FTC to Investigate PBM Business Practices, Consolidation

The Federal Trade Commission (FTC) said on June 7 that it will investigate the business practices and consolidation of PBMs, following months of pressure from health care stakeholders.

The FTC’s investigation, which is just the latest escalation in a nationwide regulatory push to clamp down on PBMs’ most controversial methods, was praised by plan sponsors and pharmaceutical groups.

The FTC’s leadership, a panel of five commissioners, voted unanimously to launch the investigation under section 6(b) of the Federal Trade Commission Act of 1914. The commissioners are a mix of two Democrats and two Republicans, with the fifth seat filled by the party that holds the White House.

The unanimous vote is a reversal for the two Republican panelists appointed by former President Donald Trump. The Republican commissioners voted against a similar inquiry in February, deadlocking with the two Democratic commissioners — the swing seat on the panel was unfilled at the time. That fifth commissioner, Democrat Alvaro Martin Bedoya, was confirmed by the Senate in May on a party-line vote.

According to an FTC press release, the agency will send “compulsory orders” to supply information on business practices to the six largest PBM firms: CVS Health Corp.’s Caremark, Cigna Corp.’s Express Scripts, UnitedHealth Group’s OptumRx, Humana Inc.’s Pharmacy Solutions subsidiary, Blue Cross and Blue Shield affiliate-owned Prime Therapeutics and MedImpact Healthcare Systems Inc. The agency also released a template for the orders it will serve the companies.

The press release added that the business practices the FTC intends to investigate are “fees and clawbacks charged to unaffiliated pharmacies; methods to steer patients towards pharmacy benefit manager-owned pharmacies; potentially unfair audits of independent pharmacies; complicated and opaque methods to determine pharmacy reimbursement; the prevalence of prior authorizations and other administrative restrictions; the use of specialty drug lists and surrounding specialty drug policies; [and] the impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.”

Independent pharmacists have lobbied the FTC for years, pushing for an investigation into what they call anticompetitive business practices on the part of PBMs. Pharmaceutical manufacturers and plan sponsors have also thrown their support behind an investigation.

PBMs Call for Broader Investigation

In a statement reacting to the investigation, the Pharmaceutical Care Management Association (PCMA), the largest PBM trade group, called for an investigation into the “entire supply chain” rather than focusing on PBMs alone.

“We are confident that any examination of pharmacy benefit managers, PBMs, will validate that PBMs are reducing prescription drug costs for consumers. PBMs are the only member of the prescription drug supply and payment chain working to lower drug costs,” said PCMA CEO JC Scott. “Drug manufacturer price-setting is the root cause of high drug costs. The most effective study of issues around drug costs for consumers would examine the entire supply chain. PBMs are holding drug companies accountable.”

A statement from the National Community Pharmacists Association (NCPA) lauded the decision.

“NCPA has repeatedly called on the FTC to scrutinize PBM practices and thousands of community pharmacy owners and their allies have shared with the FTC their examples of the impact health insurer-owned PBMs have on consumer costs and access to prescription drugs,” said NCPA CEO B. Douglas Hoey. “We’re grateful to [FTC Chair Lina] Khan and the commissioners for considering these concerns and approving this study, which we hope will result in meaningful reforms to merger and acquisition reviews and, of course, to the insurer-PBMs themselves.”

In a joint statement, the Republican commissioners explained that they changed their votes because agency staff had refined the scope and goals of the investigation.

“In February, the Chair moved a vote on a 6(b) study that was neither comprehensive nor rigorous, and that failed even to examine…the competitive impact of PBM contracting practices. It omitted a number of matters raised by proponents of issuing the study, including the impact upon consumers….We opposed issuing that study. This one is different…it is scoped to study the competitive impact of PBM practices, including — critically — how those practices might impact out-of-pocket costs for consumers. The study will examine relationships between PBMs and pharmacies and also PBMs and pharmaceutical manufacturers,” wrote Republican Commissioners Noah Phillips and Christine Wilson.

Commissioners Cite Pharmacists’ Complaints

In a statement on the investigation, Khan made special note of pharmacists’ complaints.

“As drug prices have soared and independent pharmacies have shuttered, scrutinizing the practices of PBMs is more critical than ever,” Khan wrote. “The largest PBMs are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies. Those who own competing pharmacies have complained that PBMs impose unfair fees and clawbacks, impose byzantine contracts that often reimburse pharmacies less than their costs of acquisition, and steer patients to PBM-owned pharmacies.”

She also cited complaints by patients and providers that PBMs have not passed through rebates and increase the price of drugs by imposing fees on consumers or plan sponsors: “PBMs have also been accused of harming patients by extracting rebates and fees in exchange for refusing to cover generic and biosimilar drug products, ultimately raising the price that consumers pay for medicines.”

Plan Sponsors Applaud Investigation

Organizations representing employer plan sponsors applauded the FTC’s move.

“We’re very pleased that the FTC has unanimously voted to launch this inquiry into the PBM industry’s consolidation and business practices,” Bill Kramer, executive director for health policy at the Purchaser Business Group on Health (PBGH), tells AIS Health, a division of MMIT. “PBMs were originally created to be a solution to high drug costs, but now they’re part of the problem. Large employers are the largest customers of PBMs, so we have a significant stake in efforts to curb high drug costs.”

