessions and/or incentive
payments. Also, the final rule provided no incentives for plans/PBMs to
offer incentive-based opportunities to pharmacies and the rule did not
establish any process for standardizing pharmacy performance metrics or
any parameters to ensure pharmacy performance evaluations are
appropriate, fair, and relevant based on the drugs a pharmacy dispenses
and the services a pharmacy provides. In the absence of these important
issues being addressed by CMS, pharmacy cannot expect or rely on
incentive payment opportunities to address reimbursement concerns and
there is serious concern that metrics will continue to be abused in an
effort to claw back fees from pharmacies.
NASP continues to advocate for the standardization of pharmacy
performance-based metrics. We also want to ensure that there are CMS
requirements for fair pharmacy performance evaluation, and regulatory
incentives for plans to offer pharmacy performance-based agreements to
pharmacies. We believe it is important that CMS immediately work with
pharmacy stakeholders to conduct a review to ensure pharmacy
performance evaluations are fair and are associated with Part D plans'
Star Ratings, thus aligning incentives for Part D plans and pharmacies
toward better quality, equity, and reductions in preventable spending
for beneficiaries.
Specifically related to action we believe CMS can and must take
immediately, in the 2023 Part D final rule, CMS stated the following:
We addressed reporting of pharmacy performance measures to CMS
in the January 2021 final rule (86 FR 5864). In the January
2021 final rule, we finalized a proposal to give CMS the
authority to establish a Part D reporting requirement for Part
D sponsors to disclose to CMS the pharmacy performance measures
they use to evaluate pharmacy performance, as established in
their network pharmacy agreements. This authority to establish
a reporting requirement is effective January 2022; however, the
actual data elements must be proposed through the Office of
Management and Budget (OMB) Paperwork Reduction Act (PRA)
process in a future package.\5\
---------------------------------------------------------------------------
\5\ 87 Fed Reg. at 27704 (May 2022)
CMS' delay in exercising its authority to establish a Part D reporting
requirement for Part D sponsors to disclose the pharmacy performance
measures they use is especially disconcerting, given the concerns
expressed by the pharmacy community and CMS' reporting that such
measures have directly resulted in the substantial growth of pharmacy
DIR fees. We implore the Committee to address this delay and urge CMS
action to conduct this oversight. We also urge the Committee to request
that CMS work in collaboration with the Federal Trade Commission on
this review, as the FTC considers anticompetitive market practices
impacting pharmacies that are not affiliated with plans or PBMs.
Part D Bidding Process
Under the current Medicare Part D bidding process, Plans are encouraged
to underestimate their DIR fees, which they submit to determine the
total bid amount, the direct subsidy payment the Plan will receive from
Medicare, and the premiums that beneficiaries pay. If a Plan
underestimates their pharmacy DIR fees, they can keep subsidy
overpayments up to five percent, this process has encouraged Plans to
underestimate their DIR fees to make a profit.\6\ Current regulations
concerning the bid and reconciliation processes do not meaningfully
protect unaffiliated specialty pharmacies (those not owned by Plans/
PBMs) from post-sale price concessions or unreasonably low
reimbursement.
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\6\ Neither the Bid Pricing Instructions nor Part D bid regulations
strictly prohibit Plans from under-projecting expected DIR fees.
The overbidding (and underestimation of DIR fees) directly harms
beneficiaries by inflating the premiums they pay. This is because CMS
calculates premiums based on the Plan's bid amount. CMS uses approved
Plan bids to calculate a national average monthly bid which determines
CMS's subsidy payments to Plans and a national base beneficiary
premium.\7\ The base premium is then used to determine the actual
beneficiary premium for each Plan.\8\ For example, if a Plan's bid
exceeds the national average bid, its beneficiaries are responsible for
the excess through a higher monthly premium which the beneficiary must
pay. The bid-reconciliation profit incentive harms: beneficiaries
through inflated premiums, pharmacies through unreasonable post-sale
price concessions that are used to generate overpayments, and taxpayers
through retained Medicare overpayments through reconciliation.
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\7\ 42 CFR Sec. 423.279(a) (2021).
\8\ 42 CFR Sec. 423.286 (2021).
As the pharmacy negotiated price/DIR provisions of the Calendar Year
2023 Part D rule go into effect in 2024, NASP urges the Committee to
require CMS to closely review plan bid estimations and the reporting of
pharmacy DIR and other fees placed on pharmacies. CMS must
disincentivize plans from underestimating prospective DIR during their
bid submissions and should be overseeing this process to understand to
what extent plans are retaining overpayments obtained from DIR and
administrative or other fees that are in excess of their DIR bid
estimates. Ultimately eliminating this practice should be a priority
focus of Congress and CMS.
Transparency Regarding Pharmacy Claims Processes
In the 2023 Part D Rule, CMS notes that one of the purposes of the
regulations addressing pharmacy negotiated price and remuneration is to
foster price transparency and consistency among pharmacies with respect
to their reimbursement.\9\ The 2023 Part D rule is intended to require
Plans to calculate the lowest possible reimbursement to lower the
patient's out-of-pocket costs; however, the Rule does not explicitly
state whether the lowest possible price will be disclosed to
pharmacies. Such information is of critical importance if CMS' goal of
ensuring transparency with respect to pharmacy reimbursement is to be
recognized. This data will be critical to business planning for
specialty pharmacies who today and going forward have no understanding
how or to what extent their reimbursement will be altered after the
point of sale.
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\9\ Medicare Program; Contract Year 2023 Policy and Technical
Changes to the Medicare Advantage and Medicare Prescription Drug
Benefit Programs, 87 Fed. Reg. at 1914.
NASP requests that the Committee work with CMS to address the lack of
clarity in the final 2023 Part D rule regarding pharmacy claims
processes and information transparency to pharmacies. To ensure full
transparency for pharmacies at the point-of-sale, we request that CMS
clarify that Part D plans must provide a mechanism for pharmacies to
know the lowest possible reimbursement at the point-of-sale. Part D
plans must ensure that the appropriate fields are included and
populated in the claims response so that this information is provided
to the pharmacy.
Conclusion
NASP is pleased that with the Chairman's support and the efforts by the
Senate Finance Committee on a bipartisan basis, initial efforts have
been made to address pharmacy DIR fees and needed Part D reforms to
reduce beneficiary drug costs. We now want to work with the Committee
and ultimately CMS to achieve needed comprehensive pharmacy DIR reform
that will support the viability of pharmacies, network competition, and
allow for beneficiary access to the pharmacy of their choice. We urge
the Committee to take additional action this year to establish
protections as detailed in this testimony to ensure pharmacies are no
longer exploited by Plans or their partners, particularly as the
Calendar Year 2023 Medicare Part D rule addressing negotiated price and
pharmacy remuneration (DIR fees) goes into effect in January 2024.
NASP appreciates the opportunity to provide testimony for the record
for today's hearing. If we can provide additional information as the
Committee proceeds with its review of anticompetitive pharmacy market
practices, please contact our organization.
______
National Community Pharmacists Association
100 Daingerfield Road
Alexandria, VA 22314-2888
703-683-8200 Phone
703-683-3619 Fax
Chairman Wyden, Ranking Member Crapo, and members of the committee:
Thank you for conducting this hearing on pharmacy benefit manager
practices and their impact on patients and taxpayers. In this
statement, the National Community Pharmacists Association will offer
support and suggestions on several policy considerations that would
lower out-of-pocket costs for patients' prescription drugs, provide
certainty for pharmacies, and protect taxpayers by bringing more
transparency to prescription drug spending.
NCPA represents America's community pharmacists, including the owners
of more than 19,400 independent community pharmacies. Almost half of
all community pharmacies provide long-term care services and play a
critical role in ensuring patients have immediate access to medications
in both community and long-term care settings. Together, our members
represent a $78.5 billion health care marketplace, employ 240,000
individuals, and provide an expanding set of health care services to
millions of patients every day. Our members are small business owners
who are among America's most accessible health care providers.
Our pharmacies and the patients they serve have long had concerns about
pharmacy benefit managers (PBMs), their anticompetitive practices, and
the role they play in ever-increasing drug costs. These concerns have
been further exacerbated because of the COVID-19 pandemic's effects on
small businesses. Independently owned pharmacies have served as
lifelines as essential businesses during the pandemic. However, PBM
practices are causing these small businesses to struggle to remain
viable and keep doors open to provide continued access and care.
NCPA and the University of Southern California School of Pharmacy and
Leonard D. Schaeffer Center for Health Policy and Economics have
collaborated to develop a web tool that shows pharmacy shortage areas
at the neighborhood level and generates information on pharmacy
closures and populations affected. High-level findings include:
Twenty-five percent of the U.S. population (81,203,948) lived in
pharmacy shortage areas across urban, suburban, and rural areas in
2020.
Only one-third of pharmacy shortage areas calculated within the
web tool carry the Health Resources and Services Administration
designation of Medically Underserved Areas, or MUAs. This means that
two-thirds of pharmacy shortage areas are unaccounted for when
considering low access to health care in geographical areas under the
MUA definition.
Populations with the highest pharmacy shortage area population
were Black (37.1 percent), Medicaid (33.2 percent), and low-income
(36.7 percent).
States with the highest percentage of census tracts calculated
as pharmacy shortage areas are Alaska, Mississippi, Montana, New
Mexico, North Dakota, South Dakota, and Wyoming.
Independent pharmacies were the most dynamic factor in terms of
creating and closing pharmacy shortage areas.
Pharmacies have also faced significant closures in recent years:
From 2012 to 2019, over 1,000 independent pharmacies closed,
going from approximately 23,000 to less than 22,000.\1\
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\1\ From historic NCPA Digest data.
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Both chain and independent pharmacies closing contribute to
creating pharmacy shortage areas, but in most states, independent
pharmacies closing contribute far more gaps than chains.\2\
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\2\ Data from 2018 to 2020, from University of Southern California
School of Pharmacy and Leonard D. Schaeffer Center for Health Policy
and Economics.
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Independent pharmacies are at greater risk of closure than
chains in urban and non-urban areas. Additionally, pharmacies serving
disproportionately low-
income and uninsured populations are at greater risk of closure.\3\
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\3\ Assessment of Pharmacy Closures in the United States From 2009
Through 2015, Clinical Pharmacy and Pharmacology, JAMA Internal
Medicine, JAMA Network.
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Kaiser Heath News cited a Rural Policy Research Institute study
showing that due to over 1,000 pharmacy closures since 2003, 630
communities are now without a pharmacy.\4\
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\4\ How Rural Communities Are Losing Their Pharmacies, Kaiser
Health News (khn.org).
We appreciate the efforts of the chair and ranking member to discuss
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PBM practices and their effect on drug prices for patients.
PBMs are not transparent about the rebate process and their profit
margins. Moreover, we often do not know how much the PBMs make on
administrative service fees and spread pricing (the difference between
how much they reimburse the pharmacy and the higher price they charge
the plan for the same prescription). More accurate reporting is needed
to provide this transparency. To get a complete picture of PBM
financials, we also need greater clarity on:
Complicated and opaque methods to determine pharmacy
reimbursement.
Methods to steer patients towards PBM-owned or affiliated
pharmacies.
Fees and clawbacks charged to pharmacies.
Potentially unfair audits of independent pharmacies.
The prevalence of prior authorizations and other administrative
restrictions.
The use of PBM-defined specialty drug lists and associated
specialty drug policies.
The effect of rebates and fees from drug manufacturers on
formulary design and the costs of prescription drugs to payers and
patients.
Bring transparency to the Medicaid program and prevent the use of
spread pricing by PBMs
H.R. 1613, the Drug Price Transparency in Medicaid Act, was introduced
by Reps. Buddy Carter (R-GA), Vicente Gonzalez (D-TX), Rick Allen (R-
GA), Jake Auchincloss (D-MA), Elise Stefanik (R-NY), and Deborah Ross
(D-NC). It would bring transparency to the Medicaid program by:
Prohibiting spread pricing/requiring a full pass-through in all
Medicaid managed care programs.
Requiring that pharmacy reimbursements in all state Medicaid
managed care programs be at a rate of pharmacy's average acquisition
costs and the state's Medicaid fee-for-service dispensing fee.
Limiting payments to PBMs to solely administrative fees.
Mandating National Average Drug Acquisition Costs reporting to
the Centers for Medicare and Medicaid Services by all pharmacies
participating in state Medicaid programs. This provision would provide
much needed transparency in drug pricing and allow reimbursements to
reflect the true acquisition costs of prescription drugs in Medicaid.
Bring transparency for employers and consumers and greater enforcement
authorities
S. 127, the Pharmacy Benefit Manager Transparency Act of 2023,
introduced by Senators Maria Cantwell (D-WA) and Chuck Grassley (R-IA),
would increase drug pricing transparency for employers and plan
sponsors and hold PBMs accountable for unfair and deceptive practices
that drive up the costs of prescription drugs at the expense of
consumers. The bill:
Prohibits deceptive, unfair pricing schemes, including spread
pricing and arbitrary clawbacks of payments made to pharmacies.
Incentivizes transparent PBM practices by making clear that a
PBM would not be in violation of the law if it:
Passes along 100 percent of rebates to the
health plan sponsor; AND
Provides the full disclosure of cost, price,
reimbursement and all charged fees, mark-ups, and discounts to
the plan sponsor and pharmacy; OR
Provides the aggregate remuneration fees it
receives from drug makers to health plans, payers, and any
federal agency.
Mandates transparency by requiring that PBMs file an annual
report with the Federal Trade Commission, including the total amount
they pocket through spread pricing and pharmacy fees.
Clarifies the enforcement authority of the FTC and state
attorneys general to prohibit unfair or deceptive business practices
PBM-insurers use in commercial health insurance.
On March 22, 2023, the Senate Committee on Commerce, Science, and
Transportation marked up the legislation in an executive session. An
amendment by Senators Jon Tester (D-MT) and Shelley Moore Capito (R-WV)
was adopted that closes a loophole which could have allowed PBMs to
continue to engage in the abusive practice of clawbacks and protects
the CMS direct and indirect remuneration final rule regarding post-
adjudication clawbacks. S. 127, as amended, advanced out of the
committee on a bipartisan 18-9 vote. NCPA hopes the full Senate will
promptly take up this legislation to ensure PBM business practices that
impact employers, patients, and pharmacies are fair and transparent.
