Ohio Capital Journal
In the first test of a 2020 U.S. Supreme Court ruling, drug middlemen last week argued that federal law gives them a crucial right to limit what pharmacies patients with health insurance can use — or at least make it more expensive if patients get their medicine at a shop that isn’t preferred by the powerful corporations.
A lawyer for an industry group argued that the right to limit pharmacy networks is important to ensure quality. But he failed to note that the three biggest middlemen are owned by health care giants that own pharmacies themselves.
The argument is likely to add grist for those who claim that the Fortune 15 corporations are engaged in practices that are driving up costs and driving out competitors.
The industry group, the Pharmaceutical Care Management Association, made the arguments last Wednesday before the 8th U.S. Circuit Court of Appeals in St. Louis. It was a rehearing of a 2020 ruling that struck down North Dakota’s attempts to regulate businesses known as pharmacy benefit managers.
In the earlier ruling, the appellate court held that the federal Employment Income Security Act of 1974 severely limited state governments’ ability to regulate the benefit managers, which are also known as PBMs.
But last year, the U.S. Supreme Court heard a similar case also emanating from the Eighth Circuit and unanimously ruled in October that the federal law applied to health plan design and administration — and didn’t apply to many of the limitations that states were trying to put on the PBMs hired by the plans.
The high court then ordered the Eighth Circuit to rehear the North Dakota case.
Lots of power
Insurers hire pharmacy benefit managers to administer drug benefits. Often, they’re hiring their corporate siblings because since 2014, each of the big three has either bought or been bought by a major insurer.
Among their functions, PBMs control lists of which drugs are covered and whether medicines on them get preferential treatment in the form of lower deductibles or by not needing prior authorization.
The three biggest PBMs — CVS Caremark, OptumRX and Express Scripts — are estimated to represent more than 70% of all insured Americans. So they have great leverage when they negotiate with drugmakers for rebates, fees and discounts in exchange for drugmakers getting their products covered.
Groups of large employers and pharmacy groups suspect the big PBMs are using a lack of transparency to pocket a healthy slice of the money they’re getting through these transactions. That’s helping to drive up the cost of drug benefits, they say.
The PBM’s insist they’re saving money for consumers, but last month they sued to stop a federal rule that would require the industry to report the discounts and fees it gets from drugmakers.
In addition, each of the big-three PBMs is standing up a “group-purchasing organization” — two of which are offshore — to handle transactions with drugmakers on the PBMs’ behalf. That’s sparked great fear that the industry is introducing yet another curtain between the people who pay for health care and the true cost of the drugs they’re paying for.
“Now they’re creating #GPOs (really!!!) to further obscure what they’re doing in driving up drug costs,” tweeted Ted Okon, executive director of the Community Oncology Alliance. “The PBM middlemen creating another layer of middlemen.”
Then before the Eighth Circuit last week, the PBMs argued for the right to control pharmacy networks in ways that would allow them to give advantage to their own companies.
Among their other powers, PBMs create pharmacy networks and determine how much to reimburse them for drugs.
They have that power even though each of the big PBMs is in some fashion operating pharmacies of their own. CVS owns the nation’s largest retail chain and all three own mail-order pharmacies for specialty drugs — the most expensive class.
The PBMs insist they don’t give special treatment to affiliated pharmacies, but apparent evidence to the contrary has emerged. Continue Reading
National Conference of State Legislatures (NCSL)
Maryland Delegate Bonnie Cullison (D) and Oklahoma Senator Greg McCortney (R) represent very different districts. Cullison’s borders Washington, D.C., and is densely populated and economically and ethnically diverse. McCortney describes his as “a lot of cows, a lot of hay and a few people.”
One thing their constituents have in common: the need for affordable prescription drugs.
Cullison and McCortney are both working on the issue through NCSL’s bipartisan working group and in their own state legislatures. They joined an NCSL Town Hall to describe the work in their states and to share some of the results the working group released this week, “Prescription Drug Policy: A Bipartisan Remedy.”
Maryland was the first state to form a prescription drug affordability board, in 2019, and Cullison says legislators refined its mission in this session.
For one thing, it needed funding, and while Governor Larry Hogan (R) vetoed a bill to fund it, the Legislature voted to override it. Lawmakers also moved up the deadline from December to October for the affordability board to provide recommendations for particularly problematic prescription drugs.
Cullison says lawmakers took steps to regulate the prices charged by pharmacy benefits managers after a U.S. Supreme Court ruling in December said states have that right. Pharmacy benefits managers, or PBMs, are companies that manage prescription drug benefits for insurers and employers. They play a huge part in the pricing and availability of drugs.
The PBM system is meant to stabilize drug prices, but many states have sought to have a role in managing how PBMs work. According to Colleen Becker, a senior health policy specialist with NCSL, 34% of the 727 bills NCSL is tracking are related to pharmacy benefit managers. Of the 247 introduced bills, 46 passed in 27 states.
McCortney says the Oklahoma Legislature passed three bills related to prescription drugs; streamlining pharmacy audits, closing some loopholes in rules regarding PBMs; and allowing patients to use coupons toward their annual insurance deductibles.
