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FTC Caught in Balancing Act With Pharmacy Benefit Manager Probe

July 29, 2022, 9:15 AM

The FTC will have to sift through competing claims within the pharmacy supply chain as it probes the entities that manage prescription drug benefits.

Independent pharmacies say pharmacy benefit managers’ recent integration with retail pharmacies and health plans has steered patients away from their businesses. But the Pharmaceutical Care Management Association, the leading PBM trade group, says PBMs haven’t limited the healthy growth of the independent pharmacy marketplace—which many rural populations rely on for treatment.

The long-running debate comes as the Federal Trade Commission investigates whether PBMs’ practices are anticompetitive and contribute to higher drug prices. Drug policy analysts say the agency should focus on examining concrete data to reach conclusions on what practices are fueling skyrocketing drug costs, and how this can inform future policy.

“With the soaring price of medicine, everyone likes to engage in finger pointing and claim someone else is the bad guy,” said Robin Feldman, a professor and researcher at the University of California, Hastings College of the Law who focuses on drug patents, pricing, and access.

“A thoughtful FTC study should find the reliable information that policymakers have not had to date and that they need to understand what’s happening,” she said.

PBMs manage drug coverage for health insurers, large employers, Medicare prescription drug plans, and others. They negotiate discounts from drugmakers, collect rebates from them, and determine how pharmacies get reimbursed for distributing prescriptions. The nation’s three largest PBMs—CVS Health Corp., Express Scripts Inc., and OptumRx—control 85% of the market.

The FTC voted unanimously in June to launch a probe and send orders to the six largest PBMs for detailed information on their business practices. The FTC has said its study will look at, in part, fees to unaffiliated pharmacies, any methods to steer patients to PBM-affiliated pharmacies, and the processes to determine what health plans reimburse to pharmacies.

The PBM Defense

PCMA, whose members include CVS Health and Express Scripts, has pushed back on claims that they’re hurting independent pharmacies, saying their fundamental role is “to help make the drug benefit more affordable.”

“There’s this narrative out there, this assumption, that community pharmacies are closing and they’re closing in escalating rates,” PCMA President and CEO JC Scott said in an interview. “But when you look at the data, that just isn’t the case.”

A new PCMA analysis shared exclusively with Bloomberg Law states that from 2012 to 2022, the total number of independent pharmacies across the US increased by 8%—with more than 1,700 new stores added to the market. There are currently more than 23,000 independent pharmacy locations across the US, according to the PCMA data.

The “community pharmacy marketplace is stable,” Scott said. This analysis should push the FTC to “reconsider what the underlying objective is” in the agency’s PBM study.

The PCMA’s study, based on data collected by the National Council for Prescription Drug Programs (NCPDP), counters arguments from the National Community Pharmacists Association, which says the number of independent pharmacies has gone down over the past 20 years.

NCPA CEO B. Douglas Hoey said the NCPA puts the current total number of independent pharmacies at nearly 19,400 as of June 2021.

The NCPA based its analysis on data collected by health information technology company IQVIA, which the pharmacists association says it now relies on after years of using data from the national council. Hoey said there’s typically been “lag time” in the NCPDP database between pharmacies closing and their numbers going inactive.

But even prior to that switch, Hoey said NCPA’s analysis has shown “a slow erosion” of independent pharmacies over the years, with a few exceptions.

“Most years, there was a drop of usually 200 or 300 each year, despite population growth over that 20-year period,” he said.

PCMA, which measured independent pharmacies as groups of three or fewer under common ownership, acknowledged there have been some fluctuations over the past five years in terms of gains and losses, but argued the overall number hasn’t shifted dramatically.

Going Deeper

Antitrust policy analysts say the landscape for community pharmacists is much more complicated than counting numbers.

Looking solely at the total counts of independent pharmacies “doesn’t address how the pharmacies are distributed,” Michael Carrier, an antitrust professor at Rutgers Law School, said.

He cited a 2021 analysis from online drug pricing comparison tool GoodRx, which found that more than 40% of US counties are considered “pharmacy deserts,” where most people must drive more than 15 minutes to reach the nearest pharmacy. Rural communities often rely on local, independent pharmacies because they may often be the only ones closest to them for miles.

Independent pharmacies argue that PBMs charge them higher fees than their affiliated pharmacies. Carrier said that because independent stores get the majority of their revenue from drug sales, higher fees mean they are “losing money or breaking even on prescriptions,” threatening closures and access to pharmacy services in rural areas.

A study published earlier this month by the Journal of the American Pharmacists Association found that roughly 76% of pharmacies in rural regions of the country are franchises or independent pharmacies.

“Particular areas might be losing all of their independent pharmacies,” Carrier said.

Informing Policy

Policy analysts and trade groups say a clear understanding on the impact PBMs have on pharmacies will be crucial as Congress considers policies targeting PBMs and lowering drug costs.

“As the American public becomes increasingly frustrated with rising prices, policymakers are looking for all possible levers,” Feldman said, including “congressional, regulatory, and state action.”

A bill (S. 4293) from Sen. Chuck Grassley (R-Iowa) would prohibit PBMs from practicing spread pricing, or charging health plans more for a drug than they reimburse to pharmacies. It would also 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.

The Senate Commerce Committee voted 19-9 in June to advance the legislation to the full chamber.

A tax, climate, and health-care bill unveiled Wednesday following weeks of negotiations between Senate Majority Leader Chuck Schumer and West Virginia Sen. Joe Manchin would direct the government to negotiate with drugmakers for lower prices on certain medicines, and cap what seniors on Medicare pay for drugs each year at $2,000. The measure also requires pharmaceutical companies to rebate Medicare if they raise the prices of their drugs higher than the rate of inflation.

To help inform these bills and future legislation, the FTC could go beyond the data it gets from PBMs and seek out information directly from drug manufacturers and pharmacies, Carrier said. That could include information from drugmakers on the rebates they give to PBMs and how pharmacies’ business may be affected by the fees PBMs require them to pay.

For an FTC study to be successful, “there is a need for a deeper understanding of all players in the supply chain,” Scott said.

To contact the reporter on this story: Celine Castronuovo at ccastronuovo@bloombergindustry.com

To contact the editor responsible for this story: Alexis Kramer at akramer@bloomberglaw.com