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Employers Hope FTC Probe of Pharmacy Benefits Eases Drug Prices

June 27, 2022, 9:40 AM

Large companies that spend billions of dollar a year on prescription drugs for their employees are hoping that the Federal Trade Commission’s inquiry into pharmaceutical benefit manager business practices will yield information that spurs major policy changes to reduce drug prices.

“PBMs were originally created to be a solution to high drug costs, but now we see them as part of the problem,” Bill Kramer, executive director for health policy with the Purchaser Business Group on Health, said in an interview.

The FTC unanimously voted June 7 to conduct an inquiry into the PBM industry, sending compulsory orders to the six largest PBMs—CVS Caremark, Express Scripts Inc., OptumRx Inc., Humana Inc., Prime Therapeutics LLC, and MedImpact Healthcare Systems Inc.— to provide a wide range of information concerning the competitive impact of their contracting and business practices within 90 days.

No date was set for issuing a special report from the information gathered.

PBMs negotiate drug discounts for health plans, and they typically devise formularies that stipulate whether particular drugs are covered and how much enrollees will have to pay for a drug. They have come under criticism for opaque business practices that may obscure whether employers are getting the best prices and the highest-value drugs.

“For years employers have tried, and often been blocked, in their efforts to obtain useful information from their PBMs,” said Kramer, whose organization represents nearly 40 private employers that spend $350 billion annually on health-care services for more than 21 million Americans.

As gene therapies come onto the market, some of which may cost millions of dollars for individual treatments, employers are increasingly concerned about reining in costs and they have called into question many PBM practices that they believe keep drug prices higher than they should be.

Large employers that self-insure, paying directly for their employees’ medical claims, spend more than $140 billion a year on prescription drugs, according to a comment letter filed with the FTC by the Employers’ Prescription for Affordable Drugs, a coalition of employer and health care purchaser organizations.

The agency also voted unanimously June 16 to issue a policy statement that it will “ramp up enforcement against illegal bribes and rebate schemes that block patients’ access to competing lower-cost drugs.”

While the probe started as an inquiry into whether PBMs are putting independent pharmacies at a disadvantage through their pricing practices, employers have joined the call for the agency to investigate PBM business practices.

Lack of Transparency

Among employers’ concerns:

  • a lack of transparency into whether PBMs are fully refunding rebates and discounts negotiated with drug manufacturers;
  • how PBMs profit from manufacturer discounts;
  • whether they are including expensive drugs on formularies to increase their own profits;
  • high consolidation between health insurers and PBMs that has resulted in three companies controlling about 80% of the PBM market; and
  • a lack of regulatory oversight.

Lawmakers also are weighing in to address employers’ concerns about lack of transparency.

The Senate Commerce Committee on June 22 advanced the Pharmacy Benefit Manager Transparency Act (S. 4293). The bill would prohibit PBMs from practicing spread pricing, which is charging health plans more for a drug than they reimburse to pharmacies; require PBMs to pass 100% of rebates to health plans; and authorize the FTC and state attorneys general to seek civil penalties for violations of FTC mandates.

Federal agencies implementing the Trump administration’s transparency in coverage rule requiring health plans and insurers to disclose their negotiated rates have deferred enforcement of prescription drug price disclosures indefinitely, pending further rulemaking, and employers want the administration to move ahead with the requirement so they can get access to the information.

Health plans and insurers must post their negotiated prices on medical and surgical rates paid to providers by July 1, but the rule’s requirement for pharmacy data to be published was delayed after the Pharmaceutical Care Management Association (PCMA), which represents PBMs, and the US Chamber of Commerce dropped a pair of lawsuits challenging the rule.

“It is our position that now is the time” for the administration to require the pharmaceutical price data to be posted, Mark Wilson, vice president of health and employment policy and chief economist of the HR Policy Association, said in an interview.

Growth of PBM Companies

JC Scott, president and CEO of the Pharmaceutical Care Management Association (PCMA), which represents PBMs, said in an interview that health plan clients of the pharmaceutical middlemen “have full ability to set the terms of the contracts that they make with PBMs.”

“Whatever level of information and data and reporting that they want can be built into the contract,” Scott said.

If employers believe they can’t negotiate the terms they want, they can tap into the competitive PBM marketplace, he said.

Since 2019 there has been about 10% market growth in the number of companies offering PBM services, Scott said. About 70 full-service PBMs are operating, Kristin Bass, PCMA chief policy and external affairs officer, said in the interview.

In 2021, saying it was “frustrated by unmet needs and out-of-control costs,” the Purchaser Business Group on Health started its own PBM, Emsana Health, to meet the needs of large employers.

Fiduciary Responsibility

The new attention to PBMs comes as employers increasingly must step up and fulfill their responsibilities as fiduciaries to the health plans they sponsor, Cheryl Larson, president and CEO of the Midwest Business Group on Health, said in an interview.

Many employers have relied on their insurers and consultants to manage their health plans in compliance with regulations, she said.

“The most basic thing of being a fiduciary as an employer is that you have to buy the best benefits for your employees and families at the best price,” Larson said. “If you’re overpaying at hospitals and you’re overpaying your PBMs, that’s not the best price. And because of the lack of transparency there’s been no way to address that.”

There are some concerns among employer groups that the FTC investigation won’t focus on the problems they see in the PBM industry.

“Practices that may be perfectly legal could potentially stand scrutiny in antitrust, but still be something that should be looked at from a reform standpoint,” Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said in an interview. The alliance includes groups that represent businesses on their employee health plans.

Thompson pointed to PBMs’ practices involving the purchase and sale of drugs as an example.

“They purchase drugs on one basis and then they sell them on another basis, and they make money on the spread,” Thompson said. “That doesn’t sound unusual for other industries, but in health care that’s not the way that intermediaries typically operate.”

Health-care intermediaries typically charge fees for services, “and they’re not conflicted in their loyalties,” he said.

But James Gelfand, president of the ERISA Industry Committee, said in an interview that the order issued by the FTC to the six PBMs indicates that the agency plans to do a thorough investigation.

“The FTC is going to be looking into all of the stuff that the employers are most concerned about,” he said.

“We need to understand who’s paying who do what.”

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editors responsible for this story: Brent Bierman at bbierman@bloomberglaw.com; Cheryl Saenz at csaenz@bloombergindustry.com