Both lawmakers cite “Prescription Drug Policy: A Bipartisan Remedy” as a valuable resource for legislators and their staffs who are grappling with this complex issue of how to manage and lower prescription drug prices.
The report notes that the supply chain for prescription drugs is complicated and unlike other supply chains. Participants at each step in the chain can increase prices, and much of what they do and why is kept secret. To illustrate the supply chain’s tangles, the work group’s report includes a graphic (see below) showing it awash in intersections and hard to decipher.
Source: Oregon state schematic from Joint Task Force on Fair Pricing of Prescription Drugs report 2018, p.56.
CCO = coordinated care organizations (Medicaid)
PSAO = pharmacy services administrative organizations
Given this complexity, the recommendations focus on increasing transparency around costs and pricing, streamlining procurement processes and encouraging or introducing competition into the process.
The bipartisan panel offers suggestions for each area that had to meet several criteria, including political feasibility, popularity with constituents and ability to reduce overall health care costs, improve patient health and improve the patient and provider experience.
The panel notes the recommendations aren’t one-size-fits-all. Lawmakers will still need to explore the range of legislative solutions that might work for their states, but the recommendations can help target the efforts on areas of the prescription drug issue that need to be addressed.
Cullison says her state is focusing on that transparency issue. She says states need to thoroughly understand the supply chain so they can make effective changes to address soaring costs.
McCortney says Oklahoma has acted to create more competition. It has created a state-run pharmacy benefits manager inside the University of Oklahoma schools of medicine and pharmacy to administer Medicaid prescriptions.
“It saves us a tremendous amount of money by cutting out some of the middle man,” McCortney says.
NCSL Additional Resources
In an important decision for False Claims Act enforcement, the D.C. Circuit on Friday vaporized UnitedHealth Group's successful challenge to a Medicare Advantage overpayment rule, finding that the clawback policy doesn't improperly hold private insurers to higher standards.
Friday's unanimous opinion reversed a 2018 decision that vacated the rule, which requires Medicare Advantage insurers to return excess payments within 60 days. The opinion will likely buttress the government's FCA enforcement because it rejected the idea that recouping overpayments would violate a requirement that Medicare Advantage insurers receive apples-to-apples reimbursement with traditional Medicare.
At issue was whether the Centers for Medicare & Medicaid Services must ensure "actuarial equivalence" between payments in Medicare Advantage and traditional government-run Medicare. The appeals court on Friday found that "actuarial equivalence does not apply to the overpayment rule or the statutory overpayment-refund obligation under which it was promulgated."
"In sum, nothing in the Medicare statute's text, structure or logic applies actuarial equivalence to its separate overpayment-refund obligation, and thus the overpayment rule does not violate actuarial equivalence," the D.C. Circuit wrote Friday in an opinion authored by U.S. Circuit Judge Cornelia T.L. Pillard.
The opinion contained substantial discussion of the FCA backdrop, observing the U.S. Department of Justice and whistleblowers have "pursued several False Claims Act cases against Medicare Advantage insurers in the last several years, charging failures to report and return overpayments that the insurers knew were based on unsupported diagnoses."
Medicare Advantage covers more than one-third of all Medicare beneficiaries, and Uncle Sam spent roughly $275 billion on the privately run insurance plans in 2019. Insurers are paid extra for covering sicker enrollees, and they have been accused of fraudulently exaggerating illnesses to pocket more money.
Friday's decision noted that "Medicare Advantage insurers, including UnitedHealth, have raised actuarial equivalence as a defense to False Claims Act liability," but that "at least one court has rejected that defense," citing a case involving California hospital network Sutter Health. Within hours of the D.C. Circuit's decision, the network filed a joint stipulation in California federal court with the DOJ and a plaintiffs firm reaffirming that they "have negotiated the terms of a written settlement agreement" and are working toward executing it.
In its opinion, the D.C. Circuit delved through statutory arcana to explain that "overpayments" and "actuarial equivalence" are not connected in the way that UnitedHealth has contended.
"Nothing in either provision renders actuarial equivalence a defense against the obligation to refund any individual, known overpayment," the court held.
It further observed that the Affordable Care Act "made specific provision for False Claims Act liability" when insurers don't return overpayments within 60 days of discovering them. And when Congress passed the ACA, it "made no reference to the Medicare statute's long-standing actuarial-equivalence requirement, let alone any suggestion that it could be interposed as a defense," the D.C. Circuit added.
Friday's opinion also rejected an assertion that the overpayment rule breaches CMS' duty to use the "same methodology" for traditional Medicare and Medicare Advantage. That duty "does not bear on the overpayment-refund obligation," the opinion stated.
And in a final section, the court shot down the argument that the overpayment rule is arbitrary and capricious under the Administrative Procedure Act. It found that CMS acted permissibly when it applied an "adjuster" to cushion the blow of certain Medicare Advantage audits but didn't do so in the context of the overpayment rule.
"CMS's one-time intention to apply the adjustment in one context but not the other was reasonable," the court held Friday, while also observing that CMS later backtracked on the adjustment.
