FTC accuses PBMs of negatively impacting patients and pharmacies

The interim Federal Trade Commission report published this week is scathing in its criticism of middlemen in the prescription drug supply chain, the administrators of pharmacy benefits. The study evaluates the impact of PBMs on access and affordability of medicines. Here, the Commission accuses PBMs of raising out-of-pocket costs for patients and driving independent pharmacies out of business, due to what the agency considers anticompetitive practices that stem in part from vertical integration and consolidation within the PBM, a health insurer. and specialty pharmaceutical industries.

For most laypeople, hearing the acronym PPE probably means nothing. But PBMs serve as important middlemen at the center of the complex and often opaque U.S. pharmaceutical distribution chain. Most Americans’ drug benefits – the part of their insurance that covers pharmaceutical care – are managed by a PBM. In effect, PBMs negotiate the terms of access to prescription drugs approximately 275 million Americans.

The FTC opened one research in June 2022 in six major PBMs: CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics and MedImpact Healthcare Systems.

On July 9, the agency published interim findings from its investigation that are highly critical of PPE. And according to Forbesthe FTC announced the next day that it will sue CVS Caremark, Express Scripts and Optum Rx for “inflating the prices of some medications, such as insulin, while pushing customers away from cheaper alternatives.”

This should come as no surprise, as the FTC has repeatedly warned of legal action against PBMs if its research shows that PBMs are unnecessarily blocking competitors. Two years ago, the FTC raised the stakes when the agency incorporated rhetoric such as “commercial bribery” in statements to describe what it considered anticompetitive practices in the insulin market.

a STAT news story In summary The main message of this week’s interim report is that “middlemen in the pharmaceutical supply chain” wield such “tremendous power” that these companies “can impact the ability of many Americans to access and pay for their medications. ”

This is partly due to the degree of market concentration. A rule of thumb is that a oligopoly There is a situation where the top five companies in a given sector account for more than 60% of the total market. According to the FTC, the three largest PBMs processed nearly 80% of the approximately 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023.

After a series of recent mergers and acquisitions, the leading PBMs are now part of healthcare giants that also include health insurers, pharmacies and healthcare providers.

Thanks to them mate and the way vertical integration has brought together multiple entities in the drug supply chain into one conglomerate, PBMs have significant control over which drugs are available to patients, at what price, and where patients can access them.

PBMs generally prefer that customers use their own affiliates, which can create a series of conflicts of interest that can disadvantage unaffiliated pharmacies and increase out-of-pocket costs for patients.

The FTC report states that PBMs exert significant, and in the Commission’s view, undue influence over independent pharmacies. Between 2013 and 2022, approximately 10% of independent pharmacies in rural areas in the US closed. The report implies that PBMs may have contributed to this, as pharmacies “struggle to navigate contractual terms imposed by PBMs that they find confusing, unfair, arbitrary and detrimental to their business.” Independent pharmacies generally do not have the resources to negotiate favorable rates.

PBMs started out in the 1960s as claims handlers for insurers, gradually expanding their administrative services over time to include designing formularies (lists of drugs covered by insurance) and negotiating drug prices with drug manufacturers on behalf of their clients , including health plans, employers, and businesses. others.

It was when PBMs began to take advantage of their increasingly important position in the drug supply chain that problems arose, from the perspective of policymakers, regulators, pharmacies and patient groups.

For example, spread pricing is a practice in which PBMs charge payers or sponsors a (sometimes much) higher price for drugs than what they purchase and what they reimburse to pharmacies, keeping the difference as profit. This practice has particularly drawn the ire of pharmacists across the country. Several bills have been introduced in Congress to ban spread pricing. included the PPE Transparency Act.

Another central point in the policy discussion was rebates. Rebates are payments from drug manufacturers to PBMs in exchange for shifting market share to preferred products on the formulary.

Discounts are based on the preferred positioning of products relative to competitors. This means not only that the drug is covered, but also that it is at a formulary level with a lower cost-sharing to the patient and fewer requirements for reimbursement, such as prior authorization.

