Senate Hearing Continues Government Focus on PBM Industry

During a recent hearing held by a U.S. Senate committee, a variety of witnesses took the stand who nearly all had one message in common: criticizing the role PBMs play in increasing medication costs for consumers. The hearing — which is just the latest indication lawmakers are more closely monitoring PBMs — occurred less than three weeks after Sens. Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) introduced the Pharmacy Benefit Manager Transparency Act of 2023 to the Senate floor.

Ryan Urgo, managing director of health policy at Avalere Health, tells AIS Health that the hearing and bill are part of “a broader effort by lawmakers right now to apply more scrutiny to the PBM business model and certain PBM business practices that lawmakers feel are either anticompetitive or contribute to the broader growth of drug prices.”

The bill, S.127, “bans deceptive unfair pricing schemes, prohibits arbitrary clawbacks of payments made to pharmacies and requires PBMs to report to the FTC [Federal Trade Commission] how much money they make through spread pricing and pharmacy fees,” according to a press release.

The Pharmaceutical Care Management Association (PCMA), the PBM industry’s primary trade group, criticized the legislation in a statement.

“S.127 fundamentally misconstrues the role of pharmacy benefit companies and unfairly proposes to take away employers’ choice and flexibility in how they construe their pharmacy benefits to best fit the needs of their patient populations,” PCMA president J.C. Scott said.

Meanwhile, Casey B. Mulligan, an economics professor at the University of Chicago, testified during the hearing that the disclosure requirements in the bill could “impose tens of billions of dollars in annual net costs by discouraging competition among manufacturers, among pharmacies and among PBMs.”

Mulligan, who was the chief economist of the White House Council of Economic Advisers in 2018 and 2019 under former President Donald Trump, added that the PBM Transparency Act “is more of an economic regulation than a health care regulation. It would restrict pricing in business-to-business transactions and require disclosure of proprietary information. This by itself does not say whether the Act would have net benefits or net costs, but particularly the price controls are a warning that the unintended consequences may be numerous and profound.”

FTC Report May Spark ‘Legislative Push’

The legislation adds another headwind for PBMs. Centene Corp. this month agreed to pay more than $215 million to the state of California to resolve allegations that it overcharged the state’s Medicaid program for PBM services, the latest in a series of settlements Centene has struck with states. Centene has set aside $1.25 billion to settle those lawsuits. And last month the state of California sued PBMs CVS Caremark, Express Scripts and Optum Rx as well as drug companies Eli Lilly and Co., Novo Nordisk and Sanofi S.A., accusing them of inflating the cost of insulin and violating the state’s Unfair Competition Law.

In June 2022, the FTC announced it was examining the business practices of the six largest PBMs and the consolidation in the industry. The FTC has not released any information on its findings, but Urgo expects the agency will likely announce what it’s found by the end of the year.

“It’s possible that no real legislative action will occur until the FTC releases its final report and that can be digested by policymakers,” Urgo says. “But I do think that this hearing sets the stage for a legislative push several months down the road from now.”

Urgo says PBMs could face a similar situation to what drug manufacturers confronted in recent years in Washington amid rising drug costs. For instance, the CEOs of Pfizer Inc., Merck & Co. Inc. and Sanofi testified in February 2019 in front of the Senate Finance Committee. That has led to lawmakers introducing legislation about lowering medication costs, and the Inflation Reduction Act that passed last year included ambitious provisions intended to lower drug costs for Medicare beneficiaries.

“I think now you’re seeing lawmakers pivot to PBMs and the role that they play throughout the supply chain, potentially stifling competition for your small and independent pharmacies and just broader dynamics around sustaining this rebate model,” Urgo says. “I would not look at the hearing in isolation as a cause for concern [for PBMs], but I would look at it as a precursor to eventual action that could be very likely from Congress.”

Hearing Highlights PBM Impact on Community Pharmacies

At the hearing, several politicians and speakers discussed the impact that PBMs have had on small, independent pharmacies.

Ryan Oftebro, Pharm.D., CEO and owner of the four-store, independent Kelley-Ross Pharmacy Group in Seattle, testified the proposed law is “a crucial piece of legislation to prevent PBM abuses…that are harming patients by overinflating their prescription drug costs and eliminating access to their preferred community pharmacies across the country.”

Oftebro cited so-called clawbacks, which occur when patients’ copayments are higher than the cost of the medication to insurers or PBMs. The practice is common, with a 2018 study in JAMA finding that nearly 23% of prescriptions involved a clawback, including 28.2% for generic medications and 6% for brand drugs.

In his testimony, Oftebro noted that a 90-day supply of generic rosuvastatin used to cost the pharmacy about $10 to buy from the wholesaler. However, two years ago an undisclosed PBM increased the copay to $141 for a 90-day supply for Medicare patients at a Kelley-Ross pharmacy.

Oftebro said in that example and others, people would be better off paying without their insurance, but he added that “PBMs have created tools to disincentivize pharmacies from offering a competitive cash price to these Medicare patients” because they track patient adherence. If pharmacies fail to meet the PBM’s expected adherence rate, which is determined when members’ insurance is billed, pharmacies are penalized via direct and indirect remuneration (DIR) fees.