Ensure patient access to pharmacies and pharmacy market competition
Opaque and convoluted PBM and insurance plan pricing structures prevent
pharmacies from being able to plan their business operations, as they
are currently unable to understand what they will be reimbursed for a
given drug or the services they provide for dispensing a given drug.
Pharmacy performance/quality measures are being abused by plans/PBMs to
secure fees from pharmacies rather than to fairly assess pharmacy
performance.
Draft legislation in development by Reps. Morgan Griffith (R-VA),
Vicente Gonzalez (D-TX), Buddy Carter (R-GA), Lisa Blunt Rochester (D-
DE), and others would improve patient access to pharmacies and pharmacy
market competition. This bill requires:
The secretary of the Department of Health and Human Services to
promulgate regulations to ensure Medicare Part D prescription drug
plans (PDPs) and Medicare Advantage prescription drug plans (MA-PDs)
reasonably reimburse pharmacies.
This regulatory effort would help to ensure
total reimbursement paid--net of all price concessions, fees,
incentive payments, and any other form of remuneration is
reasonable for a pharmacy to acquire and dispense drugs and
provide necessary pharmacy services.
PDP sponsors and MA-PD plans, beginning on January 1, 2024, to
only use standardized measures established by the secretary and
relevant to the performance of a pharmacy based on the drugs a pharmacy
dispenses.
PDP sponsors and MA-PD plans to promptly furnish all pricing
components to pharmacies, so that a pharmacy understands its final
reimbursement and the purpose of any adjustments in reimbursement.
We are grateful CMS has finalized its rulemaking which applies all
pharmacy price concessions at the point of sale after years of
congressional efforts in support of DIR fee reform. However, while the
final rule is a good start, additional statutory authority and clarity
is needed that would allow CMS to address other issues, such as
adequate pharmacy reimbursement. We hope Congress will work with us to
ensure that more comprehensive pharmacy DIR fee reform can be
implemented in 2024.
More on PBM practices
PBMs protect profits at the expense of competition and consumer
welfare. Our additional comments below demonstrate the staggering scope
of such practices. NCPA believes Congress and CMS could correct many of
these harms by focusing immediate attention on adhesion contracts
between PBMs and independent community pharmacies, patient steering to
PBM-affiliated pharmacies, and discriminatory reimbursement.
The effect of PBM rebates and fees on net drug prices to patients,
employers, and other payers
NCPA has sought reforms on rebates and fees for more than 10 years to
address ballooning expenses for patients. NCPA is hopeful that CMS'
attempt to bring transparency to pharmacy DIR fees through the recently
issued final rule \5\ is a step in the right direction. With vertical
integration both upstream and downstream, there is a need to level the
playing field between independent pharmacies and PBM-
affiliated pharmacies to protect patients from paying too much at the
counter. NCPA believes it is incumbent on Congress to engage with CMS
to address PBM market power exacerbated by rebates and clawback fees.
The vertical integration of PBMs into monoliths with an affiliated
upstream insurance provider and downstream pharmacies has only
increased the incentives for PBMs to disfavor independent pharmacies.
The current CMS fee and rebate structure creates incentives for PBMs to
disfavor competing independent pharmacies, resulting in pharmacy
deserts and increased patient costs. The final CMS rulemaking, however,
also illustrates that CMS is not equipped to address the issues without
the assistance of Congress.
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\5\ Medicare Program; Contract Year 2023 Policy and Technical
Changes to the Medicare Advantage and Medicare Prescription Drug
Benefit Programs; Policy and Regulatory Revisions in Response to the
COVID-19 Public Health Emergency; Additional Policy and Regulatory
Revisions in Response to the COVID-19 Public Health Emergency, CMS
4192-F, May 9, 2022, 2022-09375.pdf (govinfo.gov).
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Utilization management, other ``cost controls,'' and the effect on
patients and independent pharmacy
Due to contractual obligations with PBMs, NCPA members frequently must
explain to their patients that due to ``utilization management'' (e.g.,
prior authorization and step therapy) and formulary exclusions,
patients are unable to get access to their prescribed medication. While
described as ``payer controls,'' used to ``control costs,'' PBMs,
through their offshore group purchasing organizations (GPOs) Ascent
Health Services (Cigna/Express Scripts), Zinc Health Services (Aetna/
CVS Caremark) and Emisar Pharma Services (United Healthcare/Optum), use
these cost controls to direct utilization to the drug with the best
manufacturer rebate, which is often not the best drug for the patient,
while also using the GPOs to hide rebates from plan sponsors.\6\ PBMs
also use these ``cost controls'' to control manufacturer access to the
market, creating a ``pay-to-play'' game to get new drugs to the
marketplace. In a recent analysis by IQVIA, two-thirds of patients who
want to start a new prescribed drug were unable to do so because of
these controls, with the largest PBMs blocking about 450 products.\7\
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\6\ PBMs claim that they no longer retain rebates but that is
because the rebates have shifted to their offshore GPOs.
\7\ Greenwalt, L. (2022). Payer Controls: Goodbye, Old Assumptions
for Access and Uptake. Iqvia.com. Retrieved 26 March 2023, from https:/
/www.iqvia.com/locations/united-states/blogs/2021/09/payer-controls-
assumptions-for-access-and-uptake.
On Monday, March 27, 2023, Ohio Attorney General Dave Yost filed a
lawsuit against Cigna/Express Scripts, Prime Therapeutics, and Ascent.
In the complaint, Yost accuses PBMs Express Scripts and Prime
Therapeutics of colluding with Ascent, based in Switzerland, to
illegally drive up drug prices which resulted in higher out-of-pocket
costs for patients. Additionally, the state of Ohio argues, ``PBMs also
use their market power to hurt competing pharmacies, and particularly
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independent pharmacies.''
Ascent is one of the new contracting entities, or GPOs, that Cigna/
Express Scripts has added to their vertically integrated corporate
structure, adding another layer of confusion and deception to drug
pricing. The three largest PBMs (Caremark, Optum, and Express Scripts)
have all created their own contracting entities or GPOs. Two of these
entities are located in Ireland and Switzerland. Many believe these
GPOs are corporate shells created for the purpose of hiding the actual
amount of rebates PBMs receive from pharmaceutical manufacturers.
PBM drug substitutions and their effect on patient costs
PBMs operating in the commercial, Medicare Part D, and Medicaid spaces
alike contribute to artificially inflating drug costs using expensive
name brand medications when less expensive generic alternatives are
available. For example, PBMs continue to require the use of the more
expensive brand asthma inhaler Symbicort over the generic budesonide;
Symbicort costs over $150 per month more. One PBM mandated that a state
Medicaid program use Lamictal, at over $16.50 a tablet, which is
significantly more expensive than its generic counterpart that costs
less than $0.10 a tablet. PBMs similarly give wasteful, preferential
treatment to other brand medications like Advair, Concerta, Colcrys,
Ventolin, Adderall XR, and Focalin XR. Common sense would dictate that
where you have a choice between two equivalents, you take the less
expensive one, unless there is a compelling reason not to.
In these cases, PBMs claim that they secure large rebates from the
manufacturer to bring the net cost of the product down to below the
cost of the generic. Even if this were true (which would require
complete transparency and a 100 percent pass-through of all monies that
flow from a pharmaceutical manufacturer to a PBM), it does not negate
the consumer harm that exists to patients when they are in the
deductible phase and paying more out of pocket for their medication
costs. PBMs will also blame these formulary placements on plan
sponsors, but plan sponsors like others in this industry are at the
mercy of PBMs and their constant threats of rate hikes.
PBMs' use of potentially unfair, deceptive, or anticompetitive
contract terms and all related practices when calculating
pharmacy reimbursements and disbursements
NCPA members have received Medicare Part D contract amendments that
appear predatory. One PBM offered an anticompetitive contract amendment
that would compensate independent pharmacies 10 percent below their
wholesale acquisition cost, provide no dispensing fee,\8\ and assess a
per-transaction performance pool fee. The intended effect of such an
amendment and discriminatory pricing can only be to force independent
pharmacies to opt out of the Medicare Part D networks or stay in them
only to face financial ruin. The end result is the strengthening of
PBM-
affiliated mail-order, specialty, and retail pharmacies at the expense
of independent pharmacies.
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\8\ Stoller, M. (2022). The Red Wedding for Rural Pharmacies.
Mattstoller.substack.com. Retrieved 5 May 2022, from https://
mattstoller.substack.com/p/the-red-wedding-for-rural-pharmacies?s=r.
It is important to understand the lengths to which PBMs go to obfuscate
how they price and reimburse drugs. Such distortion begins with
terminology: an average wholesale price (AWP) is generally a mark-up
(typically 20 percent) of the wholesale acquisition cost (WAC) and can
be thought of as the manufacturer's list price.\9\ It is generally
accepted that WAC is the amount paid by the wholesaler to the
manufacturer.
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\9\ Anderson, L. (2022). Average Wholesale Price (AWP) as a Pricing
Benchmark. www.drugs.
com. Retrieved 5 May 2022, from https://www.drugs.com/article/average-
wholesale-price-awp.html.
The maximum allowable cost (MAC) is the amount set by the PBM and is
the amount the PBM will reimburse a pharmacy for generic drugs
(pharmacy MAC). MAC is also the amount the PBM will charge a plan
sponsor for a drug (plan sponsor MAC). The pharmacy MACs and plan
sponsor MACs can change by the hour or even minute. The price
difference between the pharmacy MAC and the plan sponsor MAC is the
``spread.'' Many understand that the spread is a revenue stream
retained by the PBMs. As an example of the amount of money generated by
this arbitrage, spread pricing cost the state of Ohio $225 million in
2018.\10\
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\10\ Ohio Auditor of State. Ohioauditor.gov. (2022). Retrieved 26
March 2023, from https://ohioauditor.gov/news/pressreleases/Details/
5042.
A generic effective rate (GER) represents a reimbursement baseline
calculated as a percentage discount (e.g., 86 percent) off the average
wholesale price (AWP) of a generic drug. A PBM will calculate across
all generic drugs dispensed for a specified period (e.g., 1 year)
either at an individual pharmacy level or often across all the
pharmacies represented by a pharmacy services administrative
organization (PSAO). However, PBMs reimburse generic claims at varying
MAC, WAC or discounts off AWP, not at the GER. Accordingly, at the end
of the specified evaluation period, PBMs reduce the AWP of all the
individual generic drugs dispensed by the GER discount (e.g., 86
percent) and that number is compared to the actual reimbursement
originally paid to a pharmacy. The PBM will then reconcile the total
dollar difference. If, after the PBM completes the calculations and
determines a pharmacy has received excess reimbursement, the PBM will
claw back the money. Given the vast differences between generic
reimbursements based on MAC, WAC, and discounts of AWP, it is
particularly difficult for pharmacies to know where they stand in
comparison to the contracted GERs. Notably, PBMs do not refund
clawbacks to patients; the PBMs retain the clawbacks for themselves.
Brand effective rates (BERs) work the same, except the PBMs use them
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for brand drugs.
This effective rate contracting/payment method allows PBMs to play
games with individual drug reimbursements to the detriment of patients,
pharmacies, and employers. Effective rate contracts allow a PBM, at its
sole discretion, to reimburse a pharmacy artificially high or low
knowing the PBM will reconcile the pharmacy reimbursement dollars at
the end of the evaluation period to the contracted effective rate, as
described above. For patients who have a percentage-based cost share,
when a pharmacy dispenses a drug at a higher price artificially
inflated by the PBM, based on the point-of-sale adjudication, the
patient will pay a higher copayment. The patient will not receive the
benefit of the end of the year reconciliation--the PBM will keep that
money.
PBMs' use of unconscionable contract terms
PBMs control market access, and they use that control to force
unconscionable contract terms. PBM adhesion contracts include random
basis audits, aberrant drug list compliance, inventory management
limitations, specialty drug limitations, complicated performance
metrics, complex pricing schemes, ``flexible contracting'' (which means
unilateral, no-notice contract changes), and other such provisions. The
PBM can base an audit off any of those unconscionable contract terms. A
PBM audit is an existential threat to an independent pharmacy's
business. Nevertheless, it is common for a single pharmacy to face
several PBM audits a month. One of the most common audits is an invoice
audit. Invoice audits require the pharmacy to prove that it bought the
drugs it billed to the PBM. While that sounds reasonable, it is the
frequency with which the PBM conducts such audits and the penalties
that are not reasonable. If a PBM finds even a minor discrepancy, the
pharmacy faces substantial financial penalties, and potentially even
termination of the network agreement.
Termination of the network agreement can be fatal. In 92 percent of
metropolitan statistical areas (MSAs), at least one insurer with a PBM
has a 30 percent market share. In 50 percent of MSAs, one insurer has
at least 50 percent market share.\11\ With PBMs controlling access to
the upstream insurer networks, they are able to control the downstream
pharmacy market, and conflicts of interest abound.
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\11\ COMPETITION in HEALTH INSURANCE A comprehensive study of U.S.
markets. Ama-assn.org. (2022). Retrieved 26 March 2023, from https://
www.ama-assn.org/system/files/2020-10/competition-health-insurance-us-
markets.pdf.
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PBMs steering patients away from unaffiliated pharmacies and toward
PBM-
affiliated specialty, mail-order, and retail pharmacies
PBMs use a variety of methods to steer patients away from unaffiliated
pharmacies. PBMs create arbitrary lists, such as specialty and aberrant
drug lists, to limit independent pharmacies' access to patients. These
lists require patients to obtain certain drugs from a PBM-affiliated
pharmacy.\12\ The PBMs use contract provisions that require independent
pharmacies to ``walk'' their patients to ``specialty pharmacies,'' a
term PBMs arbitrarily define. Any independent pharmacy can potentially
be a specialty pharmacy, however, the PBMs make the sole determination
of who meets the opaque ``criteria.'' If the PBMs do not determine the
independent pharmacy meets PBM-established specialty pharmacy
accreditation requirements, the pharmacy cannot be part of the
specialty pharmacy network. Such a process begs the question: when
would a PBM with a downstream affiliated specialty pharmacy ever
determine an independent pharmacy is worthy of such designation?
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\12\ Fein, A. (2022). Insurers + PBMs + Specialty Pharmacies +
Providers: Will Vertical Consolidation Disrupt Drug Channels in 2020?.
Drugchannels.net. Retrieved 26 March 2023, from https://
www.drugchannels.net/2019/12/insurers-pbms-specialty-pharmacies.html.