Daniel Meron of Latham & Watkins LLP, counsel for UnitedHealth, declined to comment on Friday. A CMS spokesperson said that the agency doesn't comment on litigation, and representatives of UnitedHealth had no immediate comment.
Judges Cornelia T.L. Pillard, Judith W. Rogers and Justin R. Walker sat on the panel for the D.C. Circuit.
CMS is represented by Weili J. Shaw of the U.S. Department of Justice's Civil Division.
UnitedHealth is represented by Daniel Meron of Latham & Watkins LLP.
The case is UnitedHealthcare Insurance Co. et al. v. Becerra et al., case number 18-5326, in the U.S. Court of Appeals for the District of Columbia Circuit.
Read more at: https://www.law360.com/health/articles/1412674/dc-circ-erases-unitedhealth-s-overpayment-rule-triumph-?nl_pk=c4307fad-eaff-4e75-8891-46ac7733830c&utm_source=newsletter&utm_medium=email&utm_campaign=health?copied=1
Kaiser Health News
The Senate’s release of its bipartisan infrastructure plan signals that lawmakers are poised to throw former President Donald Trump’s belated bid to lower Medicare drug prices under the bus — not to mention trains, bridges, tunnels and broadband connections.
That’s because the massive spending bill is the first of two likely to at least delay the so-called Medicare rebate rule released at the end of the Trump administration, which has yet to take effect. Congress would use the projected costs of that rule to help pay for more than half a trillion dollars in new spending on infrastructure.
What has infrastructure spending got to do with Medicare drug rebates?
Bear with us as we explain the mad logic of how Congress intends to pay for a spending program with money that doesn’t really exist. Tossing Trump’s reform under the steamroller to offset other costs offers a window into the convoluted process of congressional budgeting: Senators say the plan will provide billions of dollars of savings, even though the federal government has never spent a dime on the rebate rule. And it focuses attention on the intractable problem of bringing down drug prices: The rule would take money from drug industry brokers and provide refunds to consumers, which would suggest it was saving them and Medicare money. Yet budget analysts said the process would cost the government billions of dollars.
Let’s start with the Medicare drug rebates.
The way things work now, pharmacy benefit managers, which are often owned by insurance companies, negotiate with drugmakers to get significant reductions on a drug’s list price. They pass the bulk of that savings along to Medicare and the insurers, who can pocket some of it and use it to lower overall premiums for customers who buy drug plans in Medicare Part D.
While customers benefit from a lower premium, it doesn’t mean they actually get a better price for their drugs, said Gerard Anderson, a professor of health policy at Johns Hopkins Bloomberg School of Public Health.
That’s because a patient’s price is not based on the rebate but on a share of the original list price of the drug. If a drug costs $100, and a patient’s share is 25%, they pay $25, regardless of how big a rebate the PBM got for the insurer.
It thus serves the interest of the PBM for the drugmaker to raise prices. “When the list price goes up, your patient responsibility goes up, so the patient ends up paying more,” Anderson said. “The PBM makes money because, when the list price goes up, the rebate is larger. But the patient loses, because their cost sharing is based often on the list price.”
Since the PBM controls the formulary that says which drugs are covered in a given plan, Anderson and others point out, it is also in the interest of a drug company to raise list prices if it wants the PBM to give its drugs preferential treatment.
“If you’ve got two drugs that are available to take care of some heart disease, the PBM wants the drug that’s going to pay them the most money, and the money is the difference between the list price and the actual transaction price,” Anderson said. “So the higher the list price, the higher the profit margin for the PBM. So the drug company who wants their drug on the formulary has to raise their price in order to give the PBM a greater profit.”
A wrinkle in federal law allows that to happen. Typically in federal contracting, if someone sets a high price to give the buyer a cut, it’s considered a bribe or a kickback, and it’s illegal. But the law that created the Part D drug program carved out what’s known as a safe harbor to allow such deals in the hope that negotiations would lower overall costs.
The Trump administration’s rule attempts to end the perverse incentive by taking the safe harbor away from the PBMs and giving the rebate to customers at the pharmacy counter. Then-Health and Human Services Secretary Alex Azar said costs would fall by about 30%.
But the effort had two major problems. First, the rule was challenged in court by the PBMs on procedural grounds. Second, the Congressional Budget Office predicted that, rather than save money, it would end up costing the federal government $177 billion over 10 years because drugmakers would be less likely to provide as many discounts, causing a spike in Medicare drug coverage premiums.
The Biden administration delayed the rule, and could scrap it, making that $177 billion cost more theoretical than real. But that’s where congressional budgeting comes in.
A chief selling point of the infrastructure proposal is that it is “paid for,” meaning it taps new revenue streams or ends other things that cost money so that the $550 billion in new spending in the plan doesn’t add to the federal deficit.
Even though Trump’s rebate rule has already been delayed and is likely to be killed, it is, at this moment, on the books. Since the infrastructure bill would delay the rule and its costs until 2026, the savings get counted as offsetting the new spending. Confused yet?
Delaying the rule, instead of killing it outright, means there’s still another $130 billion on the books that can be used to offset other spending — almost certainly likely to help fund the even bigger budget reconciliation measure that Senate Democrats intend to pursue as soon as the Senate passes the bipartisan infrastructure bill.
