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US Officials Probe a New Layer in Opaque Drug Pricing, Supply System

  • Round of subpoenas is the latest attempt to pierce industry

  • Entities allow PBMs to ‘hide the ball,’ consultant says

US authorities are looking into new groups that were formed to negotiate drug discounts but may actually be further obscuring how much the medicines cost.

Officials are working to pierce multiplying, opaque layers between the companies that make medicines and the people who take them. Cigna Group, CVS Health Corp. and UnitedHealth Group Inc. have long controlled the largest pharmacy benefit managers, or PBMs, that traditionally negotiated rebates with drugmakers. In recent years, those companies have each launched new entities called group purchasing organizations, or GPOs, to take over that job.

Most people have never heard of these GPOs. But they influence the cost of drugs taken by tens of millions of Americans, and now they’re drawing scrutiny from antitrust regulators, states and Congress. Businesses that pay for workers’ prescription drug plans are asking questions too. They want to make sure new GPOs aren’t pocketing money from drugmakers that’s meant to lower costs.

“Employers got very smart about rebates, so PBMs try to go one step ahead,” said Lauren Vela, an independent consultant who works with employers on pharmacy benefits. “All of this stuff raises the prices of drugs.”

Lawmakers on both sides of the aisle have long decried US drug prices that are the highest in the world. One of the key questions in the debate centers on the rebates that drugmakers pay to pharmacy benefit managers to make sure their medicines will stay on the drug middlemen’s lists of preferred products. The PBMs say that money is mostly passed on to clients and helps keep costs down.

But regulators have been trying to determine who really benefits from the rebates and other payments that flow from pharma companies to middlemen. Several congressional committees are advancing legislation to require more transparency for PBMs, including greater disclosure around rebates.

Rising Scrutiny

Last week, the Federal Trade Commission subpoenaed the purchasing groups of Cigna and CVS, expanding a year-old probe of the companies’ units that manage pharmacy benefits. Those subpoenas followed a lawsuit Ohio’s attorney general filed two months ago alleging that several companies used Cigna’s purchasing group to “share drug pricing information” and “fix rebate prices.” Cigna called the suit “baseless” and “politically motivated.”

The FTC has previously sought documents from the six largest PBMs: Cigna’s Express Scripts, CVS’s Caremark, UnitedHealth’s OptumRx, Humana Inc., Prime Therapeutics LLC and MedImpact Healthcare Systems Inc.

The House Committee on Oversight and Accountability is also probing PBMs. Chairman James Comer, a Kentucky Republican, asked for documents related to group purchasers as part of a broader request in March, but the committee hasn’t received them, a spokesperson said.

Before the latest round of subpoenas, there were some signs that the FTC was encountering resistance. Representative Buddy Carter, a Georgia Republican and frequent critic of pharmacy benefit managers, said in a March hearing that the agency was “having trouble getting the PBMs to cooperate.” Carter’s office declined to comment further.

The potential for policy changes has weighed on companies’ stock prices this year, with shares of CVS and Cigna down by more than 20%. Still, some analysts say the risk is overblown.

“We believe there is a misconception that significant profitability comes from rebates,” JP Morgan Securities analyst Lisa Gill wrote in an April research note.

Buying Power

Either way, the group purchasing organizations add yet another veil over the US pharmacy purchasing chain. Drugmakers are on the defensive. French drug giant Sanofi said in a recent filing that three GPOs — Cigna’s Ascent Health Services, CVS’s Zinc Health Services and UnitedHealth’s Emisar Pharma Services — now cover more than 85% of prescription drug claims. “Consolidation has led to increased utilization management and restrictive formularies, resulting in strong bargaining power to negotiate discounted prices,” the company said.

Pharmacy benefit managers say they formed the purchasing groups to gain leverage needed to counter drugmakers’ price hikes and get bigger discounts. Founded in 2019, Cigna’s Ascent now negotiates rebates for Express Scripts, as well as several other PBMs, according to the FTC: Prime Therapeutics, Envolve Pharmacy Solutions, and Humana Pharmacy Solutions.

The PBMs are defending the strategy even as they pledge greater pricing visibility under pressure from clients. In April, Express Scripts PBM said it would offer a new, more transparent model that would pass all manufacturers’ rebate payments on to clients. But in an interview at that time, Express Scripts President Adam Kautzner declined to say directly whether Ascent would keep any of the rebate payments before Express Scripts passed them on to clients.

“Ascent does not retain rebate value from manufacturers, but rather passes it through to its participants, who in turn pass that value on to employer and health plan clients,” Cigna spokesperson Justine Sessions said in an email. Clients of Express Scripts can audit the the PBM’s contract with Ascent to confirm that rebates are passed through.

A representative from UnitedHealth said its group purchaser, Emisar, is in its early stages and declined to comment further. CVS, whose PBM is the largest in the US, didn’t respond to questions about Zinc.

The group purchasers join a wide array of divisions at big health insurers — primary care, pharmacies and other related businesses in addition to drug coverage — that give them a measure of insight and control over multiple points in the drug supply chain, said Antonio Ciaccia, president of consultant firm 3 Axis Advisors. The company has worked for the Ohio attorney general’s office.

When it comes to drug prices, there are “all sorts of ways they can hide the ball,” he said.

Reporter: John Tozzi with assistance by Ike Swetlitz and Angelica Peebles



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