Other methods include refill walk requirements. Below is a screenshot
from an independent pharmacy's pharmacy management system. As you will
see, the PBM requires the independent pharmacy to inform its patient
that the patient must seek an alternative way of getting their refills.
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The alternative way is through the PBM-affiliated pharmacy.
Failure to follow these exclusionary procedures often leads to audits
and threats of termination of the pharmacy's network agreement. At the
very least, PBMs force pharmacies to choose between filling the refill
free of charge (real-time claims adjudication would prevent the
independent pharmacy from submitting a claim) or letting the patient go
untreated until they find a PBM-affiliated alternative.
PBMs' policies and practices related to specialty drugs and pharmacies
On behalf of PBMs, sPCMA, a division of the Pharmaceutical Care
Management Association representing the specialty pharmacy industry,
released a white paper to defend PBM specialty drug practices.\13\ In
it, sPCMA admits that the definition of specialty drug continues to
evolve. It lists a number of attributes that on the one hand apply to
many non-specialty drugs, and on the other hand begs the question: if
specialty drugs are used to treat complex or chronic medical conditions
that require lab monitoring; additional patient education, adherence
and support; and administration technique training beyond traditional
dispensing activities, why would a PBM want to send specialty drugs
through its affiliated mail-order pharmacy? sPCMA provides the answer--
money.\14\, \15\
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\13\ https://www.spcma.org/wp-content/uploads/2016/06/
sPCMA_The_Management_of_Spe
cialty_Drugs.pdf.
\14\ Id at 3.
\15\ Id at 4.
Other criteria cited in this document reveal the lack of
differentiation between most designated specialty drugs and more widely
used drugs. In fact, sPCMA notes that patients use specialty drugs for
a wide range of conditions. When addressing why specialty drugs have
limited distribution, sPCMA cites criteria that is relevant with all
non-specialty designated drugs too: drug inventory tracking, supply
chain integrity, and dosing and lab monitoring. Therefore, the criteria
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PBMs use is nebulous at best.
The impact on patients is clear. PBMs cut off patients who often have
complex or chronic medical conditions from specialty options and force
them into mail order at significant risk to their health.\16\ The PBM
practices prevent patients from accessing prompt care, education,
injection training, adherence, and related support that only an in-
person pharmacist can provide. Additionally, this practice is hurting
consumers because when a mail-order drug fails to arrive at a patient's
home, patients are forced to fill their specialty drugs at a pharmacy
that is out of network, or not authorized to distribute specialty
drugs.
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\16\ https://www.npr.org/sections/health-shots/2019/01/07/
673806506/extreme-temperatures-may-pose-risks-to-some-mail-order-meds.
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Potential conflicts of interest and anticompetitive effects arising
from horizontal and vertical consolidation of PBMs with
insurance companies, specialty pharmacies, and providers
In 2018, the auditor of the state of Ohio produced a State Report on
Ohio's Medicaid Managed Care Pharmacy Services that spoke to PBM
conflicts of interest.\17\ In it, the auditor found discriminatory
reimbursement because PBMs compensated their affiliated pharmacies at a
higher rate than independent pharmacies. This discriminatory
reimbursement occurs nationwide, based on evidence reviewed from
Arkansas, Florida,\18\ and Oklahoma. In fact, in February 2018, the
Arkansas Pharmacists Association, joined by Arkansas Lieutenant
Governor Tim Griffin and almost half of the General Assembly, held a
press conference unveiling data demonstrating that PBMs pay their own
affiliate pharmacies more than independent pharmacies.\19\ The Arkansas
data contained over 200 examples of discriminatory reimbursement. Of
the top generic drug prescriptions, Arkansas found that the PBMs were
paying themselves, on average, over $60 more per prescription than they
were paying independent pharmacies. The PBM was steering patients to
its wholly owned affiliate so that it could pay itself more. Such
anticompetitive behavior results in increased costs and harm to
patients.
---------------------------------------------------------------------------
\17\ https://audits.ohioauditor.gov/Reports/AuditReports/2018/
Medicaid_Pharmacy_Services_
2018_Franklin.pdf.
\18\ Milliman, Florida Agency for Health Care Administration:
Pharmacy Benefit Manager Pricing Practices in Statewide Medicaid
Managed Care Program (December 2020).
\19\ https://m.youtube.com/watch?v=CDnFSOMAazA.
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Conclusion
Prescription drug prices continue to grow at an alarming rate, while
transparency and competition are decreasing. As we have shown above,
there are many factors in the pharmaceutical supply chain and delivery
system that may contribute to these negative factors, including PBM
``middlemen.'' NCPA stands ready to work with Congress and the
administration to implement policies that will lower drug prices at the
pharmacy counter for our patients.
______
National Multiple Sclerosis Society
One M Street, SW, Suite 510
Washington, DC 20003
Tel 1-202-408-1500
https://www.nationalmssociety.org/
April 5, 2023
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
221 Dirksen Senate Office Building 239 Dirksen Senate Office Building
Washington, DC 20510-6200 Washington, DC 20510-6200
Dear Chairman Wyden and Ranking Member Crapo:
On behalf of the National Multiple Sclerosis Society (Society), thank
you for the opportunity to provide a statement for the record for the
hearing ``Pharmacy Benefit Managers and the Prescription Drug Supply:
Impact on Patients and Taxpayers.'' We appreciate this hearing's focus
on examining the role that pharmacy benefit managers (PBMs) play in the
American healthcare system and the ways that these entities contribute
to the high cost of prescription drugs.
We appreciated this Committee's commitment and focus on passing key
provisions of the Inflation Reduction Act that reduce the cost of
prescription drugs for Medicare beneficiaries by allowing Medicare to
negotiate for a select number of medications, setting a $2,000 cap on
what beneficiaries must pay out of pocket, and enacting rebates to
Medicare if the cost of a specific prescription drug rises faster than
inflation. The IRA was a critical first step at systemically lowering
the prices of prescription drugs for Americans. Still, more work
remains to ensure that people can get life-changing medications when
they need them. We are pleased that the Committee is now turning its
attention to advancing solutions that ensure transparency and
accountability of PBMs and their practices and that any savings that
they negotiate are passed along to the patients and the healthcare
system at large.
Multiple sclerosis (MS) is an unpredictable disease of the central
nervous system. Currently, there is no cure. Symptoms vary from person
to person and may include disabling fatigue, mobility challenges,
cognitive changes, and vision issues. An estimated 1 million people
live with MS in the United States. Early diagnosis and treatment are
critical to minimize disability. Significant progress is being made to
achieve a world free of MS. The Society, founded in 1946, is the global
leader of a growing movement dedicated to creating a world free of MS.
To fulfill this mission, we fund cutting-edge research, drive change
through advocacy, facilitate professional education, collaborate with
MS organizations around the world, and provide services designed to
help people affected by MS move their lives forward.
PBMs have played an increasingly important--but often hidden--role in
the U.S. healthcare system. PBMs manage prescription drug benefits for
health insurers, Medicare Part D drug plans, large employers, and other
payors. Today, PBMs play an outsized role in determining the cost of
prescription drugs for payors, influencing the access to medication
that people with MS and other patients need, and determining how much
pharmacies are paid for these medications.
High-priced MS medications are targets for PBM negotiations--creating
both cost and access challenges for people with MS.
MS is a highly expensive disease. The average total cost of living with
MS is $88,487 per year.\1\ The total estimated cost to the U.S. economy
is $85.4 billion per year, and the direct medical cost to live with MS
is an average of $65,612 more than a person who does not live with
MS.\2\
---------------------------------------------------------------------------
\1\ Bebo, Bruce et al. The Economic Burden of Multiple Sclerosis in
the United States: Estimate of Direct and Indirect Costs. Neurology May
2022, 98 (18) e1810-e1817; DOI: 10.1212/WNL.0000000000200150. https://
n.neurology.org/content/98/18/e1810 (accessed May 4, 2022).
\2\ Bebo, Bruce et al. The Economic Burden of Multiple Sclerosis in
the United States: Estimate of Direct and Indirect Costs. Neurology May
2022, 98 (18) e1810-e1817; DOI: 10.1212/WNL.0000000000200150. https://
n.neurology.org/content/98/18/e1810 (accessed May 4, 2022).
Evidence demonstrates that early and ongoing treatment with an MS
disease-
modifying therapy (DMT) is the best way to manage the disease course,
prevent the accumulation of disability, and protect the brain from
damage due to MS.\3\ There are now more than twenty DMTs on the market,
including generic options. These medications have transformed the
treatment of MS over the last 30 years. Unfortunately, these DMTs are
incredibly expensive. The full range of MS DMTs represents various
mechanisms of action and routes of administration with varying
efficacy, side effects, and safety profiles. No single agent is `best'
for all people living with MS \4\ and as MS presents differently in
each person, every person's response to a DMT will vary. It is common
for people with MS to move through several different DMTs throughout
their life as they may ``breakthrough'' on medication or have disease
activity and need to try a different DMT.
---------------------------------------------------------------------------
\3\ Costello, K. et al. MS Coalition. The Use of Disease Modifying
Therapies in Multiple Sclerosis: Principles and Current Evidence.
September 2019. https://www.nationalmssociety.org/NationalMSSociety/
media/MSNationalFiles/Brochures/DMT_Consensus_MS_Coalition.pdf
(accessed May 20, 2022)
\4\ MS Coalition. The Use of Disease Modifying Therapies in
Multiple Sclerosis: Principles and Current Evidence. http://
www.nationalmssociety.org/getmedia/5ca284d3-fc7c-4ba5-b005-
ab537d495c3c/DMT_Consensus_MS_Coalition_color. Accessed December 26,
2018.
When the first MS DMT came to market in 1993, the price range was
$8,000 to $11,000 for one year of treatment. The price of MS therapies
has dramatically risen since that time. As of January 2023 (see
appendix I), the median annual price of brand MS DMTs is nearly
$98,000. The annual cost for individuals on an MS DMT ranges from
$57,202 to $92,719, depending on an individual's age and sex,\5\ and
people with MS stay on these medications for years. Cost increases have
also impacted MS symptom management medications. For example, H.P.
ActharGel (Acthar), approved in 1952, is used as a short-term treatment
for acute exacerbations of MS. For years, this medication was priced at
less than $40 per vial. However, today, a vial of Acthar is priced at
around $40,000--approximately 140,000% more expensive than when it was
approved 68 years ago. The price increases have made MS medications
targets for both PBMs and payors, increasing out-of-pocket costs for
people with MS, costs to the system, and creating access issues that
impact the health and well-being of those living with MS.
---------------------------------------------------------------------------
\5\ Bebo, Bruce et al. The Economic Burden of Multiple Sclerosis in
the United States: Estimate of Direct and Indirect Costs. Neurology May
2022, 98 (18) e1810-e1817; DOI: 10.1212/WNL.0000000000200150. https://
n.neurology.org/content/98/18/e1810 (accessed May 4, 2022).
---------------------------------------------------------------------------
PBMs Impact Access to Medications
PBMs play a powerful role in determining what access people with MS
have to their DMTs and symptom management medications. PBMs can
determine which medications are covered by payors and, what tier those
medications are on, even what pharmacies people can use to get their
medications. As the costs for these medications have increased, health
plans and PBMs employ increasingly strict utilization management
practices, like prior authorization and step therapy, to minimize the
use and cost liability for these therapies. These practices present
significant hurdles for prescribers and cause real delays and barriers
for people with MS in accessing medications that they and their
provider decide is right for them.
While PBMs often cite part of their role as keeping pharmaceutical and
health costs down, there are documented examples that PBM practices can
add costs to the healthcare system overall and inhibit patient care.
Physicians in the United States complete an average of 33 prior
authorization (PA) requests every week, taking an average of 14.4 hours
to process.\6\ Eighty-six percent of surveyed physicians described the
burden of PA as either high or extremely high. This burden is
detrimentally impacting patients, with 90% of physicians reporting that
PA requirements hurt patient clinical outcomes and 74% of physicians
reporting that issues associated with PA can lead to patients
abandoning or being nonadherent to a recommended course of treatment.
Twenty-four percent of physicians report that PA has led to a serious
adverse event for a patient in their care, and 16% of physicians say
that PA has led to a patient's hospitalization. The healthcare system
must do better for patients and providers.
---------------------------------------------------------------------------
\6\ American Medical Association. 2019 AMA prior authorization (PA)
physician survey. https://www.ama-assn.org/system/files/prior-
authorization-survey.pdf.
Personal stories from the MS community echo these findings. For the
past several years, people with MS and their healthcare providers have
described egregious step therapy practices and prior authorization
delays that have resulted in MS exacerbations, worsening health, and
---------------------------------------------------------------------------
increased costs to the healthcare system.
MS Activist Marguerite from CA:
I have had the not-uncommon experience of running out of my
critical medication while I wait for my neurologist to jump
through the prior authorization hoops. With MS, it's critical
to take medication regularly, as scheduled, to avoid
progression of the disease and potential disability.
These utilization management practices can include requiring three to
five DMTs to fail a person with MS prior to accessing the individual's
and their provider's medication of choice, requiring someone to use a
DMT they already know does not work for them, and requiring people with
needle phobia to use self-injectable medications even though oral
medications are available. These practices result in nonadherence and
dangerous delays to people getting on the DMTs that will work for them.
With every delay, people with MS risk disease activity and underlying
progression from which they may not recover. MS Activist Therese from
Florida shared her experience:
I almost gave up in January when it was time to coordinate with
insurance, hospitals/doctors, and the specialty pharmacy for my
Ocrevus infusion, which happens every 6 months. I almost give
up every 6 months. Why? Because it's hard. It's hard to
understand the steps that need to happen for approval because
they seem to change every time. The people that I speak with on
the phone are busy and talk fast, which is difficult for me to
understand. I'm spoken down to by representatives, often making
me feel dumb or that I'm a burden. And all I want is the
medication that I'm already taking and is working. The
medication that my medical team and I have deemed appropriate
for me. It's nothing new, yet the problems to get it approved
and dispensed are always new and ever-changing.