Sen. Bill Cassidy (R-La.), who liked Trump’s rule and also supports the bipartisan infrastructure bill, explained the reasoning to reporters shortly before the infrastructure legislation was released.
“The Medicare rebate rule — you know, I actually agree with the policy, but it was a $182 billion cost to the Treasury,” Cassidy said, citing a slightly different figure for the savings. “And so, it’s been signaled that it was going to be used for something. … Just speaking practically, if something’s going to score that high, and here with a party, Democrats, that don’t like it, it’s going to go away, right? So that was just a good take.”
The move is essentially painless in congressional budget terms, and PBMs are thrilled. They argue they do not actually profit from the rebates they negotiate in Part D and pass all the rebate cash along to Medicare and plan sponsors already.
They say their ability to negotiate those rebates is part of what makes them valuable, and the rule interferes. “That’s sort of the bread and butter of the work that our companies do, and undermining the ability to provide that value is obviously a real challenge,” Pharmaceutical Care Management Association CEO JC Scott said in a call with KHN and PCMA spokesperson Charles Coté.
They favor not just delaying it but spiking it completely. “From our perspective, that is the action that’s needed,” said Coté. “To create certainty for Part D and for beneficiaries, it should just be fully repealed.”
Repealing Trump’s rebate rule is not painless for people who have high drug costs, though, because, as Johns Hopkins professor Anderson explained, the 10% or so of people who would get significant rebates at the pharmacy counter would be better off.
“It helps the people that have the large bills; it harms the most the people that don’t have the large bills,” Anderson said.
Benefiting from Trump’s rule would be drugmakers, according to the CBO data and other sources. In a statement from the Pharmaceutical Research and Manufacturers of America, the industry’s lobby group, spokesperson Debra DeShong cast ending the rule as a windfall for PBMs and a cynical raid on cash meant for sick, older Americans.
Health care providers accusing Blue Cross Blue Shield organizations of thwarting competition by carving up the national market into service areas and refusing to compete against each other are asking an Alabama federal court to revisit the insurers' argument that it is a single entity.
In a motion for summary judgment filed Tuesday, health care providers argued BCBS is multiple entities working to manipulate the market. If granted, the judgment would wipe out one of BCBS' defenses and add leverage to their providers' arguments accusing it and the array of affiliated insurers of conspiring to divide the market among themselves and not compete with one another through a series of trademark licensing agreements and other arrangements.
"Potential competitors never act as a single entity when they agree to insulate themselves from competition by allocating territory or restricting output," the providers said. "The Blues, who resisted being called a single entity until this case was filed, are no exception."
The provider plaintiffs, who are still pursuing their track of the multidistrict litigation after Blue Cross Blue Shield subscribers settled their own claims last year for a $2.67 billion class payout, are trying to secure at least $15 billion after trebling for antitrust damages in the Alabama market alone.
BCBS has argued it is a single entity and therefore not subject to Section 1 of the Sherman Act. The court previously took up this issue in 2018, when it said there were still "genuine issues of material fact" on whether BCBS is a single entity, saying the providers need only prove that the insurance plans plotted to divvy up geographic markets to succeed on their claims.
The providers said that since that order, BCBS has submitted documents that prove it is not a single entity, such as a 2012 internal presentation and a 1993 meme about creating brand consistency across its system.
BCBS has previously said it "fits comfortably within" rulings relating to NFL licensing. The providers pointed to a Ninth Circuit decision stemming from the Raiders' decision to move from Oakland, California, to Los Angeles in 1982. In that case, the court found that the NFL was not acting as a "single entity" when it barred the Raiders from moving into another team's city.
The NFL appealed that case, but the U.S. Supreme Court refused to take it up. The high court would later take up the issue in its American Needle Inc. v. National Football League decision, which held the NFL teams are distinct economic actors.
That decision cited previous rulings, including the Raiders case, where courts determined the NFL isn't a single entity, the providers noted. "Because this case is pending in Alabama, where college football is king, the Blues might be forgiven for forgetting that the exact functions of the NFL that they claim to share — establishing exclusive territorial rights and restricting their ability to do business under different marks — have been held unlawful, and the NFL has been held not to be a single entity with respect to those functions," the providers said.
The providers are represented by Whatley Kallas LLP, Wood Law Firm LLC, Hayes Hunter PC, Podhurst Orseck PA, Wiggins Childs Pantazis Fisher Goldfarb LLP, U.W. Clemon LLC, Reich & Binstock LLP, White Arnold & Dowd PC, Eyster Key Tubb Roth Middleton & Adams LLP, Bonnett Fairbourn Friedman & Balint PC, The Law Offices of David A. Balto, Axelrod & Dean LLP, Bunch & James, Beasley Allen Crow Methvin Portis & Miles PC, The Frankowski Firm LLC, Glast Phillips & Murray PC, The Law Office of John C. Davis, Gray & White, Jinks Crow & Dickson PC, The Law Offices of Stephen M. Hansen, Penn & Seaborn LLC, Kozyak Tropin & Throckmorton PA, Strom Law Firm LLC, The Pittman Firm PA, Horn Aylward & Bandy LLC, Shelby Roden LLC, Cusimano Roberts & Mills LLC, Whitfield Bryson & Mason LLP, Wojtalewicz Law Firm Ltd., Bailey Glasser LLP, Archie Lamb & Associates LLC, Sears & Swanson PC, Lundberg Law PLC, Dillon & Findley PC, Simons & Associates Law PA and Heidman Law Firm.
