Both the Federal Trade Commission (FTC) and Congress want to rein in pharmacy benefit managers (PBMs), as they focus on alleged anti-competitive practices which hinder a properly functioning prescription drug market. Maybe this time a full-fledged inquiry and legislative action will actually happen, given that there’s considerable bipartisan support.
Federal Trade Commission
Given the dominant role PBMs play – they’re involved in 90% of prescriptions in the U.S. to one degree or another – they’re able to exert significant control over payment rates to pharmacies, but also patients’ access to medicines and their cost-sharing.
FTC Chair Lina Khan has reiterated her desire to have the agency examine possible anti-competitive practices in the PBM industry. This includes spread pricing. Here, PBMs charge an employer or health plan more than than they reimburse a pharmacy for a prescription drug and pocket the difference as profit.
A possible FTC inquiry would also include an assessment of direct or indirect remuneration (DIR) fees, particularly in Medicare. These fees tend to squeeze pharmacies, who are already experiencing thin margins. PBMs which operate in Medicare Part D (outpatient) receive additional compensation after the point-of-sale that serves to change the reimbursement paid to a pharmacy for a drug. Examples of such compensation include rebates provided by manufacturers and concessions paid by pharmacies. DIR fees are usually collected long after after a pharmacy fills a prescription. PBMs often claim they are taking back money due to a pharmacy's performance on certain quality measures, which can be “unknown, unpredictable, inconsistent, and outside of a pharmacy’s control.”
PBMs have also been implicated in driving up drug list prices by way of the rebate game being played with drug manufacturers. In turn, this has an immediate impact on patients’ out-of-pocket costs, as co-insurance is calculated on the basis of list prices.
Ever wondered why certain cheaper prescription drugs, such as biosimilars and specialty generics which are therapeutically equivalent to their originator counterparts, don’t get the kind of traction one would expect. Rebate walls may be partly to blame.
In the conventional rebate system that’s been around for decades, payers receive rebates from drug manufacturers in exchange for preferred positioning on the formulary, which in turn drives market share. Experts have criticized rebates for their lack of transparency, and the fact that payers often don’t base their decisions to include a drug on the basis of comparative clinical effectiveness. Rather, decisions are made based strictly on financial terms, namely which manufacturer offers a higher rebate payment to the payer or PBM.
Because the portion of the rebate retained by payers and PBMs is often based on a percentage of a drug’s list price, payers can have incentives to establish formularies that favor branded drugs with higher list prices and larger rebates over lower priced biosimilars, specialty generics, or even branded competitors. Rival drugs entering the market may lack sufficient sales volume to be able to offer the same level of rebates to payers that originator firms can provide.
It would seem that purely from an anti-competitive practices standpoint, an examination of rebate walls is long overdue. And, by examining rebates, an FTC inquiry could shed light on the extent to which the system is negatively impacting patients’ out-of-pocket costs.
Perhaps the impetus for a renewed effort to pursue a comprehensive inquiry is that the FTC leadership has a new member; Alvaro Bedoya. Back in February of this year, there were only four FTC commissioners. The FTC was considering conducting a PBM study, but Commissioners Wilson and Phillips voted against it, which resulted in a two-two tie.
In February, FTC commissioners Phillips and Wilson voted against conducting an FTC study on PBMs, though they were open to pursuing an investigation with a different design. They claimed that that the previous plan to assess PBMs was not designed to investigate their competitive effects. Moreover, according to the two commissioners, it wasn’t clear whether the study would reveal anything about patients’ out-of-pocket costs.
If such a PBM inquiry is revisited by the FTC, the newly installed commissioner Bedoya can break the tie, now that there are five members.
In late May, Senators Cantwell (D-WA) and Grassley (R-IA), Chair of the Committee on Commerce, Science, and Transportation, and Ranking Member of the Judiciary Committee, respectively, introduced a bill to examine the PBM market and empower the FTC and state attorneys general to halt “unfair and deceptive PBM business practices.”
Specifically, the legislation would make it illegal for PBMs to engage in spread pricing. The bill would also prohibit PBMs from clawing back payments made to pharmacies.
Both Senators have also expressed concerns about the lack of transparency in PBM operations, especially concerning rebates. Since the formulary management system that determines patient access to prescription drugs hinges on rebates, they believe it’s warranted to pry open the decision-making process underlying rebating, drug exclusions, and cost-sharing tiers.
All this comes on the heels of a newly released report from Xcenda - the consulting arm of AmerisourceBergen - which found that PBMs are increasingly restricting patient access to prescription drugs. Specifically, 1,156 prescription drugs were excluded from at least one of the three largest PBMs’ standard commercial insurance formularies, which represents almost a 1,000% increase in the number of excluded drugs since 2014. From a PBM’s perspective, exclusions are a useful tool to bargain with to generate greater rebates. But surely by limiting choices and not passing through rebates to the patient, PBMs aren’t necessarily acting in patients’ interests.
So, it would appear that both the FTC and Congress are poised to zero in on PBMs’ possible anti-competitive practices. Perhaps in light of the consensus that exists across multiple stakeholders as well as legislators from both sides of the aisle, maybe this time an in-depth FTC inquiry and legislative action will actually happen.