There is often little transparency into how formularies or step therapy
protocols are developed, especially for MS DMTs, where no publicly
available algorithms describe how to progress through the different MS
DMTs. In 2019, in response to a Society funded survey, people with MS
reported that the greatest challenge in getting their DMT comes from
insurance companies.\7\ Too often, formularies designed by PBMs, and
health insurers are driven not by medical practice but by rebates in
the system. For example, according to a 2020 staff report from the
House Committee on Oversight and Reform, Teva Pharmaceuticals pressured
PBMs by tying contractual rebates on Copaxone 20 mg/ml to adding
Copaxone 40 mg/ml to their formularies.\8\
---------------------------------------------------------------------------
\7\ National MS Society. Quantifying the Effect of the High Cost of
DMTs. Market Research Report. August 2019. https://
nms2cdn.azureedge.net/cmssite/nationalmssociety/media/ms
nationalfiles/advocacy/nmss-research-report-full-access-to-ms-
medications.pdf. (Accessed February 15, 2023).
\8\ Drug Pricing Investigation Teva-Copaxone. Staff Report
Committee on Oversight and Reform. U.S. House of Representatives.
September 2020. https://oversight.house.gov/sites/
democrats.oversight.house.gov/files/Teva%20Staff%20Report%2009-30-
2020.pdf (Accessed May 3, 2020).
The combination of vertical integration of PBMs, payors and pharmacies,
rebating, and other business-related practices often result in
formulary placement of medications that often steers individuals
towards more expensive medications, while generics and biosimilars are
becoming increasingly available. For example, PBMs often place generic
drugs and biosimilars in higher formulary tiers alongside brand
medications, thus negating the cost savings to the health system and
the patient. We have seen this practice in the MS space, as MS
generics, due to higher cost than regular generic medications, are
covered more like specialty medications, resulting in higher cost
---------------------------------------------------------------------------
sharing for people with MS.
PBMs may also prefer a higher cost drug because it will increase their
revenues; so, despite lower cost alternatives being available, a higher
cost product may receive favorable formulary placement. These practices
do not serve the best interest of the patient and Congress should act
to ensure that what works best for the patient guides all elements of
health-care decision-making.
Society's Recommendations for PBM Reform
The Society's analysis of policy recommendations is guided by two sets
of recommendations, both developed by teams comprised of people
affected by MS, MS healthcare providers, policy experts, and Society
staff. The Access to High Quality MS Healthcare Principles \9\ and the
Access to MS Medications Recommendations \10\ serve as the basis for
the Society's support for any policy proposal and our recommendations
to ensure that proposals best meet the needs of people with MS.
---------------------------------------------------------------------------
\9\ https://www.nationalmssociety.org/Get-Involved/Advocate-for-
Change/Take-Action/Access-to-High-Quality-Healthcare/Access-to-High-
Quality-MS-Healthcare-Principles.
\10\ https://nms2cdn.azureedge.net/cmssite/nationalmssociety/media/
msnationalfiles/advocacy/recommendations-make-ms-meds-accessible.pdf.
The Society's full set of policy recommendations for PBM reform is
outlined below, and we support many of the solutions that were raised
during the hearing. We believe that comprehensive PBM reform should
---------------------------------------------------------------------------
include the following policies:
Ensure transparency by requiring disclosure of specific costs,
prices, reimbursements, fees, mark ups, discounts and aggregate
payments received with respect to their PBM service.
Prohibit unfair and deceptive pricing models including spread-
pricing and arbitrary claw backs of payments.
Require pass-through pricing models.
Require oversight and reporting on PBM behavior and allow the
FTC to take legal action when a PBM is found in violation of the law.
Allow for patients to have a choice of the pharmacy where they
receive their medications.
Ban PBMs from using discriminatory formularies.
Eliminate copay accumulator and similar policies that put
greater burden on patients.
Allow patients to receive the benefits from rebated savings and
pay the lesser amount of copay/co-insurance, the amount charged by the
PBM to the pharmacy, or the cost of the drug.
Include a substantial monetary penalty for those PBMs who act in
violation of the law.
Recommendations for Medicare and Part D
While many of our recommendations may fall outside the jurisdiction of
the Senate Finance Committee, we believe that these areas are an
important first step to reform--both in the government and commercial
markets.
Transparency and consistency of reporting are key.
As noted above and by many at the hearing, the opaqueness of the
American healthcare system makes reform especially challenging. We
support policies to improve transparency so that all stakeholders are
working with the same level of information. There is increased pressure
on people with MS and other chronic health conditions to make informed
choices about the cost of their care and prescription drug medications.
Yet, there is very little true transparency to provide the level of
information needed to guide these decisions. We do not believe data
like net price, mark-ups, payments, or rebates should be a trade
secret. The Society supports proposals that would grant CMS the
authority to require more granular data in reporting requirements and
publish prescription drug prices throughout the year to level the
playing field and give all stakeholders access to information necessary
to guide their decision-making.
Additionally, due to the vertical integration between payors and PBMs,
we support Congress granting authority to CMS to define an acceptable
profit threshold for PBMs. CMS has a fiduciary duty to its
beneficiaries and to taxpayers and this is consistent with the policies
that CMS has around profit margins for plans under the Affordable Care
Act.
Align incentives to ensure that PBMs have a responsibility to act on
what is best for the patient.
Many members acknowledged during the hearing that PBMs are not charged
to act in the best interest of the patient, so they often act in ways
that are more profitable for them as a business. Vertical integration
has only served to further remove the patient's interest from the
center of decision-making. As mentioned above, the Society supports
proposals that would prohibit unfair and deceptive pricing models
including spread-pricing and arbitrary claw backs of payments, ban PBMs
from using discriminatory formularies, and pass through all savings
from the system to plans and patients. It is our understanding that
these practices stem from PBMs not having a requirement to act on what
is best for the patient.
Patients should not be paying the highest prices for any prescription
drug.
It is unconscionable that patients are sometimes paying the highest
prices for medications, particularly when the role of payors and PBMs
is to negotiate for lower costs yet, because so much data on
pharmaceutical prices is confidential, researchers and policy makers
often have a hard time ensuring that patients really are getting the
best deal. The Society believes and would support proposals that, would
allow patients to pay whatever price is the lowest--the copay or co-
insurance, the cost not utilizing insurance, or the price charged by
the PBM to the pharmacy. Additionally, we would support reforming how
co-insurance is calculated and ensuring that amount is calculated based
off the rebated price, not the list price. This change could be truly
transformative for people living with MS, where the median annual price
of brand MS DMTs is close to $98,000.
Additional Considerations for PBM Policy Reform
The specialty drug market needs further examination.
As noted during the hearing and throughout the Inflation Reduction Act
hearing in the 117th Congress, the rise in specialty drugs has
transformed the prescription drug and health coverage landscape. Dr.
Burns noted in his testimony that ``PBMs are not heavily focused on the
dispensing of specialty drugs.'' We believe that the entire specialty
market needs examination to truly understand its impact on the
prescription drug enterprise and pipeline. There are some significant
differences between specialty drugs, and the Society believes that they
may not function the same as other types of drugs or follow traditional
supply/demand market dynamics, particularly due to their frequent use
off-label. The Society believe that Congress should ask the GAO to
examine specialty drugs and the impact on the research, development,
and healthcare sector broadly.
End gaming of the regulatory and patent systems.
As multiple Senators and the panel noted during the hearing, vertical
integration has made it more urgent that Congress act to address
regulatory and patent gaming of the system. The Society appreciates the
attention from the Committee around improving the regulatory process to
ensure speedy regulatory approval and access to generic medications and
biosimilars. We believe that industries should be compensated fairly
for the research and development required to bring innovative products
to market. However, market exclusivity and patent protections are vital
tools created by Congress to reward innovation, and the Society
believes that minor tweaks to existing products should not receive
lengthy patent protections. We support the bills that passed out of the
Judiciary Committee in February: S. 79, the Interagency Patent
Coordination and Improvement Act of 2023, S. 113, the Prescription
Pricing for the People Act of 2023, S. 142, the Preserve Access to
Affordable Generics and Biosimilars Act, S. 148, the Stop Stalling Act,
and S. 150, the Affordable Prescriptions for Patients Act of 2023.
While large scale patent reform and pay for delay legislation should be
examined, these bills provide a good first step at addressing common
practices that are utilized to delay competition in the prescription
drug market which artificially creates higher prices and less choice
for patients.
Conclusion
We are encouraged that the Senate Commerce and Judiciary Committees
have already advanced legislation that would align with the Society's
recommendations and urge you to pass comprehensive PBM reform out of
Committee that provides accountability from PBMs to the Medicare system
and for beneficiaries. The Society believes many of these proposals can
and should be implemented in the commercial market and will work with
your Colleagues in the Senate HELP Committee on complimentary
legislation to ensure all patients have access to the life-changing
therapies they need to live their best lives.
Thank you again for holding this important hearing and your work to
address harmful PBM practices that hurt patients and raise costs for
them and the healthcare system at large. If you have any questions
about our comments or recommendations, please contact Leslie Ritter,
AVP of Federal Government Relations at Leslie.Ritter
@nmss.org.
Sincerely,
Bari Talente, Esq.
Executive Vice President, Advocacy and Healthcare Access
Appendix I
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__
Nevada Pharmacy Alliance
11 Sunset Way
Henderson, NV 89014
702-714-1931
www.nevadapharmacyalliance.com
U.S. Senate
Committee on Finance
Introduction
The Nevada Pharmacy Alliance appreciates the opportunity to submit a
statement for the record for the United States Senate Committee on
Finance on ``Pharmacy Benefit Managers and the Prescription Drug Supply
Chain: Impact on Patients and Taxpayers.''
The Nevada Pharmacy Alliance was created to address the need in our
state to have an association that focused on the greater good of the
pharmacy profession. To make sure that pharmacy professionals were
supported so that they are able to take care of their patients. We are
committed to connecting, educating, and advocating for the profession
of pharmacy to optimize patient care and public health.
Great Concern about Pharmacy Benefit Manager Tactics
We are extremely concerned about pharmacy benefit manager (PBM) tactics
that have significant negative effects on patients, communities,
taxpayers, employers, and pharmacies. PBMs are hired by insurance plans
and others to negotiate lower drug prices. Unfortunately, they
manipulate the system and keep billions in profits while:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--which obviously harms the
pharmacy and also the patients and communities that rely on them.
The dominance of PBMs is significant. Three PBMs control 80 percent of
the prescription drug market. These are the practical effects of PBM
tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy and Economics found that Medicare
Part D standalone plans paid $2.6 billion more in one year for 184
common generic medications compared with prices for the same drugs
available to cash-paying customers of one retailer.
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.
Putting the squeeze on pharmacies: The Centers for Medicare and
Medicaid Services found that direct and indirect remuneration (DIR)
fees charged by PBMs and payers to pharmacies have exploded by 107,400%
over the last decade.
We hear daily, as medical providers, the struggles that Nevada patients
of all ages have affording their prescriptions. One reason that the
cost of prescription medications are rising is because of the lack of
transparency of PBMs. There are multiple studies that show PBMs are
failing to pass saving on to states, insurance companies, and patients.
Many of these were highlighted in the 2020 Interim Study Concerning the
Costs of Prescription Drugs that happened in the Nevada Legislature.
We hear all of the time, as an association, the negative effects that
the big PBMs (the top three have a 80% market share) are having on
patient care and non-PBM owned pharmacies being sustainable in Nevada.
As you are aware, pharmacies that are not managed by a company that
owns a PBM are closing rapidly.
We want to take this opportunity to define ``PBM reform.'' This is
important to maximize the effectiveness of Congress' work in this area
for patients, and to roll back the current jeopardy posed by PBMs to
pharmacies. For this purpose, we call to your attention the Principles
of PBM Reform advocated by the National Association of Chain Drug
Stores:
Stop explosive retroactive fees. Stop PBMs and payers from using
``DIR fees'' and other tactics to grab back the payments made and owed
to pharmacies--often many months after the fact and often resulting in
below-cost pharmacy reimbursement.
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
In closing, we want to put to rest one of the myths perpetuated by
PBMs. It is shocking that they have been able to stave off reform
efforts by alleging that premiums will increase. This is nothing short
of a scare tactic, and one that cannot be allowed to be used so
flippantly and without substantiation. PBM reform will reduce
prescription drug costs by cracking down on middlemen's manipulation.
It does not follow logically that reductions in prescription drug costs
will result in increased premiums. It is time to address the
manipulative business practices of PBMs, as well as to end the negative
effects of their tactics.
The Nevada Pharmacy Alliance thanks the Committee for the opportunity
to provide our perspective on PBM reform. For questions or further
discussion, please contact Ken Kunke, Executive Secretary,
[email protected].
Ken Kunke, Pharm.D.
Executive Secretary
______
Patients For Affordable Drugs Now
1120 20th Street, NW
Washington, DC, 20036
Patients For Affordable Drugs Now is the only national patient
organization focused exclusively on policies to lower drug prices. We
are independent, bipartisan and we do not accept funding from any
organizations that profit from the development or distribution of
prescription drugs.
Prescription drug prices are set by pharmaceutical companies, and our
organization is dedicated to effective implementation of the
comprehensive drug price reforms included in the Inflation Reduction
Act (IRA) that will hold drug companies accountable by giving the
federal government leverage over prices through negotiation and by
implementing penalties on companies that price gouge. The policy
provisions in the IRA finally authorize Medicare to negotiate prices
directly for some of the most expensive prescription medicines;
institute a hard cap on out-of-pocket drug costs for people on
Medicare; limit copays on insulin for millions of Americans to $35 each
month; and limit annual price increases to no more than the rate of
inflation.
But drug companies are not the only actors in the drug pricing supply
chain, and there is ample evidence that pharmacy benefit managers
(PBMs) do not always act to minimize prices and costs for patients as
intended under U.S. policy. Our concern about the impact of PBMs--and
the need for more oversight and accountability--is why we submitted the
following comments in response to the Federal Trade Commission's
solicitation for public input on the business practices of PBMs.\1\ Our
comments urged the FTC to investigate PBMs in order to highlight
specific areas needing reform and potential solutions, and we are
pleased the FTC has opened an investigation into the major PBMs. But,
even while the FTC pursues its work to examine PBM practices, Congress
can act now to increase accountability for PBMs by requiring
transparency into the secret actions of PBMs, giving the FTC the
necessary tools to regulate PBMs, and passing legislation to ensure
that PBMs are accountable first to their beneficiaries, rather than
their shareholders.