The defendants are represented by Shearman & Sterling LLP, Bodman PLC, Campbell Partners LLC, Cravath Swaine & Moore LLP, Kirkland & Ellis LLP, Wallace Jordan Ratliff & Brandt LLC, Maynard Cooper & Gale PC, Hogan Lovells LLP, Hill Hill Carter Franco Cole & Black PC, Nelson Mullins Riley & Scarborough LLP, Balch & Bingham LLP, Kilpatrick Townsend & Stockton LLP, Redgrave LLP, Shamoun & Norman LLP, Axinn Veltrop & Harkrider LLP, Armbrecht Jackson LLP, Adams and Reese LLP, Brunini Grantham Grower & Hewes PLLC, Crowell & Moring LLP, Lightfoot Franklin & White LLC, Foley & Lardner LLP, Spotswood Sansom & Sansbury LLC, Wallace Jordan Ratliff & Brandt LLC, Phillips Lytle LLP, Weinberg Wheeler Hudgins Gunn & Dial, Riley & Jackson PC and in-house counsel.
The case is In re: Blue Cross Blue Shield Antitrust Litigation, case number 2:13-cv-20000, in the U.S. District Court for the Northern District of Alabama.
A federal judge dropped allegations that three drug makers engaged in antitrust practices by scheming to overcharge for insulin, but the companies will continue to face racketeering claims in a lawsuit brought by pharmaceutical wholesalers.
In the lawsuit, the insulin makers — Eli Lilly (LLY), Sanofi (SNY), and Novo Nordisk (NVO) — were accused of inflating prices by paying kickbacks in the form of rebates and various administrative fees to pharmacy benefit managers in exchange for favorable placement on formularies. These are lists of medicines for which coverage is provided by health insurers that hire PBMs to negotiate on their behalf.
In general, drug makers have argued they must raise prices to compensate for rebates, while pharmacy benefit managers maintain pharmaceutical companies raise prices to boost profits. But the wholesalers argued that the fees and rebates create incentives for pharmacy benefit managers to accept higher prices rather than negotiate lower prices on behalf of health insurers and employers.
However, U.S. District Court Judge Brian Martinotti rejected the antitrust claims that were brought under two different federal laws. In one instance, the wholesalers failed to convincingly allege the drug makers conspired with one another to fix prices. In the other, the wholesalers are not direct competitors with the insulin makers and, therefore, lacked the legal standing to file suit.
At the same time, the insulin makers and pharmacy benefit managers will have to face allegations of racketeering. In their lawsuit, the wholesalers contended these companies “engaged in a scheme . . . to corrupt the supply chain by artificially inflating list prices in exchange for preferred formulary placement, shifting the cost of bribes and kickbacks to direct purchasers of the insulin.”
In his opinion, Martinotti concluded that the wholesalers “plausibly alleged” that the drug makers and pharmacy benefit managers operated as if there was a racketeering enterprise according to federal law.
A Sanofi spokesperson wrote us that the drug maker is “pleased that the court has narrowed the claims at issue. The remaining claims are also without merit.” A Novo spokesman wrote that “we’re pleased that the court dismissed all of the antitrust claims, and we will continue to defend the company against the remaining claims.” A Lilly spokesman declined to comment.
An OptumRx spokesperson wrote the company “negotiates aggressively with manufacturers to reduce the prices consumers pay for insulin, and we have no role in setting prices that manufacturers charge. We believe these allegations are without merit and will defend ourselves.” We asked the other pharmacy benefit managers — Express Scripts (CI) and CVS Health (CVS) — for comment and will pass along any reply.
We asked an attorney for the wholesalers — Professional Drug Company and FWK Holdings, which holds claims for a bankrupt wholesaler called Frank W. Kerr — for comment and will update you accordingly.
The ruling comes amid long-running controversy over the cost of the life-saving diabetes treatments and accusations that insulin makers have conspired to set unaffordable prices, an issue that has fed into simmering debate about prescription drug prices in Washington and state capitols.
More than 29 million people in the U.S. — or 9.3% of the population — live with some form of diabetes, and about 7.4 million use insulin. However, a 2019 study found that among adults who were prescribed a diabetes medication in a recent 12-month period, 13.2% skipped doses, took fewer doses, or delayed filling a prescription in order to save money. And 24.4% asked their doctor for a lower-cost alternative.
A growing list of studies have cited rising patient costs for the controversy. An analysis conducted two years ago by the Health Care Cost Institute found that spending per person for people ages 18 to 64 with employer-sponsored health insurance doubled between 2012 and 2016, increasing from $1,432 to $2,853, even after accounting for a 50% rebate.