He added that PBGH is looking forward to getting answers on “the problem of industry consolidation,” and says that “there needs to be a clear analysis of the impact of vertical integration” between insurers and PBMs. (PBGH will launch its own PBM, EmsanaRx, in 2023; that firm was not mentioned by the FTC as a target of its investigation.)

James Gelfand, executive vice president of public affairs for the ERISA Industry Committee (ERIC), tells AIS Health that he is pleased with the scope and direction of the inquiry. He says ERIC was concerned that the FTC would limit action to the concerns expressed by independent pharmacists, who have lobbied hard for an investigation through NCPA.

Pharmacists Pushed for Probe

“The pharmacists are definitely spending a heck of a lot of resources on this,” Gelfand tells AIS Health. “It’s obviously their very, very top issue. I don’t know if other folks would say it was as high a priority for them. I think one of the things that we were watching for was, does it appear that what the FTC will be looking into is narrowly focused on the complaints of the independent pharmacists? Probably the biggest takeaway that I had from the letter is that, clearly, the answer to that is no.”

“If you look at the things that they’re asking about,” Gelfand continues, “they’re asking about rebate pass throughs, they’re asking about formulary exclusions, and rebate traps and potentially about the money that flows [from manufacturers to PBMs] and influences formulary decisions. I could see a world in which a pharmacist might care about this, but it’s definitely a 10th- or 11th-tier issue for them. But it’s of a very high interest to purchasers.”

Kramer also praised the FTC’s interest in higher transparency.

“For years, employers have tried but often been blocked in their efforts to obtain information from their PBMs,” Kramer says. “In fact, many PBM contracts with employer purchasers prohibit the disclosure of data regarding gross and net prices, rebates, and other financial information. These business practices need to be addressed. There needs to be better transparency and better regulatory oversight.”

Are Purchasers, Pharma on the Same Side?

Plan sponsor groups and pharmaceutical companies rarely wind up on the same side of health policy fights. But pharmaceutical firms have encouraged the FTC to mount the investigation. But the Pharmaceutical Research and Manufacturers of America (PhRMA), the pharmaceutical industry’s most prominent lobbying group, has long argued that PBMs are responsible for high and growing drug prices. In a May 31 statement on its comment letter to the FTC, PhRMA said that “our recommendation[is] for the FTC to conduct a rigorous study of the significant role PBMs play in our drug delivery ecosystem and to explore PBM tactics that can result in less access to medicines and higher out-of-pocket costs for patients.”

That said, Gelfand says purchaser groups and drug manufacturers aren’t exactly aligned on this issue. He expects information about manufacturer practices will come to light from the inquiry, such as payments to PBMs for formulary preferences and direct-to-consumer coupons.

“The inquiry was extremely thorough,” Gelfand says. “It looks to me like it is seeking information on all of the cash flows that take place. Necessarily that will end up including disclosures of things that are not widely known today” about PBM practices. “I don’t think pharma wants much scrutiny on that, but it is what it is. In order to bring some of this stuff to light, there’s probably going to have to be some stuff that pharma doesn’t love getting out there.”

“One of the things we have been passionate about is, we want to know about financial relationships between pharma and the PBMs,” Gelfand adds. “There was generally an understanding that PBMs were advocates for their clients — for employers — but when you’re getting paid by both sides, that could potentially create conflicts of interest.”

However, neither Gelfand nor Kramer expects “actionable” information for purchasers to come out of the investigation — and neither thinks that information revealed in the investigation will affect pharmacy benefit contract negotiations in the near term. However, Kramer says PBGH hopes for legislation mandating “greater standardization of PBM contracts, the way there are in, for instance, hospital and physician billing and health plan claims.” Before plan sponsors expect to be able to leverage information from the investigation, Kramer says that “there’s an intermediate step in that the inquiry needs to lead to legislative and regulatory action, which would then provide greater transparency and oversight.”

Gelfand also hopes that the investigation will yield legislation or stepped-up regulation of PBMs. Both Gelfand and Kramer mentioned their organization’s support for legislation that would create a fiduciary responsibility between PBMs and their clients.

Ge Bai, Ph.D., a professor at Johns Hopkins University’s schools of public health and business, also says that the investigation is just a first step.

“I think this is a response to all sorts of stakeholders and constituents affected by PBMs,” Bai tells AIS Health. “Pharmaceutical companies, pharmacies, they are somewhat aligned in their pursuit to weaken PBM power. But it might not have significant, tangible impacts on PBM practices. The PBMs have many channels to run their businesses — one door closes, another window is going to be opened.” Bai adds that “the government realizes that the PBM is a very powerful player standing between drug manufacturers and high drug prices. They do play an important role here….They want to satisfy those protesting constituencies, but they also want to make sure there is a strong figure standing in the way of pharma to contain high prices….It’s not white and black. It’s very complicated, and there are a lot of interests that are intertwined.”

“Investigating something sounds so significant, but at the end we should not expect a substantial change in the landscape,” Bai says.

Contact Bai at gbai@jhu.edu, Gelfand at jgelfand@eric.org and Kramer via James Chisum at james@millergeer.com.

This article was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.

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