---------------------------------------------------------------------------
\1\ https://www.ftc.gov/news-events/news/press-releases/2022/02/
ftc-requests-public-comments-impact-pharmacy-benefit-managers-
practices.
We are grateful for the Committee's attention to lower drug prices, and
we submit the following comments for the record in the hope that they
will elucidate the patient perspective on PBMs and their impact on drug
---------------------------------------------------------------------------
access and affordability.
Patients For Affordable Drugs Now is the only national patient
organization focused exclusively on policies to lower drug prices. We
are bipartisan and independent. We don't accept funding from any
organizations that profit from the development or distribution of
prescription drugs.
Today, pharmacy benefit managers (PBMs) administer prescription drug
benefits for more than 266 million Americans, or 80% of the
population.\2\ While drug prices are set by manufacturers, there is
ample evidence that indicates the profit-driven and secretive practices
of PBMs play a major role in the cost of and access to drugs for our
patient community. In order to better understand PBMs' impact on
patients--and to guide future government and industry reforms--we urge
the Federal Trade Commission to conduct a study of PBMs.
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\2\ https://www.healthaffairs.org/do/10.1377/hpb20171409.000178/.
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PBMs Are Shrouded in Secrecy
PBMs are supposed to act as intermediaries, leveraging the buying power
of insurers, employers, and government purchasers in order to capture
savings, which at the end of the day are supposed to accrue to the
benefit of patients and consumers. But because the business practices
of PBMs are shrouded in secrecy, policymakers and the public are left
in the dark about the amount of savings actually passed on to payers
and patients through lower premiums and out-of-pocket costs.\3\ While
PBMs claim to be utilizing their bargaining power on behalf of
patients, they are simultaneously fighting to ensure their rebate
practices stay hidden from view.\4\ As a result, a patient cannot know
if the preferred drug on the formulary is placed there because it is
the best, most cost-effective option or because it is the one for which
the PBM received a substantial rebate. Without further transparency and
accountability, PBM decision-making and its impact on patients will
remain a mystery.
---------------------------------------------------------------------------
\3\ https://www.healthaffairs.org/do/10.1377/hpb20171409.000178/
full/.
\4\ https://www.reuters.com/legal/litigation/pbms-sue-us-keep-
prescription-drug-prices-hidden-public-2021-08-12/.
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Are Patients Actually Paying More for Some Drugs Because of Rebate
Practices?
Because larger rebates can be exchanged for more favorable formulary
placement, PBM rebate practices may in fact incentivize drug companies
to raise list prices in order to be able to provide deep enough rebates
to gain and maintain placement. This ongoing cycle demonstrates how
rebate practices can contribute to ever-
increasing list prices.\5\
---------------------------------------------------------------------------
\5\ https://healthpolicy.usc.edu/article/new-evidence-shows-
prescription-drug-rebates-play-a-role-in-increasing-list-prices/.
Pay-for-position rebate practices also lead to higher costs for
patients. A PBM may receive a substantial rebate from a brand-name drug
company in exchange for placing that brand-name drug--instead of a less
expensive generic option--in a preferred tier. Because patient cost-
sharing is most often based on the full, non-discounted price of the
drug, this structure exposes insured patients to higher costs even
though an equally effective, more affordable option may exist. The
impact on uninsured patients is even more severe because they must pay
the entire, rebate-inflated list price without the benefit of insurance
coverage to absorb some of the costs. The relationship between rebates
and higher out-of-pocket costs has been substantiated in academic
research.\6\
---------------------------------------------------------------------------
\6\ https://jamanetwork.com/journals/jamanetworkopen/fullarticle/
2780950.
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PBM Practices May Be Used To Block Competition
Our drug pricing system is designed around the expectation that the
market entry of generic and biosimilar drugs will generate competition
and promote affordability. Unfortunately, PBM practices may make it
difficult or impossible for generic and biosimilar drugs to gain uptake
in the market. Current incentives in the negotiations between
drugmakers and PBMs leave contracts vulnerable to gaming.
For example, as part of drug manufacturer Teva's effort to delay
generic competition for its blockbuster multiple sclerosis drug
Copaxone, the company developed a higher concentration version of the
drug and began efforts to switch patients to this dosage before the
existing dosage faced generic competition.\7\ The House Committee on
Oversight and Reform uncovered documents that show that Teva pressured
PBMs ``by tying contractual rebates on [the previously marketed
concentration] to adding [the newly developed concentration] to their
formularies.''\8\ The participating PBM conceded, seeking the sizable
rebates in question. Teva's efforts to impede generic competition
resulted in considerable costs to our health system and kept affordable
alternatives out of reach for patients. In addition, in 2017, Pfizer
filed a lawsuit \9\ accusing Johnson & Johnson of offering PBMs larger
rebates to incentivize them to place its blockbuster rheumatoid
arthritis drug Remicade in a favorable formulary position instead of
Pfizer's new biosimilar competitor, Inflectra.\10\ Both examples
illustrate instances in which drug companies worked in tandem with PBMs
to hinder market penetration of more affordable generic and biosimilar
medications.
---------------------------------------------------------------------------
\7\ https://oversight.house.gov/sites/
democrats.oversight.house.gov/files/DRUG PRICING REPORT WITH APPENDIX
v3.pdf.
\8\ https://oversight.house.gov/sites/
democrats.oversight.house.gov/files/DRUG PRICING REPORT WITH APPENDIX
v3.pdf.
\9\ https://www.raps.org/regulatory-focus%E2%84%A2/news-articles/
2017/9/pfizer-sues-j-j-over-contracts-blocking-remicade-biosimilars.
\10\ https://www.statnews.com/2021/01/19/ftc-biden-antitrust-
rebates-mergers/.
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PBMs Put Shareholders First, Not Patients
PBMs have become some of the most profitable players in the health care
sector. In 2021, PBMs handled more than $422 billion \11\ of gross drug
revenues in the United States. The profitability of PBMs has risen in
recent years as a result of vertical mergers between PBMs, insurance
companies, and pharmacies. Almost 90% \12\ of those gross revenues in
2021 moved through the ``Big Three'' alone--CVS, Express Scripts, and
OptumRx. The gross profit \13\ of PBMs grew 12% between 2017 and 2019,
increasing from $25 billion to $28 billion. Because they are profit-
driven entities with a duty to shareholders but without a fiduciary
responsibility to beneficiaries, additional transparency could clarify
whether their practices best serve patients or shareholders. We believe
U.S. law and policy should be amended to give PBMs a fiduciary
responsibility to beneficiaries, requiring them to put beneficiary
health and financial interests first.
---------------------------------------------------------------------------
\11\ https://www.statnews.com/2022/03/22/pharmacy-benefit-managers-
revenue-contracts/.
\12\ https://www.statnews.com/2022/03/22/pharmacy-benefit-managers-
revenue-contracts/.
\13\ https://www.modernhealthcare.com/supply-chain/pbms-profit-
swells-sector-consolidates-
report-
shows?adobe_mc=MCMID%3D10021893709279058923077270792425270302%7CMCOR
GID%3D138FFF2554E6E7220A4C98C6%2540AdobeOrg%7CTS%3D1649856281&CSAuthResp
=1%3A%3A1011632%3A7461%3A24%3Asuccess%3AF1AE116B9E5CA453243ABB636E36C095
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Lack of Competition Leads to Profits Over Patients
Concentration in the PBM industry is yet another factor that appears to
contribute to a drug pricing system where profits come before patients.
Because three large PBMs \14\ have a stranglehold on the market, these
companies have a disproportionate impact on what medications patients
have access to. For example, at the end of last year, CVS Caremark
announced \15\ that it would no longer cover the blockbuster
anticoagulant Eliquis in 2022 and would instead cover only warfarin and
Xarelto. This decision had enormous implications for patients since CVS
Caremark has the largest market share (34% \16\) of any PBM. As a
result, many patients were forced to switch products in order to remain
on a covered drug. For some medications--especially biologics--a forced
switch can carry with it significant health and safety implications for
the patient. Patient choice can be further limited by PBMs, like CVS
Caremark, that own retail pharmacies and may be directing or requiring
beneficiaries to fill prescriptions with their retail affiliates.
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\14\ https://www.statnews.com/2022/03/22/pharmacy-benefit-managers-
revenue-contracts/.
\15\ https://endpts.com/cvs-takes-a-swing-at-bristol-myers-and-
pfizer-excluding-coverage-of-their-megablockbuster-eliquis-in-2022/.
\16\ https://www.beckershospitalreview.com/pharmacy/pbms-ranked-by-
market-share-cvs-caremark-is-no-1.html.
Recent mergers \17\ have also made the lines between PBMs and insurance
companies increasingly difficult to distinguish. This trend creates
conflicting incentives stemming from the fact that PBMs are typically
more profitable than insurance companies.\18\ Insurers, which are
typically motivated by cost-containment, may pivot to direct patients
to treatments with higher rebates instead of acting in the best health
and financial interests of their beneficiaries. This dynamic could
exacerbate all the aforementioned effects that PBMs have on patients
and their costs.
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\17\ https://www.statnews.com/2018/06/01/mergers-health-insurers-
pharmacy-benefit-managers/.
\18\ https://www.statnews.com/2018/06/01/mergers-health-insurers-
pharmacy-benefit-managers/.
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Conclusion
PBMs were created with the stated purpose of negotiating on behalf of
patients. Today, PBMs handle more than $420 billion \19\ and cover more
than 266 million lives.\20\ Nevertheless, their work is shrouded in
secrecy, so their practices remain unclear and their effects on
patients are at best uncertain--and at worst deleterious. The Federal
Trade Commission should investigate PBMs in order to reveal the
practices and effects of these large and growing entities. Such an
investigation could be critical for identifying problem areas and an
important step in building a foundation for policymakers to utilize as
they seek to develop appropriate legislative solutions to ensure PBMs
can best serve consumers.
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\19\ https://www.statnews.com/2022/03/22/pharmacy-benefit-managers-
revenue-contracts/.
\20\ https://www.healthaffairs.org/do/10.1377/hpb20171409.000178/.
______
Pharmaceutical Care Management Association
325 7th Street, NW, Suite 900
Washington, DC 20004
Introduction
The Pharmaceutical Care Management Association (PCMA) appreciates the
opportunity to provide this statement about the role of the pharmacy
benefit manager (PBM) industry in the market for prescription drugs,
focusing on how PBMs benefit patients and taxpayers. PCMA is the
national association representing America's pharmacy benefit companies,
which administer prescription drug plans and operate home delivery and
specialty pharmacies for more than 275 million Americans with health
coverage through public and private employers, labor unions, Medicare,
Medicaid, the Federal Employees Health Benefits (FEHB) program, and the
exchanges established by the Affordable Care Act (ACA). Our members
work closely with health plans and health insurance issuers to secure
lower costs for prescription drugs and achieve better health outcomes.
Pharmacy Benefit Companies Support Policies to Encourage Competition
as the Best Way to Lower Prescription Drug Costs
PBMs work to improve prescription drug affordability by providing
prescribers with information about less expensive generic alternatives,
setting performance standards for pharmacies to encourage generic
fills, and ensuring patients are aware of lower cost alternatives. Due
in large part to these efforts by PBMs, 90 percent of prescription drug
fills are generics.\1\ Pharmacy benefit companies also support
increased uptake of biosimilars through business decisions, such as
preferring both the brand and a biosimilar to ensure patients and
providers have the proper incentives to choose lower cost options and
the choice to continue with a drug they may be reluctant to move away
from, and policy proposals, including eliminating the
interchangeability designation to reduce costs and confusion, stopping
patent abuses, and making it easier for Medicare Part D plans to update
formularies as new biosimilars come to market.
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\1\ AAM. 2021. Available at https://accessiblemeds.org/sites/
default/files/2021-10/AAM-2021-US-Generic-Biosimilar-Medicines-Savings-
Report-web.pdf.
Toward that end, PCMA recently proposed the following three keys in a
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policy platform supportive of a more sustainable health care future:
Key #1: Ensure System Sustainability by Promoting Competition.
Enabling a robust private prescription drug marketplace that
promotes competition is the best way to drive down prescription
drug costs and make more affordable alternatives available for
patients.
Key #2: Support and Equip Clinicians with Tools and Data to
Serve Patients Optimally. Pharmacy benefit experts support
efforts to help clinicians, including pharmacists and other
health care practitioners, ``practice at the top of their
license'' to optimize use of their clinical expertise and
counseling abilities. Pharmacy benefit companies also work to
increase clinicians' administrative efficiency by offering
information and tools to help serve patients.
Key #3: Enhance Patient Outcomes and Improve the Patient
Experience. Pharmacy benefit companies use their prescription
drug expertise to support better health outcomes and provide
recommendations to meet each patient's needs.
Our Affordable Future policy platform proposes numerous solutions to
build on the private market system and facilitate collaboration among
patients, regulators, PBMs, clinicians, health plans, and pharmacies to
work toward a more functional, equitable, and affordable prescription
drug market.
PCMA supports numerous bills introduced by members of the Senate. These
measures align with the solutions proposed by our organization: the
Interagency Patent Coordination and Improvement Act of 2023, the
Prescription Pricing for the People Act of 2023, the Stop STALLING Act,
the Preserve Access to Affordable Generics and Biosimilars Act, the
Affordable Prescriptions for Patients Act, and the Expanding Access to
Affordable Prescription Drugs and Medical Devices Act to improve the
competitive landscape for prescription drugs.
Pharmacy Benefit Companies Improve Care for Patients
PBMs Simplify the Patient Experience
People with insurance filled more than 6.4 billion prescriptions in
retail pharmacies in 2021.\2\ Every day, that amounts to nearly 15
million prescriptions, so it is critical that patients can pick up
their prescriptions as quickly as possible at the pharmacy counter (or
at home via mail delivery) to establish and maintain medication
adherence. PBMs perform many essential functions that combine disparate
information and expertise, as well as advanced technology to facilitate
and streamline getting a prescription filled as seamlessly as
possible.\3\
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\2\ IQVIA. 2022. Available at https://www.iqvia.com/insights/the-
iqvia-institute/reports/the-use-of-medicines-in-the-us-2022.
\3\ PCMA. 2022. Available at https://www.pcmanet.org/pbm-
technology-and-expertise-improves-patient-health-outcomes/.