More recently, a report found that insulin prices in the U.S. were often five to 10 times higher in 2018 than in all the other countries in the Organization for Economic Cooperation and Development. That year, the average U.S. price per standard unit across all types of insulin was $98.70, compared with $8.81 across all other OECD countries combined, according to the report.
In response, the Centers for Medicare and Medicaid Services began a voluntary program in which some drug makers and Medicare Part D plans lower out-of-pocket insulin costs for beneficiaries to $35 a month. And insulin makers have maintained they are taking other steps to mitigate the financial toll on some patients.
Sanofi began a program to lower the cost of insulin to $99 a month for uninsured patients and others who pay cash. And Novo Nordisk and Eli Lilly began selling authorized generics — or official, lower-cost versions — at half the list price. Lilly also lowered the cost for most of its insulin products to $35 a month for anyone with commercial insurance or lack health coverage altogether.
The lawsuit was not the first time that antitrust allegations have swirled around the insulin makers. Several Congressional lawmakers asked the Federal Trade Commission to investigate the three big insulin makers for “exploiting” their market power and repeatedly raising prices. And two years ago, insulin makers were issued subpoenas by the New York attorney general in connection with an inquiry into their pricing practices.
North Dakota is at the center of a legal battle involving states’ efforts to regulate middleman entities that critics say help to drive up prescription drug costs and undermine pharmacies’ financial health.
The dispute — which has gone up to the U.S. Supreme Court and has been sent back to a federal appeals court for reconsideration — involves laws North Dakota passed in 2017 to regulate what are called pharmacy benefit managers, or PBMs.
The case is being closely watched by state regulators, the pharmacy industry and PBM industry as states have rolled out laws regarding the pharmacy benefit managers, which go largely unregulated by federal law.
North Dakota has emerged as a test case in states efforts’ to “curb the worst abuses” as Minnesota Attorney General Keith Ellison described it. Minnesota spearheaded a bipartisan brief by 34 states, also including South Dakota, in support of North Dakota’s PBM regulation laws.
“It’s pretty wide-reaching as far as its impacts on PBMs,” said Mark Hardy, president of the North Dakota Board of Pharmacy, which is a party in the lawsuit, along with the North Dakota Department of Health.
The North Dakota laws regulate certain fees PBMs charge pharmacies, what pharmacists can discuss with their patients, and which drugs pharmacists are authorized to dispense, among other provisions.
North Dakota allows pharmacists to provide “relevant information to a patient if the patient is acquiring prescription drugs,” including “the cost and efficacy of a more affordable alternative drug if one is available,” according to the state’s brief in the case.
Provisions of the North Dakota laws override “gag clauses” in PBM contracts that prevent pharmacists from alerting patients in situations where patients could save money by not processing the claim through the PBM.
Other provisions regulate the ability of PBMs to impose undisclosed fees, prevent PBMs from “clawing back” from pharmacies certain co-payments, and require PBMs to disclose information about their networks so pharmacies can make informed financial decisions before contracting with PBMs.
North Dakota was one of the first states to pass laws to regulate PBMs, although many states have passed similar laws, Hardy said. “Ours was kind of at the forefront,” he said. “That’s probably why it’s the next battleground.”
Pharmacy benefit managers are largely invisible to health care consumers but occupy an important middleman role in prescription drug transactions that critics say drives up costs. The entities are not part of health insurance plans but manage prescription drug benefits for health insurers.
“They kind of fly under the radar in prescription-drug pricing,” Hardy said.
The laws North Dakota passed in 2017 never went into effect because of the court challenge by the Pharmaceutical Care Management Association, a trade association that represents PBMs. “It’s just been tied up in the courts since its passage,” Hardy said.
In their early days, in the 1970s, PBMs played a limited role in the health care system, but their role has steadily increased over the past 50 years to control “nearly every aspect of health plans’ pharmacy benefits,” according to the brief in support of North Dakota’s law recently filed in the 8th Circuit U.S. Court of Appeals by Ellison.
“One of the biggest drivers of the high cost of pharmaceutical drugs is the abusive practices of pharmacy benefit managers,” Ellison said in a statement. “That’s why many states like Minnesota and North Dakota have taken common-sense first steps to regulate them. I led this coalition in support of North Dakota because I won’t stand by and let the PBM industry undo the progress we’ve made so far when so much needs to be done to make lifesaving drugs affordable to all Americans.”
In the brief, Ellison wrote: “PBMs have exploited decades of lax or non-existent regulation to become a massive part of the prescription medication industry. Because PBMs are essentially middlemen, their profits depend on reaping large fees and rebates while spending as little as possible to reimburse pharmacies for medications.”
The result, according to Minnesota’s brief, is lower reimbursement rates and higher drug prices, due to mechanisms operating “largely in the shadows.”
The lower reimbursements are characterized in Minnesota’s brief as “take it or leave it terms” given all but the largest pharmacies. About 16% of independently owned rural pharmacies closed between 2003 and 2018, Ellison wrote.
PBMs, because of their size and clout, are in a superior position to dictate terms that drive down reimbursements to pharmacies and steer business — as well as preferable terms — to pharmacies affiliated with the PBMs, Minnesota's brief asserts.
