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