To optimize the patient experience when a pharmacy initiates the
process of filling a prescription drug, once the pharmacy enters the
prescription into its system, the prescribing information is sent
electronically to the patient's PBM, which checks the pharmacy benefit
information to confirm the patient's insurance status and cost-sharing
amount, as well as the patient's medication history for any errors or
possible harmful drug interactions. When a patient uses insurance,
their PBM can see all their prescriptions. Technology allows real-time,
almost instantaneous access to this information which the PBM uses to
determine if there is any reason that a prescribed drug should not be
taken by a patient and can alert the pharmacist to any dangerous
interactions before the patient receives any medication and pays any
associated cost sharing. All of this happens rapidly, seamlessly, and
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behind the scenes to improve patient safety and care.
Part D plans and the PBMs that administer them are also required to
provide real-time benefit tools to give patients and prescribers cost
sharing and benefits information at the point of prescribing.
PBMs Lower Drug Costs for Patients
PBMs, working with those providing insurance, encourage patients
through formulary design and cost-sharing incentives to use the most
affordable drugs, which are usually generics. For brand drugs, PBMs
negotiate directly with drug manufacturers, who compete for formulary
placement by offering a type of discount called rebates.\4\ For drugs
on the preferred tier of a plan's formulary, patients typically have
lower cost sharing.\5\ As competing products enter the market, PBMs
gain leverage competitor products to negotiate deeper drug discounts
for patients and employers.\6\
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\4\ Foley Hoag. 2019. Available at https://foleyhoag.com/
publications/ebooks-and-white-papers/2019/march/the-history-of-rebates-
in-the-drug-supply-chain.
\5\ CBO. 2020. Available at https://www.cbo.gov/system/files/2022-
01/57050-Rx-Spending.pdf.
\6\ CBO. 2020. Available at https://www.cbo.gov/system/files/2022-
01/57050-Rx-Spending.pdf.
PBMs have also created contracts that account for the value of
specialty and high-cost medications.\7\ Value-based arrangements are at
the forefront of new drug payment designs and will be critical to
managing the costs of next-generation therapies like cell and gene
therapies, orphan drugs, and ultra-expensive specialty drugs. Value-
based contracts will better allow plans to manage these high costs, and
plan sponsors will need broad flexibility to craft and employ value-
based contracts.
---------------------------------------------------------------------------
\7\ PBMI. 2021. Available https://www.pcmanet.org/wp-content/
uploads/2021/01/Solving-America%E2%80%99s-High-Drug-Cost-
Problem_whitepaper_FINAL2.pdf.
The Medicare Part D program, where older Americans and those living
with disabilities can choose among private plans to get their drug
benefits, is a great example of PBM value. PBMs support Part D plans by
negotiating rebates and discounts and promoting better pharmacy
quality, passing 99.6 percent of rebates to the Part D plans, which in
turn use them to enhance drug benefits and keep premium costs reliably
low for beneficiaries.\8\
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\8\ GAO. 2019. Available at https://www.gao.gov/products/gao-19-
498.
Savings from PBMs benefit health plans, employers, retirees, and
patients directly. Prescriptions cost health plans and employers an
average of $1,315 per person per year, with patients paying an average
of $180 for their prescriptions, or 14 percent.\9\ Without PBMs and the
savings they generate, drug costs could be $2,000 per person per
year.\10\
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\9\ Visante. 2020. Available at https://www.pcmanet.org/wp-content/
uploads/2020/02/ROI-on-PBM-Services-FINAL_.pdf.
\10\ Ibid.
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Pharmacy Benefit Companies Reduce Costs for Employers
Employers need choice and flexibility when designing prescription drug
benefits that meet the health and affordability needs of unique
employee populations. Employers and other health plan sponsors vary
dramatically in size, resources, and function and serve diverse
populations.
PBMs have an established record of negotiating price concessions from
drug manufacturers (through formularies and other tools) and pharmacies
to reduce drug costs. No employer, union, retiree health plan, pension
fund, or other health plan sponsor is required to hire or use a PBM,
but virtually all choose to because PBMs lower the cost of providing
health care coverage and allow them to better serve the patients they
represent. Health plan sponsors choose PBMs through a transparent and
highly competitive bidding process. With more than 70 full-service PBMs
in the market, including regular new entrants, health plan sponsors
have diverse options, allowing them to select the PBM that best meets
their unique needs.\11\
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\11\ PCMA. 2021. Available at https://www.pcmanet.org/wp-content/
uploads/2021/04/PBM-Landscape-2021.pdf.
For health plan sponsors, it is important to maintain a competitive
market that provides choice among PBMs and the ability to decide how to
set up drug benefits to best serve their unique populations. Some may
choose a PBM based on its scale, ability to negotiate deep discounts or
manage the risk of price changes. Others choose to hire PBMs based on
their innovative care management programs or different levels of
service. For small employers, many of whom may struggle to provide
health insurance to employees, PBMs both lower drug costs and provide
cost predictability, enabling them to stretch their benefit dollars
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even further.
Plan sponsors should have the option of determining how they would like
to pay the pharmacy benefit company they select for their services.
``Spread pricing'' is a risk-based contracting model in which employers
choose to let the pharmacy benefit company hold the risk that plan
participants may use more expensive pharmacies to acquire drugs in
exchange for the option to keep the savings when a patient uses a less
expensive pharmacy, as well as to take a loss when they use costlier
pharmacies. Today, employers can choose spread pricing or ``pass-
through'' contracting, in which the plan sponsor pays whatever the
pharmacy charges. While larger employers typically select pass-through
contracts, as they have the scale to deal with the variability of
pharmacy charges, smaller employers often choose spread contracts
because of the pricing predictability and savings they derive.
As a result, PBMs have a pro-competitive influence on the prescription
drug marketplace, and PBM services provide a significant and measurable
benefit for businesses and others providing health insurance. Without
PBMs in the marketplace, those organizations would be left to negotiate
drug costs on their own or pay the full costs of these drugs.
PBMs Save Taxpayers Money and Improve the Efficiency of Government
Programs
Pharmacy benefit companies play an important role in federal health
coverage programs, providing prescription drug benefits to
approximately 67 million people across Medicare Part D, TRICARE, and
the FEHB program. Pharmacy benefit companies save the Part D program an
average of $2,026 per Part D beneficiary per year and will save the
program over $430 billion over the next 10 years.\12\ In addition to
drug savings, pharmacy benefit companies provide important clinical
services that help patients lead healthier lives. For example, over the
next 10 years, they will prevent 1 billion medication errors.\13\
Across the three federal programs, pharmacy benefit companies
facilitate affordable prescription drug access to enable better health
outcomes.
---------------------------------------------------------------------------
\12\ Visante. 2023. Available at https://www.pcmanet.org/wp-
content/uploads/2023/01/Pharmacy-Benefit-Managers-PBMs-Generating-
Savings-for-Plan-Sponsors-and-Consumers-January-2023.pdf.
\13\ Visante. 2023. Available at https://www.pcmanet.org/wp-
content/uploads/2023/01/The-Return-on-Investment-ROI-on-PBM-Services-
January-2023.pdf.
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PBMs Keep Medicare Part D Spending Down
The Medicare Part D program covers 49 million Medicare beneficiaries
through private prescription drug plans. Beneficiaries enrolled in
original Medicare can choose from 801 (as of 2023) stand-alone
prescription drug plans (PDPs),\14\ while those with Medicare Advantage
(MA) have their benefits prescription drug benefits (MA-PDs) integrated
into their plans. Overall, in 2021, Part D had total spending of $110.8
billion.\15\
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\14\ Kaiser Family Foundation. 2023. Available at https://
www.kff.org/medicare/fact-sheet/an-overview-of-the-medicare-part-d-
prescription-drug-benefit/.
\15\ MedPAC. 2023. Available at https://www.medpac.gov/wp-content/
uploads/2023/03/Ch12_Mar23_MedPAC_Report_To_Congress_SEC.pdf.
Part D has grown both in terms of the number of prescriptions filled
and expenditures since its inception in 2003. However, despite its
growth, during its first ten years in operation, according to the
Congressional Budget Office (CBO), total Part D spending was 50 percent
lower than expected.\16\ Again in 2023, CBO has found that spending in
Part D has been much lower than anticipated.\17\
---------------------------------------------------------------------------
\16\ CBO. 2014. Available at https://www.cbo.gov/publication/45552.
\17\ CBO. 2023. Available at https://www.cbo.gov/system/files/2023-
03/58997-Whitehouse.pdf.
In both 2013 and 2023, one major driver of low spending has been the
steady increase in the generic utilization rate among patients
participating in the program. Across MA-PDs, the generic dispensing
rate with just 63 percent in 2006, but had climbed to 90 percent by
2016.\18\ And nationally, when a generic alternative is available, the
generic version is substituted for the branded drug 97 percent of the
time, a substitution rate that has been stable since 2013.\19\ Because
of the promotion of generics to beneficiaries by pharmacy benefit
companies, an estimated additional 15 percent of drugs are dispensed as
generics. Pharmacy benefit companies use formularies as a tool to
incentivize beneficiaries to use generic drugs. According to academic
research, ``Part D plan formularies are designed to encourage the use
of generics rather than their brand name counterparts.''\20\
---------------------------------------------------------------------------
\18\ AJMC. 2020. Available at https://www.ajmc.com/view/variation-
in-generic-dispensing-rates-in-medicare-part-d.
\19\ IQVIA. 2023. Available at https://www.iqvia.com/institute/
reports/medicine-use-and-spending-in-the-us-a-review-of-2018-and-
outlook-to-2023.
\20\ Health Affairs. 2020. Available at https://
www.healthaffairs.org/doi/10.1377/hlthaff.
2019.01694.
In addition to the increased use of generics, lower than predicted Part
D net spending--after discounts and rebates--was also in part due to
higher rebates negotiated by pharmacy benefit companies. Between 2011
and 2015, the Department of Health and Human Services (HHS) Office of
the Inspector General (OIG) found that rebates on brand drugs nearly
doubled, while growth in Part D spending was substantially reduced.\21\
The average net price of a prescription, after all pharmacy benefit
company-negotiated discounts and rebates, fell from $57 in 2009 to $50
in 2018.\22\
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\21\ OIG. 2019. Available at https://oig.hhs.gov/oei/reports/oei-
03-19-00010.pdf.
\22\ CBO. 2022. Available at https://www.cbo.gov/system/files/2022-
01/57050-Rx-Spending.
pdf.
Additionally, the Government Accountability Office (GAO) found that
rebates negotiated by pharmacy benefit companies kept Part D spending 7
percent lower than it would have been without rebates. And pharmacy
benefit companies do not keep rebates in Part D, according to GAO, 99.6
percent of rebates get passed through to plan sponsors. Plan sponsors
use these rebates to keep premiums affordable for beneficiaries.\23\
---------------------------------------------------------------------------
\23\ GAO. 2019. Available at https://www.gao.gov/assets/gao-19-
498.pdf.
Beneficiary premiums in Part D have been relatively stable since
2010,\24\ and the average monthly premium declined by 1.8% to $31.05 in
2023.\25\ GAO found that ``downward pressure [by rebates] on premiums
is one reason that premiums remained relatively unchanged between 2010
and 2015, according to the Centers of Medicare and Medicaid Services
(CMS), even though total gross Part D drug costs grew about 12 percent
per year in that period.'' The Medicare Payment Advisory Commission
(MedPAC) agrees, finding that growth in rebates has helped keep the
average premium affordable for beneficiaries.\26\
---------------------------------------------------------------------------
\24\ MedPAC. 2021. Available at https://www.medpac.gov/wp-content/
uploads/import_data/scrape_files/docs/default-source/meeting-materials/
part-d-status-report-medpac-jan-2021.pdf.
\25\ CMA. 2023. Available at https://www.cms.gov/newsroom/news-
alert/cms-releases-2023-projected-medicare-basic-part-d-average-
premium.
\26\ MedPAC. 2021. Available at https://www.medpac.gov/wp-content/
uploads/2021/10/mar21_medpac_report_ch13_sec.pdf.
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Fully Implementing PBM Tools in Medicaid Could Provide Substantial
Savings for the Program
PBMs also manage pharmacy benefits for state Medicaid programs with
both health plan and fee-for-service (FFS) coverage. Nationally, PBMs
saved Medicaid $22 billion from 2013 to 2018 combined; however, the
potential for additional savings remains untapped.\27\ In the
commercial market, PBMs have the flexibility to drive use of the
highest therapeutic quality, lowest-cost drugs and shift utilization
from brands to generics as clinically appropriate; develop preferred
pharmacy networks; advance evidence-based, clinically effective
utilization; and leverage data analytics to detect and prevent fraud,
waste, and abuse. As drug prices continue to increase and expensive
gene and cell therapies come to market, state Medicaid programs will
face increasing budgetary pressures. Optimal use of PBMs tools in state
Medicaid programs would save a total of $112 billion over 10 years, $43
billion for states and $69 billion for the federal government.\28\
---------------------------------------------------------------------------
\27\ Visante. 2016. Available at https://www.unitedhealthgroup.com/
content/dam/UHG/PDF/2019/UHG-PBM-Medicaid-Savings.pdf.
\28\ Ibid.
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PBMs Support Meaningful, Actionable Transparency to Enhance Market
Competition
Transparency that helps patients and payers is necessary across the
entire prescription drug chain. PBMs support and practice actionable
transparency that empowers patients, their physicians, those sponsoring
health coverage, and policymakers, so that they can make informed
decisions that can lead to lower prescription drug costs. Actionable
transparency encourages consumers to shop for coverage that best fits
their health needs and budgets, and once covered, use the most cost-
effective, highest-value health care goods and services. It enables
prescribers and patients to avoid pharmacy-counter surprises and helps
ensure that physicians can prescribe drugs that are affordable for
patients. To that end, PBMs provide patients and prescribers with real-
time benefit tools (RTBTs), which provide real-time information on
exactly where the patient is with respect to progressing through a
deductible or another benefit phase, what drugs are on the patient's
formulary, and exactly what cost sharing to expect for a given drug at
the pharmacy. PBMs also provide patients with information on in-network
pharmacies, premiums, general cost-sharing, and benefits for their
prescription drug coverage.
PBMs provide health plans, employer plan sponsors, and consumers with a
broad array of accurate, actionable information on price and quality to
make efficient purchasing decisions. PBMs' customers are able to set
the terms of the transparency and information they want to receive, as
well as their audit rights, as part of their contracts.
