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.
​Continue Reading

STAT

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.
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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.

Mitchell Republic

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.

Bloomberg Law

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

Benefits Pro

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.
Continue Reading

The Columbus Dispatch

Dr. Stephanie Ott’s eyes tell the story of Americans’ frustrating struggles to obtain essential prescription drugs.

They moisten above her multi-hued mask almost to the point of tears as she describes a patient with crippling rheumatoid arthritis taking her first steps in years after successful drug treatment.

"I'll never forget. She was sitting in an (examination) room one against the wall and I didn't see a wheelchair. I thought, 'Well, I guess somebody took it out, right?'" Ott recalls.

"She says 'I want to give you a hug.' And I said, 'OK, I'll come right over.'

"And she says, 'Oh no, I'm coming to you.' And she got up and she walked across the room ... 

"To this day, I get chills when I think about it. She's like, 'I can hold my grandkids!' She was so proud to tell me how she had swept her front porch."

But the doctor's eyes fill with anger as she relates how a Lupus patient was denied insurance coverage for a drug Ott prescribed, wound up in the hospital and remains on dialysis to this day.

And the Lancaster physician's visage hardens even more while diagnosing the cause of  this mess: Multibillion-dollar pharmacy benefit managers and health insurers making decisions about which drugs should be covered by insurance based on what she says is corporate greed rather than medical need.

“It’s not that (a drug) didn’t work. It’s just that somebody’s profits got in the way. That's what I call practicing profit medicine instead of real medicine, because I’m trained to practice evidence-based medicine,” said Ott, who has been president of the Ohio Association of Rheumatology since 2011.

She is talking about a rapidly growing practice by pharmacy benefit managers, often known as PBMs, and health insurers to use something called "formulary exclusions." That sounds complicated, but it’s actually quite simple.

Formulary is a fancy name for the list of prescription drugs that a PBM says should be covered by health insurers. However, in the past several years, PBMs have come up with a separate list of drugs they say should not be covered by health insurance. Thus, they are excluded from the formulary, and known collectively as formulary exclusions.

The Perfect 'Lose Lose' for Patients

Because America’s health-care system is increasingly consolidated, the formulary decisions of just three pharmacy benefit managers essentially dictate the entire U.S. market, since they handle nearly 80% of the country's prescription drugs. All three PBMs also are corporately joined with major health insurers, magnifying the consolidation.

Since 2014, the number of drugs excluded from the trio's’ formularies has skyrocketed tenfold, to more than 1,300.   Continue Reading

The Columbus Dispatch

Dave Dillahunt has been forced to watch the same bad movie time after time: An Ohioan receives the crushing news that they have cancer, learns about a medication that can help, but then must wait weeks to get it.

Unfortunately, that's true life for many in Ohio because pharmacy benefit managers require patients to receive their medication through the mail — often from specialty pharmacies run by the PBM — as a requirement for insurance to cover the usually expensive drugs. It may arrive within a couple of days, but horror stories abound of cancer victims who have had to wait much longer.

“People aren’t getting treated in time,” says Dillahunt, executive director of the Ohio Hematology Oncology Society.

“In many cases, the more delay you have, the worse the outcome is going to be.”

All that would change under a bill introduced this week in the Ohio General Assembly by a bipartisan duo of House members: Scott Lipps, a Republican from Warren County northeast of Cincinnati, and Thomas West, a Democrat from Canton.

Instead of waiting a month or more for potentially life-saving medication to treat the newly diagnosed cancer, Ohio

..Dillahunt said the Ohio measure is patterned after laws in several states, including Texas and Georgia.

House Bill 336 also would:

• Forbid PBMs and insurers from requiring pharmacies to obtain accreditation from outside entities, which can cost several thousand dollars.
• Bar health insurers from ordering or directing a consumer to use an affiliated pharmacy, or charging consumers more if they use a pharmacy not tied to the insurer.
• Trim the ability of PBMs to assess big charges for even minor errors during audits of pharmacies, and banning compensation of auditors based on the quantity of violations found. 
​Read the Full Article

Ohio Capital Journal

One of two federal agencies tasked with policing anticompetitive behavior among corporations last week said it has a lot more work to do when it comes to the prescription-drug supply chain.

One of the members of the Federal Trade Commission went even further. He suggested the agency has abdicated its responsibility as drug prices have risen, taking an ever-larger bite out of family budgets even as generic drugs flood the marketplace.

“Drug prices are out of control, and too many players in the pharmaceutical industry have failed to follow the law. There is a growing consensus that the Federal Trade Commission’s approach to overseeing the pharmaceutical industry is not working,” Commissioner Rohit Chopra said in a May 28 statement.  

“For example, I am unable to identify an instance where the FTC has filed a lawsuit in federal court to block a merger of pharmaceutical companies,” he added. “In addition, the FTC largely stood by as the pharmacy benefits manager (PBM) industry consolidated to three main giants and even took steps to undermine state legislation.”

That last sentence is significant. 

The letter accompanied a six-page report requested by Congress that discussed the system of rebates drug manufacturers give drug middlemen, or PBMs, in exchange for PBMs covering brand-name medicines and giving them preferred treatment. But the report focused almost exclusively on ways drugmakers might use rebates to shut down competition with other drugmakers.

Referring to one, it described how a drugmaker might threaten to stop paying rebates to a PBM if a cheaper rival is placed on a PBM’s “formulary,” its list of drugs that it will cover. That could force up drug prices in a number of ways, the report said.

It seems only logical to assume that when a drug is absurdly expensive, the company that makes it is to blame. But that ignores the complexity of the drug-supply chain — and possibly the relative bargaining power of the players in it.

Drugmakers need PBMs and insurance companies just as insurers and middlemen need manufacturers. The insurers and middlemen contract to handle millions of “covered lives” and if the maker of a patented drug wants access to them through a PBM’s formulary, it often has to offer rebates.

Supply chain analyst Adam Fein has shown for many patented drugs, net prices have been falling while list prices have been rising to accommodate those ever-bigger rebates.

PBMs insist they force down drug prices. But Chopra, the FTC commissioner, referred to possible downsides of non-transparent rebates in his letter.

Drug “manufacturers may pay for the rebate by increasing list prices of their drugs,” he wrote. “This raises the question of whether PBMs are incentivized to select higher list price drugs instead of lower list price drugs for their formularies in order to collect a higher rebate.”

The relative size of the corporations that make drugs might also suggest something about who has the upper hand when they negotiate with PBMs and insurers.  Continue Reading