The DIR fees at that pharmacy increased from $81,000 in 2018 to $538,810 in 2021, according to Oftebro. He said the company closed that store last year, noting “there is obviously no way that a business could operate with these predatory and unpredictable fees.”

Urgo notes the DIR “system is kind of set up today where it is unpredictable what the actual liability will be for small, independent pharmacies. They often owe money, but it’s not a known amount, and this has a downstream effect of introducing volatility in terms of how much the independent pharmacy will be ultimately paid.”

Anne Cassity, senior vice president of government affairs at the trade group National Community Pharmacists Association (NCPA), says she’s encouraged that politicians are starting to see PBMs have a major impact on drug costs and determine where patients can get their prescriptions, what drugs are covered and on what tiers and the amount people pay for medications.

“If we can get another [Senate] vote and potentially get this legislation moving, it really amps up the discussion about PBM transparency,” she tells AIS Health, a division of MMIT.

Cassity adds that the NCPA has been pushing for a long time for greater transparency among PBMs and their business practices.

“I can’t underscore enough what a big deal this has been,” she says. “This has been something that patients, pharmacies, lots of people have been urging the FTC to look into PBMs for many years now.”

Consolidation, Rebates Are Among Other Topics at Hearing

Debra Patt, M.D., Ph.D., an oncologist specializing in breast cancer at Texas Oncology, noted in her testimony that the three largest PBMs have about an 80% market share and are part of organizations that also have major health insurance arms: CVS Health Corp. owns CVS Caremark and Aetna, the Cigna Group owns Express Scripts and Cigna Healthcare, and UnitedHealth Group owns Optum Rx and UnitedHealthcare.

The size of the PBMs and the relationships with those insurers give them “substantial leverage in controlling what treatment patients get and how, when and where they receive it,” according to Patt.

“PBMs steering the filling of these [cancer] pills to their specialty and mail-order vertically integrated pharmacies all too often results in unnecessary delays, denials and waste for cancer patients getting potentially life-saving drugs,” Patt said.

She later added that “due to the power of the top PBMs, the majority of oral cancer drugs are not filled at our medically integrated pharmacy but are steered by the PBMs to their corporate-affiliated specialty mail-order pharmacies. PBMs tell you that this is a cost-saving measure, but in reality it allows them to effectively control the practice of medicine.”

Erin Trish, Pharm.D., co-director of the Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California, testified that PBMs used to be independent from health plans and aimed to decrease drug costs by steering people toward lower-cost generics and encouraging the use of mail-order services.

“Unfortunately, evidence indicates that PBMs are now leveraging their position to extract profits in ways that are detrimental to patients, payers and the drug innovation system more broadly,” she said.

She cited Schaeffer Center research that showed for each $1 increase in estimated rebates from drug manufacturers to PBMs, there was a $1.17 increase in the list prices for those drugs between 2015 and 2018. Another report from Trish and her colleagues estimated that about half of Medicare Part D enrollees who do not receive low-income subsidies would see a decrease in out-of-pocket costs if cost-sharing was based on net price (after rebates) rather than on the list price as is the case now.

Trish noted that PBMs often say they pass through the rebates to health insurers, leading to lower premiums for members. However, she said “the ultimate result of such practices is to decrease the effective generosity of insurance by reducing premiums but increasing out-of-pocket costs. Put another way, this system transfers financial resources from sick patients to healthy premium-paying beneficiaries — the opposite of what insurance is supposed to do.”

Trish pointed out that rebates are not the only controversial issue for PBMs. For instance, Trish and her colleagues found that Medicare overpaid for the 184 most common generic prescriptions by $2.6 billion in 2018 compared with member prices at Costco pharmacies.

“While there is robust competition among these common generic drugs, the marketplace leaves room for PBMs and other intermediaries to capture the value rather than share it with beneficiaries and taxpayers,” Trish said.

Trish also recommended that PBMs should not be allowed to implement clawbacks or so-called spread pricing, where PBMs reimburse pharmacies one price, charge health plans a higher price and keep the difference for themselves.

In Washington, PBM reform and transparency has received attention from Democrats and Republicans, a rare issue that has bipartisan support. In addition to Cantwell and Grassley, the other co-sponsors for the S.127 bill are Sens. Jon Tester (D-Mont.), Cindy Hyde-Smith (R-Miss.), Mike Braun (R-Ind.), Jerry Moran (R-Kans.), Thom Tillis (R-N.C.) and Shelley Moore Capito (R-W.Va.).

“Within Avalere, we kind of handicap this particular area as higher on the list of potential areas of bipartisan compromise that could find its way into legislation at some point in the near future,” Urgo says. “Now, granted, there are contrarian voices and those that oppose additional regulations on the PBM industry. I wouldn’t say that it’s overwhelmingly bipartisan, but for sure there is interest on both sides of the aisle on this one.”

Contact Urgo via Douglas Fraim at douglas.fraim@theprimacy.com and Cassity via Andrea Pivarunas at andrea.pivarunas@ncpa.org.

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

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