In recent years, Congress has added more requirements for PBMs to
report to federal agencies, as well as public reporting in more
aggregated form, in both cases with appropriate protections for
confidential data to avoid encouraging tacit collusion, efforts that we
support.
The Congressional Budget Office has framed the transparency and
disclosure considerations clearly in this often quoted statement:
The disclosure of drug rebates could affect Medicare spending
through two principal mechanisms. First, disclosure would
probably make rebates less varied among purchasers, with large
rebates and small rebates tending to converge toward some
average rebate. Such compression, for reasons discussed below,
would tend to reduce the rebates that PDPs received and thus
would raise Medicare costs. Second, for a range of medical
conditions, drugs appropriate for treatment are available from
only a few manufacturers; disclosure of drug-by-drug rebate
data in those cases would facilitate tacit collusion among
those manufacturers, which would tend to raise drug prices.
(CBO March 12, 2007)
Likewise, the Federal Trade Commission has noted that there are limits
to the benefits of transparency and unintended consequences that can
result.\29\ Thus, PBMs encourage the Committee, as it reviews how to
improve the prescription drug market to help lower costs for patients
and businesses, to focus its efforts on actionable transparency that
reduces drug costs versus transparency that raises them.
---------------------------------------------------------------------------
\29\ See FTC Staff Comment to the Honorable James L. Seward
Concerning New York Senate Bill 58 on Pharmacy Benefit Managers (PBMs),
Fed. Trade Comm'n. March 2009. Available at https://www.ftc.gov/sites/
default/files/documents/advocacy_documents/ftc-staff-comment-honorable-
james-l.seward-concerning-new-york-senate-bill-58-pharmacy-benefit-
managers-pbms/v090006newyorkpbm.pdf.
---------------------------------------------------------------------------
PBMs Already Comply with Numerous Disclosure Requirements
Pharmacy benefit companies already operate under federal transparency
requirements and adhere to myriad contractually required transparency
provisions imposed by their own business and government partners.
PBMs are subject to regulations promulgated by HHS, the Department of
Labor, the Department of Treasury, the Food and Drug Administration,
and states. PBM practices are overseen by state Medicaid agencies,
state-based consumer protection agencies, private accreditation
organizations, and their own clients--health plan sponsors and PBMs are
directly regulated by state departments of insurance or other state
agencies.
Exchange plans must report data on numerous administrative processes
like coverage determinations and prior authorization in a way that
potential enrollees can access and understand them. Exchange plans must
also report data confidentially to CMS regarding generic dispensing
rates for retail and mail-order pharmacies; aggregate amounts and types
of rebates, discounts, price concessions, and service fees; total
prescriptions covered; and the difference between the amount the health
plan pays the PBM and the amount that the PBM pays retail and mail-
order pharmacies.
Medicare Part D plans must make available to enrollees and potential
enrollees all relevant aspects of their benefit design, and report
confidentially to CMS the same information as exchange plans, through
annual reporting. Part D plans also submit Prescription Drug Event
(PDE) data, which is a summary of Part D claims activity with
additional data elements including pharmacy dispensing fees. As part of
the bid and reconciliation processes, PBMs (via the Part D plans) must
report estimated pharmacy and manufacturer Direct and Indirect
Remuneration (DIR), including rebates and other price concessions.
It is important to note that government reporting by PBMs is not static
but an ongoing, evolving construct. Indeed, CMS routinely updates
required Part D filings to encompass more information, including with
respect to PDE and DIR filings. For example, new pharmacy DIR rules
take effect on January 1, 2024. Under these new rules, the negotiated
price for a Part D covered drug must reflect the lowest possible
reimbursement a network pharmacy will receive for a drug and must
include all pharmacy price concessions. CMS has already issued detailed
guidance on how these changes are to be included in PDE and DIR
filings, including changes related to calculating beneficiary cost
sharing taking into account the application of pharmacy price
concessions at point of sale.\30\ Also, CMS has several other major
expansions underway to the PDE submissions for 2025 related to
Inflation Reduction Act implementation, and we expect to see more for
2026.
---------------------------------------------------------------------------
\30\ CMS HPMS memo. 2022. Available at https://www.cms.gov/
httpseditcmsgovresearch-statistics-data-and-systemscomputer-data-and-
systemshpmshpms-memos-archive/hpms-memos-wk-2-october-10-14.
Moreover, reporting is not limited to federal health care programs and
the exchanges. For commercial plans, Departments of Treasury, HHS, and
---------------------------------------------------------------------------
Labor as well as OPM require PBMs to report:
The 50 most frequently dispensed brand prescription drugs.
The 50 costliest prescription drugs by total annual spending.
The 50 prescription drugs with the greatest increase in
expenditures from the previous year.
Prescription drug rebates, fees, and payments by drug
manufacturers in each therapeutic class of drugs, as well as for each
of the 25 drugs that yielded the highest amount of rebates.
The premium and out-of-pocket cost impact of prescription drug
rebates, fees, and other payments. PBMs may report these data directly
to the government or to their clients. The clients (plan sponsors,
issuers, and the FEHB program carriers generally) are required to
submit this information, along with some of their own data regarding
premiums, aggregated at the state/market level, rather than separately
for each plan.
The Departments must biannually issue a report based on the data,
but otherwise must keep the data confidential and may not release
proprietary information.
Conclusion
The PBM industry is the only stakeholder in the chain dedicated to
seeking lower costs. PBMs do that work for the employer, union, retiree
plan, health plan, and government entities who hire them, and, most
importantly, for the patients for whom those health plan sponsors
provide coverage. As pharmacy benefit experts, PBMs generate tremendous
value, estimated at $145 billion annually for society,\31\ and save
payers and patients an average of $1,040 per person per year.\32\ For
many years, evidence has also shown a return of 10:1 on investments in
PBM services for their private sector and government partners.\33\ As a
result, PBMs will lower the cost of health care by $1 trillion this
year alone.\34\
---------------------------------------------------------------------------
\31\ National Bureau of Economic Research. 2022. https://
www.nber.org/papers/w30231.
\32\ Visante. 2023. Available at https://www.pcmanet.org/wp-
content/uploads/2023/01/Pharmacy-Benefit-Managers-PBMs-Generating-
Savings-for-Plan-Sponsors-and-Consumers-January-2023.pdf.
\33\ Visante. 2023. Available at https://www.pcmanet.org/wp-
content/uploads/2023/01/The-Return-on-Investment-ROI-on-PBM-Services-
January-2023.pdf.
\34\ Visante. 2020. Available at https://www.pcmanet.org/wp-
content/uploads/2020/02/ROI-on-PBM-Services-FINAL_.pdf.
PBMs are able to negotiate for lower drug costs when they can bring
competition between pharmaceutical manufacturers and between pharmacies
to bear. PBMs lower prescription drug costs by using these negotiations
to deliver discounts and rebates, promoting the use of generic
medications, encouraging better pharmacy quality, and offering things
---------------------------------------------------------------------------
like home delivery for those on chronic medications.
Through their work, PBMs are contributing to lower costs for health
coverage, lower costs for medications, and better and more affordable
access for patients, which means more people getting the medications
they need to lead healthier lives.
PCMA would be happy to provide additional information to the Committee
on the value pharmacy benefit companies bring to patients, health plan
sponsors, and society, and looks forward to working collaboratively
with Congress and other stakeholders to build on the existing private
market framework to make medications more affordable and accessible for
patients.
______
Pharmacy Society of Wisconsin
701 Heartland Trail
Madison, WI 53717
608-827-9200
www.pswi.org
Introduction
The Pharmacy Society of Wisconsin appreciates the opportunity to submit
a statement for the record for the United States Senate Committee on
Finance on ``Pharmacy Benefit Managers and the Prescription Drug Supply
Chain: Impact on Patients and Taxpayers.''
With ``One Voice, One Vision'' on January 1, 1998, Wisconsin
successfully united all pharmacists, pharmacy technicians, and student
pharmacists within one advocating organization. The Pharmacy Society of
Wisconsin has championed the cause of helping pharmacists deliver the
best care for their patients. Today, with more than 4,000 members
statewide, PSW is the professional organization pharmacists, pharmacy
technicians, and student pharmacists join to further their careers,
advance the standing of pharmacists and improve the care of patients in
Wisconsin.
At the Pharmacy Society of Wisconsin, we collaborate with healthcare
teams to improve medication use and the health of Wisconsinites and
transform pharmacy practice. We provide a unified voice, resources, and
leadership to advance the pharmacy profession and improve the quality
of medication use in Wisconsin.
Great Concern about Pharmacy Benefit Manager Tactics
We are extremely concerned about pharmacy benefit manager (PBM) tactics
that significantly negatively affect patients, communities, taxpayers,
employers, and pharmacies. PBMs are hired by insurance plans and others
to negotiate lower drug prices. Unfortunately, they manipulate the
system and keep billions in profits while:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--which obviously harms the
pharmacy and also the patients and communities that rely on them.
The dominance of PBMs is significant. Three PBMs control 80 percent of
the prescription drug market. These are the practical effects of PBM
tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy and Economics found that Medicare
Part D standalone plans paid $2.6 billion more in one year for 184
common generic medications compared with prices for the same drugs
available to cash-paying customers of one retailer.
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.
Putting the squeeze on pharmacies: The Centers for Medicare &
Medicaid Services found that direct and indirect remuneration (DIR)
fees charged by PBMs and payers to pharmacies have exploded by 107,400%
over the last decade.
Countless Wisconsin pharmacists reach out to us weekly to share the
squeeze unfair PBM practices are putting on their ability to serve
their patients. We are seeing pharmacies close across the state, often
in rural or medically underserved areas, because they are no longer
financially viable, leaving patients without access to timely and
necessary medications.
We want to take this opportunity to define ``PBM reform.'' This is
important to maximize the effectiveness of Congress' work in this area
for patients and roll back the current jeopardy posed by PBMs to
pharmacies. For this purpose, we call to your attention the Principles
of PBM Reform advocated by the National Association of Chain Drug
Stores:
Stop explosive retroactive fees. Stop PBMs and payers from using
``DIR fees'' and other tactics to grab back the payments made and owed
to pharmacies--often many months after the fact and often resulting in
below-cost pharmacy reimbursement.
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from the
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders and to ensure laws are not undermined by the inaction of
PBMs or of government.
Conclusion
In closing, we want to put to rest one of the myths perpetuated by
PBMs. Shockingly, they have staved off reform efforts by alleging that
premiums will increase. This is nothing short of a scare tactic and one
that cannot be allowed to be used so flippantly and without
substantiation. PBM reform will reduce prescription drug costs by
cracking down on middlemen's manipulation. It does not follow logically
that reductions in prescription drug costs will increase premiums. It
is time to address the manipulative business practices of PBMs and end
the harmful effects of their tactics.
The Pharmacy Society of Wisconsin thanks the Committee for the
opportunity to provide our perspective on PBM reform. For questions or
further discussion, please contact Danielle Womack, Vice President of
Public Affairs, at [email protected] or 608-827-9200.
______
SpartanNash
850 76th St. SW
Grand Rapids, MI 49518-8700
(616) 878-2000
https://www.spartannash.com/
Statement of James Lilly, Vice President of Government Affairs
Introduction
SpartanNash Company greatly appreciates the opportunity to submit a
statement for the record for the United States Senate Committee on
Finance regarding ``Pharmacy Benefit Managers and the Prescription Drug
Supply Chain: Impact on Patients and Taxpayers.''
SpartanNash is a food solutions company that delivers the ingredients
for a better life through customer-focused innovation. We operate two
complementary business segments--food wholesale and grocery retail. Our
global supply chain network serves wholesale customers that include
independent and chain grocers, national retail brands, e-commerce
platforms, and U.S. military commissaries and exchanges in the United
States and abroad. We distribute products for every aisle in the
grocery store, from fresh produce to household goods to our OwnBrands,
which include the Our Family portfolio of products. On the retail
side, we operate 146 brick-and-mortar grocery stores, in addition to
dozens of pharmacies and fuel centers.
Our vast distribution network plays an essential role in the nation's
food supply chain, ensuring that communities of all sizes--from densely
populated cities to remote rural areas--have access to food,
medications, and the household supplies they need. As it relates to
patient access, our organization operates 84 corporately owned
pharmacies and supports 145 affiliate pharmacies that are independently
owned and operated. Combined, our corporate and affiliated pharmacies
fill tens of thousands of prescriptions each week.
Sounding the Alarm on Pharmacy Benefit Manager Practices
Like many other organizations that provide care to patients in a
pharmacy setting, we are deeply concerned about pharmacy benefit
manager (PBM) practices that have significant negative effects on
patients, communities, taxpayers, employers, and pharmacies. While PBMs
may have originally been created with good intentions to reduce costs
by negotiating lower drug prices, that is not the way they operate
anymore. PBMs are a significant factor in ever increasing drug pricing.
They do little more than manipulate the system and keep billions in
profits while:
Making patients pay more for their medicines;
Restricting patients' ability to choose their Pharmacy;
Limiting access to medicines that doctors and other prescribers
determine to be right for the patient; and
Jeopardizing pharmacies' ability to remain in business--which
obviously harms the pharmacy and also the patients and communities that
rely on them.
Policymakers should be concerned that three PBMs control 80 percent of
the prescription drug market, and their impact is extraordinary. These
are three practical effects of PBM tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy and Economics found that Medicare
Part D standalone plans paid $2.6 billion more in one year for 184
common generic medications compared with prices for the same drugs
available to cash-paying customers of one retailer.\1\
---------------------------------------------------------------------------
\1\ Trish, E., Gascue, L., Ribero, R., Van Nuys, K., Joyce, G.
Comparison of Spending on Common Generic Drugs by Medicare vs Costco
Members. JAMA Intern Med. 2021;181(10):1414-1416. doi:10.1001/
jamainternmed.2021.3366.
---------------------------------------------------------------------------
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.\2\
---------------------------------------------------------------------------
\2\ Fein, A.J., Ph.D., (January 10, 2023). The Big Three PBMs' 2023
Formulary Exclusions: Observations on Insulin, Humira, and Biosimilars.
https://www.drugchannels.net/2023/01/the-big-three-pbms-2023-
formulary.html.