Minnesota has seen more pharmacies close in the last decade than any other state, the brief said.
PBMs administer prescription drug benefits for 266 million Americans. The trade group for PBMs, the Pharmaceutical Care Management Association, says PBMs will save health plan sponsors and consumers more than $1 trillion on prescriptions over 10 years.
The association also contends that PBMs save payers and patients 40% to 50% on prescription drug costs compared to what they would have paid.
PBMs account for 6% of net prescription drug costs, compared to 65% from the pharmaceutical manufacturers, according to the PBM association, which claims to save $10 in costs for every $1 spent on PBM services.
Over time, PBMs have become increasingly concentrated, with the largest three controlling 80% to 90% of the market. Every major health insurer now operates a PBM, according to the Minnesota brief.
Consumers pay more for prescription drugs because of PBMs, Ellison argued in the brief in support of North Dakota’s law, which includes increased transparency provisions, among other requirements. “Robust transparency regulations allow states to properly serve their regulatory function and give consumers data needed to make informed decisions,” Ellison wrote.
Since 2014, medical costs have risen by about 17%, while prescription-medication costs have increased by 33%, almost double the rate of health costs overall, according to the Minnesota brief. As a result of spiraling prescription drug costs, one third of consumers have skipped filling a prescription and 10% have reported rationing their medications.
North Dakota hopes the appeals judges will hear the case, which the trial court decided in North Dakota’s favor, by the end of the year, but the hearing could be moved into next year, Hardy said.
A string of pharmaceutical manufacturers’ lawsuits challenging payers’ and benefit managers’ “preferred” drug lists have caught federal antitrust regulators’ attention.
Pfizer Inc., Sanofi S.A., other care providers have sued competitors for allegedly giving rebates to insurers and pharmaceutical benefit managers in return for their products getting on preferred formulary lists.
In a report released in May, the Federal Trade Commission told Congress that the lawsuits—alleging that such exclusive rebates stifle competition—could establish legal theories that the agency would monitor.
Those lawsuits, and the FTC’s review of them, could set the ball rolling on how pharmaceutical rebates are regulated, and possibly change the way hundreds of drugs reach consumers, industry watchers say. But the complex industry runs on contracts with specific terms and unique relationships, and applying antitrust law to fact-specific cases is proving to be difficult for plaintiffs, a factor that could influence regulators’ decision to enforce or push for changes.
“The FTC may use the losses in private cases as evidence that the current interpretations or applications of antitrust laws are inadequate, and maybe as an argument that the laws need to be changed,” said Barbara Sicalides, a partner at Troutman Pepper LLP.
Insurers use pharmacy benefit managers, or PBMs, to negotiate lower pricing with drug manufacturers. Manufacturers pay rebates to get on PBMs’ formulary lists, with terms that often block competitors’ products. The practice creates a “rebate wall” for competitors that want to market their products to PBMs’ subscribers.
The rebate program practice has gone largely unchecked even as PBMs have consolidated in recent years, according to a 2020 report by Xcenda, LLC, a health care consulting firm owned by AmerisourceBergen.
Three of the largest PBMs—CVS Caremark, a subsidiary of CVS Health Corp.; Express Scripts, a subsidiary of Cigna Corp.; and OptumRx, a subsidiary of Optum Inc.—now control 74% of the prescriptions in the U.S. market, according to the report. Continue Reading
Under pressure to rein in skyrocketing prescription drug costs, states are targeting companies that serve as conduits for drug manufacturers, health insurers and pharmacies.
More than 100 separate bills regulating those companies, known as pharmacy benefit managers, have been introduced in 42 states this year, according to the National Academy for State Health Policy, which crafts model legislation on the topic. The flood of bills comes after a U.S. Supreme Court ruling late last year backed Arkansas’ right to enforce rules on the companies. At least 12 of the states have adopted new oversight laws. But it’s not yet clear how much money consumers will save immediately, if at all.
The companies are powerful, together administering medication plans for more than 266 million Americans. A handful of the companies, CVS Caremark, Express Scripts and OptumRX, control the vast majority of the market while also operating national pharmacy chains. PBMs say they use all that power to negotiate lower prescription prices. But the inner workings of the deals — and how much of the savings the companies pocket — happen largely behind a curtain that lawmakers are trying to pull back.
Montana is one testing ground for whether more transparency leads to lower drug prices with a new law that places those businesses under state oversight. The legislature unanimously passed a measure in April that, beginning next year, requires pharmacy benefit managers to get a state license and publicly report how much money they receive. It also dictates what information PBMs must provide to other companies amid negotiations.
“This was kind of the low-hanging fruit in terms of something where we thought we could get some meaningful policy out there,” said Troy Downing, Montana’s Republican commissioner of securities and insurance. “At least turn the light on in that black box.”
New York lawmakers also passed legislation requiring PBMs to get a state license and submit an annual report that details the financial benefits they collect. Some efforts go broader, such as one in Wisconsin that brought PBMs under state oversight and required pharmacies to tell customers about less expensive generic prescription options.