Additional discounts can be written into contracts that include step-up requirements, meaning patients must attempt to use the desired drug before gaining access to competing products.

When a patient fills a prescription for a discounted drug, the drug manufacturer transfers an amount to the PBM, according to the terms set forth in the contract. In turn, the PBM passes on a portion of the rebate to the patient’s plan sponsor, while retaining a portion as profit.

From a drug manufacturer’s perspective, rebates can act as a way to increase or maintain market share for products. Accordingly, PBMs can do a number of things to ensure that certain medications receive adequate volume absorption. Their main tool for this purpose is form management, which places a discounted product in a preferred spot on the form.

Discounts mutually benefit PBMs and the manufacturers of the drugs that receive preferential treatment. Further, rebates can help mitigate the increase in premiums for beneficiaries by reducing the net costs to health plans, employers, and other customers for whom PBMs work.

But while rebates can help PBMs, health plans and employers financially, they do not have an immediate positive impact for patients. They are not passed on directly to patients at the pharmacy counter. In addition, patients’ out-of-pocket costs are often calculated based on percentages of the list, rather than net prices. The former can be significantly higher than the latter.

As with spread pricing, Congress has been actively preparing legislative proposals to improve transparency around discounts. included the Modernization and Ensuring PPE Accountability Act.

The FTC report could give lawmakers additional impetus to pass the laws they have been debating in Congress. This is because the Commission’s investigation reveals factual evidence that PBMs and branded drug manufacturers sometimes enter into agreements that expressly require the exclusion of generics and biosimilars from certain formulations in exchange for higher manufacturer rebates. These exclusionary contracts hinder patients’ access to cheaper medicines.

As a result, patients’ out-of-pocket costs are higher because they are forced by default to take the brand name drug (and cheaper) product instead of what would normally be a cheaper alternative if there had been no exclusion contract.

Last year, the Government Accountability Office investigated select Medicare’s Part D (outpatient drug) discount plans and their implications for plan sponsors and beneficiaries. The study found that payments “made by beneficiaries or others on their behalf… were more than plan sponsor payments for the majority of the 100 drugs with the highest rebate.”

And patients who pay cash, including the uninsured, could also be affected. If generics or biosimilars are not favored in formulation lists or even excluded, there is often reduced accessibility to these cheaper alternatives for cash-paying patients, as pharmacies may not stock the products because it is not cost-effective to do so to do.

In a rebuttal to the report, the trade group representing PBMs, the Pharmaceutical Care Management Association, issued a statement He loudly criticized the FTC analysis for being “nowhere near a definitive, fact-based assessment of PBMs or the prescription drug market.” PCMA noted that two FTC commissioners disagreed with the contents of the report and one member did not believe the decision to release it at this time was appropriate.

PCMA claims that the FTC “completely ignores the volumes of data that demonstrate the value that PBMs provide to the U.S. healthcare system by reducing prescription drug costs and increasing access to medications.”

Perhaps the final report will address some of the concerns raised by PCMA, especially in light of the disagreement among FTC commissioners.

Still, it may take some time before the FTC is ready, given the apparent lack of full compliance to date by some of the PBMs subpoenaed for information. The lack of complete information has, according to the FTC, “impeded the Commission’s ability to carry out its statutory mission.”

In 2022, the FTC issued special orders requesting data and documents from the six largest PBMs about their companies and business practices.

Although the FTC issued these orders more than two years ago, the agency claims that some of the PBM respondents have not yet fully complied, an accusation denied by the PBMs involved in the investigation.

Where the standoff goes from here is anyone’s guess. For PBM advocates, the middlemen fulfill a crucial mission, including controlling pharmaceutical costs. Critics say PBMs, on the other hand, are behaving poorly, raising out-of-pocket costs for regular patients and putting independent pharmacies out of business. Ultimately, the solution to the impasse we find ourselves in could take place in the legal system.