---------------------------------------------------------------------------
Putting the squeeze on pharmacies: The Centers for Medicare and
Medicaid Services found that direct and indirect remuneration fees,
also known as DIR fees, charged by PBMs and payers to pharmacies have
exploded by 107,400% over the last decade.\3\
---------------------------------------------------------------------------
\3\ Centers for Medicare and Medicaid Services, Contract Year 2023
Policy and Technical Changes to the Medicare Advantage and Medicare
Prescription Drug Benefit Programs, 87 Fed. Reg. at 1842 (January 12,
2022).
Along with filling prescriptions, our pharmacists provide medication
counseling for thousands of patients each day. We strive to provide the
best medical outcome possible for each patient's condition. Our
pharmacists are available nights and weekends to provide these
services. During the COVID-19 pandemic, our pharmacies expanded
prescription home delivery to assist our patients who needed to avoid
contact with others. Our pharmacists also administered thousands of
COVID immunizations while working on the front lines during this
---------------------------------------------------------------------------
pandemic.
We need to consider what a future pandemic could look like without this
level of pharmacy access because today, many pharmacies are at risk of
closing as a result of the anti-competitive behavior of PBMs. PBMs have
reached a size and scale that gives them tremendous, unparalleled
influence in determining the price and access to prescription drugs for
patients.
Allow me to paint a more detailed picture. As you know, DIR Fees are
relatively new in our industry. In 2016, the DIR Fees SpartanNash was
charged were significant--over $7,048 per pharmacy, and over $578,000
in total. Keep in mind that these were brand new fees that started
being assessed only a few years earlier. Fast forward to 2021, and we
were charged over $127,000 per pharmacy or $10.7 million in total. That
is a dramatic increase in just six years. It would be unthinkable if
the price of a hamburger went up from $10 to $180 using the same ratio,
in a matter of just five years.
The rate of increase with these astronomical fees undoubtedly
contributed to SpartanNash closing its pharmacy operations in West
Branch, Coldwater and Grand Rapids, Michigan, as well as in Somerset,
Wisconsin. Other independent pharmacy owners in our buying group have
closed 17 pharmacies in Michigan, Indiana, Wisconsin, and Ohio.
Unfortunately, many of these pharmacies are located in more rural areas
where patients do not have as many options for pharmaceutical care.
This is unfortunate because in many cases, the pharmacist is the
closest clinician and the one the patient interacts with most
frequently for health maintenance. SpartanNash and many of the
independent pharmacies in our buying group have voiced concerns about
their viability if DIR fees and the unfair and anticompetitive
practices continue unchecked.
Recently, we were forced to reduce hours in our stores because of cost
pressure driven largely by the increase in DIR fees. Most pharmacy
locations now close at 7 p.m., and we no longer operate 24-hour
pharmacy locations. At our company, we know access to a pharmacist
improves medical outcomes for patients, so we do not make these
decisions lightly. But, in the absence of congressional intervention
and relief, we and others in the industry may be forced to make further
reductions in schedules or locations.
So, what can be done? Congress can be especially effective in
correcting this market failure. The National Association of Chain Drug
Stores has identified the following actions that can be undertaken by
Congress:
Stop explosive retroactive fees. Stop PBMs and payers from using
``DIR fees'' and other tactics to grab back the payments made and owed
to pharmacies--often many months after the fact and often resulting in
below-cost pharmacy reimbursement.
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
exorbitant fees and arbitrary measures that continuously change like a
moving target.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy and toward another pharmacy--including those owned
by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
PBMs have been able to fight off reform for many years, but their time
of manipulating this market can come to an end if Congress acts on the
reforms proposed by NACDS and other like-minded associations.
Conversely, if nothing is done, more pharmacies will be forced to close
their doors or reduce hours, and fewer patients will be able to access
the healthcare they need in their communities.
On behalf of SpartanNash, we thank the Committee for the opportunity to
provide our perspective on PBM reform. For questions or further
discussion, please contact James Lilly, Vice President of Government
Affairs, at [email protected] or, (616) 878-8820.
______
Specialty Care Rx
408 N. Allen Dr., Suite 100
Allen, TX 75013
Phone: (949) 506-1300 Ext. 270
Fax: (714) 602-9571
April 12, 2023
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Bldg.
Washington, DC 20510-6200
Dear Committee on Finance,
Specialty Care Rx is a specialty pharmacy that takes great pride in
servicing our patients with integrity and passion. It is getting more
difficult to service our patients because of closed networks, low
reimbursement rates, steerage of patients to Pharmacy Benefit Manger
(PBM) and Insurance Company owned Specialty Pharmacies and increasing
costs due to hidden Direct and Indirect Remuneration (DIR) fees.
As time goes on smaller insurance companies are being absorbed by
larger players in the medical insurance industry such as United
Healthcare and Aetna. These insurance companies own PBM, Specialty
Pharmacy, and manufacture rebate companies. To serve our communities,
we must join their networks and most of the time the networks are
closed because they have their own Specialty Pharmacy and do not allow
choice for their membership. When we are accepted into the network we
are forced to accept low reimbursement rates which can be anywhere
between AWP-30%-50% and we are unable to accept the patient because of
the low rates or we are told that the patient must use PBM or Insurance
Company owned Specialty Pharmacies, such as Optum Rx, CVS Specialty and
Accredo. So, even though we are contracted we are still not able to
service the patient. We can onboard our patient quicker and provide
premier service, but we are prevented from doing so at the plan level
to keep profit under the insurance company's umbrella.
DIR fees are based on arbitrary performance standards having a lasting
negative impact on the overall profitability of the pharmacy. With very
low reimbursement rates oftentimes the DIR fees absorb the profit, and
the drug cost is not covered leaving the pharmacy to cover the cost.
DIR fees are not disclosed upfront and can take months to process
causing ``claw backs'' taken as a percentage of total cost of
prescriptions. The percentage can be anywhere from 4%-20%. We are
unable to predict the performance standards and the PBM will not
explain how the performance based DIR fee is calculated. As a result,
during the Intake process it appears the account is profitable when in
fact it is not, and we are having to triage patients out months
sometimes a year later. This is not only causing hardship on the
pharmacy, but it also causes a burden on the patient, because they must
start the intake process over with the Insurance company or the PBM's
owned Specialty Pharmacy.
The drugs we are delivering to our community are for people with true
illness. They should have the option of choice and should be able to
select the best provider for their care and the care of their loved
ones. Our pharmacy delivers more than just a drug on the doorstep. We
have access to nursing, dieticians, financial counselors, and customer
care individuals that not only walk the patient through their treatment
plan but get them back to doing the things they enjoy in life. Thank
you for taking the time to review the issues at hand in hopes to stop
the PBM abuse not only to their membership but to independent
pharmacies across our country.
Sincerely,
Denise Stechman
Director of Contracts
______
Wegmans Food Markets, Inc.
1500 Brooks Ave.
Rochester, NY 14624
1-800-934-6267
https://www.wegmans.com/
Statement of Julie Lenhard, Vice President of Pharmacy
Introduction
Wegmans Food markets, Inc. appreciates the opportunity to submit a
statement for the record for the United States Senate Committee on
Finance on ``Pharmacy Benefit Managers and the Prescription Drug Supply
Chain: Impact on Patients and Taxpayers.''
Headquartered in Rochester, NY, we are a regional chain that operates
97 pharmacies in six states that provides Patient care by providing
prescription fulfillment, immunization services, counseling, and other
critical patient services.
Great Concern about Pharmacy Benefit Manager Tactics
We are extremely concerned about pharmacy benefit manager (PBM) tactics
that have significant negative effects on patients, communities,
taxpayers, employers, and pharmacies. PBMs are hired by insurance plans
and others to negotiate lower drug prices. Unfortunately, they
manipulate the system and keep billions in profits while:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--which obviously harms the
pharmacy and also the patients and communities that rely on them.
The dominance of PBMs is significant. Three PBMs control 80 percent of
the prescription drug market. These are the practical effects of PBM
tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy & Economics found that Medicare Part
D standalone plans paid $2.6 billion more in one year for 184 common
generic medications compared with prices for the same drugs available
to cash-paying customers of one retailer.
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.
Putting the squeeze on pharmacies: The Centers for Medicare &
Medicaid Services found that direct and indirect remuneration (DIR)
fees charged by PBMs and payers to pharmacies have exploded by 107,400%
over the last decade.
We want to take this opportunity to define ``PBM reform.'' This is
important to maximize the effectiveness of Congress' work in this area
for patients, and to roll-back the current jeopardy posed by PBMs to
pharmacies. For this purpose, we call to your attention the Principles
of PBM Reform advocated by the National Association of Chain Drug
Stores:
Stop explosive retroactive fees. Stop PBMs and payers from using
``DIR fees'' and other tactics to grab back the payments made and owed
to pharmacies--often many months after the fact and often resulting in
below-cost pharmacy reimbursement.
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
In closing, we want to put to rest one of the myths perpetuated by
PBMs. It is shocking that they have been able to stave off reform
efforts by alleging that premiums will increase. This is nothing short
of a scare tactic, and one that cannot be allowed to be used so
flippantly and without substantiation. PBM reform will reduce
prescription drug costs by cracking down on middlemen's manipulation.
It does not follow logically that reductions in prescription drug costs
will result in increased premiums. It is time to address the
manipulative business practices of PBMs, as well as to end the negative
effects of their tactics.
Wegmans Food Markets, Inc. thanks the Committee for the opportunity to
provide our perspective on PBM reform. For questions or further
discussion, please contact Julie Lenhard, Vice President of Pharmacy at
[email protected] or (585) 429-1761.
______
Wyoming Pharmacy Association
P.O. Box 9, Wheatland, WY 82201
Phone: (307) 257-5197
www.wypha.net
Introduction
Wyoming Pharmacy Association appreciates the opportunity to submit a
statement for the record for the United States Senate Committee on
Finance on ``Pharmacy Benefit Managers and the Prescription Drug Supply
Chain: Impact on Patients and Taxpayers.''
The Wyoming Pharmacy Association (WPhA), founded in 1915, is the only
statewide professional organization representing the interests of
licensed pharmacists, pharmacy technicians and pharmacy students across
all practice settings. Our mission to: Advocating, educating, and
connecting to improve the health of Wyoming citizens through the
advancement of pharmacy. Our vision is: Pharmacists and technicians in
Wyoming will be recognized as caring and competent providers, as part
of the greater health care team, who improve the use of medications,
assure the safety of drug therapy, and enhance health-related quality
of life.
Great Concern about Pharmacy Benefit Manager Tactics
We are extremely concerned about pharmacy benefit manager (PBM) tactics
that have significant negative effects on patients, communities,
taxpayers, employers, and pharmacies. PBMs are hired by insurance plans
and others to negotiate lower drug prices. Unfortunately, they
manipulate the system and keep billions in profits while:
Forcing patients and others to pay more for their medicines;
Limiting patients' ability to choose their pharmacist;
Restricting access to medicines that doctors and other
prescribers determine to be right for the patient; and
Jeopardizing pharmacies' viability--which obviously harms the
pharmacy and also the patients and communities that rely on them.
The dominance of PBMs is significant. Three PBMs control 80 percent of
the prescription drug market. These are the practical effects of PBM
tactics:
Over-payments: The University of Southern California Leonard D.
Schaeffer Center for Health Policy & Economics found that Medicare Part
D standalone plans paid $2.6 billion more in one year for 184 common
generic medications compared with prices for the same drugs available
to cash-paying customers of one retailer.
Restricting medications: Drug Channels analysis found that from
2014 to 2022, 1,357 medications were excluded from at least one PBM
formulary for at least one year. The exclusions of drugs from these
lists have escalated since starting in 2012.
Putting the squeeze on pharmacies: The Centers for Medicare and
Medicaid Services found that direct and indirect remuneration (DIR)
fees charged by PBMs and payers to pharmacies have exploded by 107,400%
over the last decade.
We want to take this opportunity to define ``PBM reform.'' This is
important to maximize the effectiveness of Congress' work in this area
for patients, and to roll-back the current jeopardy posed by PBMs to
pharmacies. For this purpose, we call to your attention the Principles
of PBM Reform advocated by the National Association of Chain Drug
Stores:
Stop explosive retroactive fees. Stop PBMs and payers from using
``DIR fees'' and other tactics to grab back the payments made and owed
to pharmacies--often many months after the fact and often resulting in
below-cost pharmacy reimbursement.
Stop below-cost reimbursement. Adopt a reimbursement rate floor
that prevents PBMs and payers from reimbursing pharmacies below the
true cost of acquiring and dispensing prescription drugs.
Stop gaming of performance measures. Standardize performance
measures to help improve patient outcomes and reduce costs--rather than
allowing PBMs and payers to play ``gotcha'' with pharmacies using
arbitrary measures and exorbitant fees.
Stop ``specialty definitions'' from steering patients from their
pharmacy. Prevent PBMs and payers from defining ``specialty drugs'' in
ways that steer patients with rare or complex diseases away from their
preferred pharmacy of their choice and toward another pharmacy--
including those owned by the PBMs and payers.
Stop mandatory mail-order. Prohibit PBMs and payers from forcing
patients to use mail-order pharmacies--including those owned by the
PBMs and payers--and prohibit them from imposing penalties on patients
for choosing a convenient and trusted pharmacy in their neighborhood.
Stop limited networks. Require PBMs and payers to include in
their networks all pharmacies willing to accept terms and conditions
established by the PBM.
Stop overwhelming audits. Bring efficiency, transparency, and
standardization to the processes by which PBMs audit pharmacies without
sacrificing continuity of care.
Stop the undercutting of PBM reform laws. Prioritize the
implementation, enforcement, and oversight of PBM reform laws--to
maximize results for patients and fairness for pharmacies and other
stakeholders, and to ensure laws are not undermined by inaction of PBMs
or of government.
Conclusion
In closing, we want to put to rest one of the myths perpetuated by
PBMs. It is shocking that they have been able to stave off reform
efforts by alleging that premiums will increase. This is nothing short
of a scare tactic, and one that cannot be allowed to be used so
flippantly and without substantiation. PBM reform will reduce
prescription drug costs by cracking down on middlemen's manipulation.
It does not follow logically that reductions in prescription drug costs
will result in increased premiums. It is time to address the
manipulative business practices of PBMs, as well as to end the negative
effects of their tactics.
Wyoming Pharmacy Association thanks the Committee for the opportunity
to provide our perspective on PBM reform. For questions or further
discussion, please contact Matt Meyer, WPhA President, at
[email protected] or (307) 257-5197.
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