PBMs pit drug manufacturers against one another to get lower drug prices on behalf of clients such as health insurers or large employers offering prescription drug benefits. They influence what prescription plans cover, and they help set pharmacy reimbursement rates for medications bought under PBM-managed plans. They can make money by pocketing some of the cash saved in negotiations and through the rebates that drug manufacturers offer for a sought-after spot on the list of prescriptions covered by health plans.
PBMs are accustomed to negative attention, though they often counter it’s pointed in the wrong direction.
“The main focus for state policymakers should be to examine brand drug manufacturers’ pricing strategies,” emailed Greg Lopes, a spokesperson for the Pharmaceutical Care Management Association, a national trade group. “Drug manufacturers are solely responsible for setting and raising drug prices.”
One in 10 U.S. adults ration prescriptions they can’t afford, according to the National Center for Health Statistics. And as prices climb, every industry touchpoint for pharmaceutical drugs — manufacturers, distributors, insurers and more — blames the others. Policymakers have said each plays a role, though PBMs have become easy targets for politicians across political parties.
While PBM regulation is often pitched as a way to lower drug costs, patients shouldn’t expect lower prices at pharmacy counters immediately, said Elizabeth Seeley, an expert in health care payment systems at the Harvard T.H. Chan School of Public Health.
“There’s really not a clear answer on what types of policies will necessarily bring down spending,” Seeley said. “Because you have to also ask the question of ‘spending for who?’”
The changes could mean savings for patients or savings for just another part of the health industry, such as insurers. Seeley said she welcomes the recent spate of legislation to get more transparency into the system. But to get more affordable prescriptions on a wide scale, she said, lawmakers need a broad set of policies that sweep in players such as drug manufacturers. That would most likely have to happen on a national level.
Last year, bills died in Congress that sought to penalize drugmakers for raising prices above inflation rates and to cap some Medicare enrollees’ out-of-pocket costs. Drug-pricing proposals are back on the table this year, with some zeroing in on specific industry players — including pharmacy benefit managers.
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Kudos to the Texas Legislature for their decisive actions this session to rein in pharmacy benefit managers (PBMs).
Pharmacies statewide worked closely with lawmakers to pass House Bills 1763 and 1919, two measures that preserve patients’ access to affordable, life-saving drugs while protecting small pharmacies from the PBM overreach that threatens their businesses.
For too long, the lack of transparency in PBM operations has enabled them to drive up medication costs while stifling competition in the retail pharmacy space. But lawmakers showed that they have come to understand PBM practices and have now taken significant steps to curb their domination of prescription drug benefits. They made a strong statement with their 177-0 vote to approve HB 1763, which prohibits retroactive cuts in pharmacy reimbursements, protects pharmacies’ ability to mail and deliver mediations to their patients and prohibits PBMs from paying their affiliated pharmacies more than they reimburse other pharmacies for the same drugs or services. HB 1919 prohibits self-dealing PBM practices that steer pharmacy patients toward PBM-owned pharmacies and use patient-identifiable data to drive their pharmacy marketing efforts. The passage of these two vital bills is strong testimony for the commitment of our Legislature to the welfare of Texans pharmacies and the patients they serve.
PBMs are shadowy middlemen that control more than 80% of the nation’s drug benefits. They have an outsized influence on insurers, big employers, pharmacies and their patients. They determine which medications are covered by an insurance plan and which pharmacies can participate in provider networks. They set prices and determine patient costs and co-pays. At the same time, they operate their own retail and mail-order pharmacies that compete directly with chain and independent locations. They use their power over pharmacy networks to steer patients away from community pharmacies to their own affiliated operations. This steering not only drives patients away from local pharmacies – which already are struggling – but also makes medication access less convenient for patients.
On top of all of this, PBMs control reimbursements from insurance plans to pharmacies. They have steadily decreased payments to community pharmacies to the point that reimbursements are now often less than the pharmacy’s acquisition cost for medications. They also pay their own affiliated pharmacies more for the medications they dispense than they pay other pharmacies for the same drugs, driving up costs for plan payers.
Because PBMs have the upper hand over small pharmacies, they often force these businesses into “take it or leave it” contracts. Pharmacies largely have no flexibility, no bargaining power, and cannot stand up for themselves and their customers – even with pharmacy services administrative organizations (PSAOs) advocating on their behalf. The fact is, PBMs are Fortune 50 companies whose wealth and power has grown exponentially with their control over prescription drug benefits. They have prioritized profits and growing their own pharmacy operations over the needs of the plan payers and patients they are charged with serving. As locally owned businesses, our state’s small pharmacies are deeply invested in the health and welfare of the communities they serve. Serving patients is always priority one, as their dedication in maintaining operations and vaccinating thousands of Texans during the COVID pandemic has shown.
By signing House Bill 1763 into law and allowing HB 1919 to be enacted, Governor Abbott has shown he shares our commitment to protecting patient access to affordable medications and ensuring a fair, level playing field for Texas community pharmacies. With these landmark bills, Texas has taken steps to preserve the vital role that our local pharmacies play in caring for their communities.
Michael Wright is vice president of government affairs for the Texas-based American Pharmacies purchasing cooperative and executive director of the Texas Pharmacy Business Council.