FTC likely to study pharmacy benefit managers
Independent pharmacies join criticism of powerful middlemen
Independent pharmacies and the White House are pressuring the Federal Trade Commission to set its sights on the reimbursement rates set by pharmacy benefit managers, potentially shifting the larger debate in Washington around the ballooning cost of prescription drugs.
A study by the FTC could be the first step toward meaningful changes in the role played by PBMs—companies that dictate prescription drug benefits on behalf of health insurers and employers.
The FTC is likely to move forward with a study in the coming months after an initial vote deadlocked 2-2 on Feb. 17 over concerns about its scope. The original study would have examined whether PBMs’ drug price-setting practices unfairly favor affiliated pharmacies at the expense of independent or specialty ones.
Pharmacy benefit managers are liaisons who negotiate drug discounts with pharmaceutical companies and decide which drugs get preferred coverage in insurance plans. The nation’s three largest PBMs—CVS Health Corp., Express Scripts Inc., and OptumRx—control 85% of the market.
Matthew Seiler, general counsel for the National Community Pharmacists Association, said he expects the study will happen—either with the support of a Republican commissioner or when the fifth and final commissioner is confirmed by the Senate.
Republican FTC Commissioner Noah Phillips recently told Bloomberg Law that he would support a more “rigorous” study, and the Senate Commerce Committee on Thursday is scheduled to consider the nomination of Alvaro Bedoya to be the fifth commissioner. The debate over drug prices has been contentious in recent years with both sides of the political spectrum acknowledging the problem but disagreeing on the solution.
“There are major issues, both with the way manufacturers set prices and with the way we handle the process of creating competition,” said Fiona Scott Morton, an economics professor at the Yale University School of Management.
PBMs create competition in drug prices and can bring down costs for everyone, but they may be poor agents for employers, who may not see the benefits of the rebates, Scott Morton said. Sometimes, it’s even in the interest of PBMs and drug manufacturers to work together to lessen competition and raise prices.
Pointing Fingers
Pharmaceutical companies and PBMs have pointed fingers at each other in recent years in the battles over drug pricing, said Chris Meekins, a health-care policy research analyst at Raymond James. When it was only drug companies pointing at PBMs, some activists and policy analysts could say drug companies were deflecting.
“Drug manufacturer price-setting is the root cause of high drug costs, putting a strain on patients and forcing them to make difficult decisions about their drugs,” said Greg Lopes, spokesman for the Pharmaceutical Care Management Association, which represents PBMs. “PBMs are holding drug companies accountable by relentlessly negotiating the lowest possible cost on behalf of patients and are driving and delivering local competition that patients are demanding,” Lopes said.
The Pharmaceutical Research and Manufacturers of America, which represents drugmakers, has been quietly encouraging the FTC to study PBMs in hopes it will turn attention away from drugmakers, a lobbyist for the group said.
However, when independent pharmacies got involved and spoke about what they were experiencing from PBMs, “you had two separate groups on very diverse ends of the spectrum in health care both targeting a specific area,” which is what led to increased focus on the drug liaisons, said Meekins, who was the HHS deputy assistant secretary for preparedness and response during the Trump administration.
The National Community Pharmacists Association has been urging the FTC to study PBMs, arguing that they force independent pharmacies into bad contracts and that they are engaging in anticompetitive behavior, Seiler said.
PBMs are “market gatekeepers” that make pharmacies agree to contracts other businesses might not agree to in order to gain access to the patients of PBMs, Seiler said. “The issue we see is a lack of transparency” around PBM contracts and structures.
Part of the renewed attention to PBMs could also come from FTC Chair Lina Khan’s previous focus on small businesses, said Michael Carrier, an antitrust professor at Rutgers Law School. Prior to joining the FTC, Khan was outspoken about her view that antitrust should focus on protecting small businesses rather than consumer welfare with its emphasis on “price and output” effects.
“So maybe there’s a more receptive audience, to the extent that pharmacies can be grouped into the category of small businesses,” Carrier said.
A study by itself would not directly affect Americans’ pocketbooks.
The FTC is using this study as an opportunity to rethink consolidation in the pharmacy benefit manager space, a Capitol Hill staffer with knowledge of the issue said.
There are three camps of thought among FTC staff: those who are unsure the agency could accurately measure trends in the area, those who view PBMs having buyer power as good for prices in the health market, and those who are skeptical of the consolidation and power of mega PBMs like CVS-Caremark-Aetna, the staffer said.
Push From White House
Biden’s directives to agencies to investigate competition issues were likely what was the final push encouraging action at the FTC, said Robin Feldman, a professor at the University of California Hastings College of the Law, although “FTC staff have been exploring and considering” competition in drug markets for years.
“Given the difficulty of passing anything in Congress, the White House looked to agencies to consider some of these issues,” Feldman said.
The FTC also may have been targeted because the Health and Human Services Department has been unable to make any substantive movement on the issue.
The Trump administration HHS initially planned to tackle PBMs by reworking the “safe harbors” that protected them from prosecution for drug rebates in a proposed rule issued in January 2019. However, President Donald Trump later decided to withdraw the rule over concerns it could benefit drug companies. The rule was later finalized, and the HHS was sued over it. Congress chose to delay the rule’s implementation by 10 years in the bipartisan infrastructure law signed by President Joe Biden.
However, the Biden administration’s goal is to “lower costs period,” even if it may benefit one part of the drug industry, Meekins said.
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To contact the reporters on this story: Shira Stein in Washington at sstein@bloomberglaw.com; Alex Ruoff in Washington at aruoff@bgov.com
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