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Pharmacy Agent Study Would Show Role in Drug Price ‘Dysfunction’

March 7, 2022, 10:35 AM

The Federal Trade Commission could help shed light on the complex practices of pharmacy liaisons that have long faced criticism for allegedly driving up consumer drug prices.

FTC Commissioner Noah J. Phillips has said the agency may still launch a probe into pharmacy benefit managers—which run patients’ prescription drug coverage—even though it deadlocked with a 2-2 vote on a proposed study last month. The FTC will have to sort out details of a new proposal, but policy analysts say any review would, at a minimum, provide a better understanding of how PBMs interact with the rest of the drug distribution chain.

Federal regulators and policy watchers should have “a higher awareness around how” PBMs’ “incentives are structured and how much they could exacerbate American drug pricing dysfunction,” Antonio Ciaccia, CEO of Ohio-based drug pricing data firm 46brooklyn Research, said.

There hasn’t been “a lot of information that’s objectively developed” on PBMs since they were first created in the 1960s, said Mark Botti, a partner at Baker Botts LLP who previously worked in the Department of Justice’s Antitrust Division. Additional insight into what PBMs do can help regulators determine whether any specific practices are anticompetitive.

PBMs manage drug benefits 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.

Analysts say an effective probe should focus on the fees PBMs charge drugmakers and how much of the savings they negotiate reach consumers. They note, however, that devising a clear plan to analyze these amounts may prove challenging due to federal laws that protect companies from sharing proprietary data.

A vote in support of launching a PBM study could happen with or without a fifth FTC commissioner. The Senate Commerce Committee deadlocked in its March 3 vote on President Joe Biden‘s nominee, Alvaro Bedoya. His nomination can still move to the full Senate, where Vice President Kamala Harris can act as tiebreaker if the chamber is evenly split.

FTC Chair Lina Khan hasn’t announced whether she plans to unveil another study for a vote, though the agency said Feb. 24 that it was seeking input “on the ways that practices by large, vertically integrated Pharmacy Benefit Managers’ (PBMs) are affecting drug affordability and access.”

‘Forbidden Fruit’

PBMs have significantly expanded since their formation, with consolidation by major health plans widening their influence on the pharmaceutical care industry. Ciaccia said this has been the case especially for the largest PBMs that have integrated with retail pharmacies and health plans including CVS-Aetna, Cigna-Express Scripts, and UnitedHealth-OptumRx.

Independent pharmacies argue that consolidation has allowed PBMs to steer patients to pharmacies or mail-order services owned by the insurers that own the PBMs.

Policy watchers, drugmakers, and pharmacy groups argue that PBMs are disproportionately benefiting from higher fees to manufacturers and lower reimbursement rates to pharmacies. A December 2021 report from the PBM Accountability Project found that PBMs’ gross profit increased by 12%, from $25 billion in 2017 to $28 billion in 2019.

“We architected PBMs years ago to just simplify the very basic component of facilitating a claims transaction at the pharmacy counter,” Ciaccia said. Over time, however, the system became complicated as PBMs “started to taste the forbidden fruit.”

The Pharmaceutical Care Management Association, the leading PBM trade group, said in a statement that it’s “confident the FTC will ultimately conclude that drug manufacturer price setting is the root cause of high drug costs, putting a strain on patients and forcing them to make difficult decisions about their drugs.”

The group added that PBMs “are holding drug companies accountable by relentlessly negotiating the lowest possible cost on behalf of patients.”

The PCMA says they save 40% to 50% on prescription drugs, an average of $962 per person per year.

Rebates, Price Transparency

The FTC in its party-line vote Feb. 17 decided to not open a study into PBMs and whether their drug price setting practices unfairly favor PBM-affiliated pharmacies over independent ones. Republican Commissioners Phillips and Christine Wilson argued the proposed study lacked clarity and provisions requiring an analysis of what consumers ultimately pay for their prescriptions.

Stacie Dusetzina, associate professor of health policy at Vanderbilt University, said she agreed that “without these elements, it seems that the study would be incomplete.”

She added that a study into PBMs’ contracts with employers, health plans, and pharmacies “would be welcome,” as well as the types of fees PBMs charge and what amounts get passed back to plans and employers.

Ciaccia noted that beyond rebates, drugmakers may also have to pay PBMs’ formulary, data sharing, and market incentive fees. “We’ve seen well over a dozen different ways that drugmaker price concessions are categorized in PBM contracts with plan sponsors—all of which are meant to hide essentially what the actual net concession is,” he said.

David Balto, former assistant director for policy and evaluation at the FTC Bureau of Competition, said he believes these “rebate schemes” ultimately impact costs for consumers, and are an important aspect to be probed. Critics have argued that because PBMs can profit from rebates, that could lead them to favor more expensive drugs in formularies. Drugmakers also say that paying PBMs rebates and discounts can result in higher initial list prices.

“You don’t have to go any further than insulin where we have a tremendous pricing crisis there,” Balto said. “The reason for the pricing crisis isn’t because the cost of the goods have gone up; it’s because the PBMs’ demands for rebates have increased substantially.”

Dusetzina said whether these rebates actually bring discounts to patients is an important question. “We hope that if savings are returned to the plans that they use those savings to improve the benefits for their employees or beneficiaries, but that may not always be the case,” Dusetzina said.

‘Quite Difficult’

While policy analysts defend the importance of an FTC study, developing a plan for review can be riddled with complications.

One obstacle that has traditionally prevented clear insight into PBMs’ practices is that much of their business data is protected by privacy or confidentiality laws. “Anytime you’re dealing with proprietary data, there’s going to be restrictions on your ability to ultimately access that information,” Ciaccia said.

FTC studies into specific companies are also “quite difficult to carry out because” it can be “hard to write tight, focused questions that get you the documents you want,” said Fiona Scott Morton, an economics professor at the Yale University School of Management.

A study that is too open-ended and doesn’t have very specific metrics for analysis can also “be hard to control,” Botti said.

Devising a more targeted, specific study can also prevent bias from creeping in, Botti said. Wilson mentioned at the public meeting that she was “wary of having the FTC used as a pawn to boost the profitability of certain sectors, or to insulate them from competition.”

Botti said if FTC staff aren’t charged with conducting the study in a “careful and neutral way, you immediately bias your study,” and “you don’t know that you can trust the results, or it won’t have as much credibility.”

—With assistance from Shira Stein

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

To contact the editors responsible for this story: Alexis Kramer at akramer@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com