There’s an Inspector Clouseau quality to the way policymakers in Washington are responding to the challenge of high prescription drug prices. For years, elected officials have demanded that action be taken to bring down pharmaceutical costs. And yet, despite having before them the evidence of the parties who bear considerable responsibility for this problem, no meaningful reforms have been enacted.
The Federal Trade Commission‘s recent decision to investigate Pharmacy Benefit Managers – PBMs or “intermediaries” – will shine a light on this largely unregulated sector. Regulatory agencies and Congress have signaled a renewed commitment to reduce what PBMs do to patients, consumers, and community pharmacies to address escalating drug prices and provide Americans with access, choice, and affordability when it comes to buying the drugs they need.
In my years as an antitrust officer for the Department of Justice and the Federal Trade Commission and as a public interest antitrust attorney, rarely have I seen an industry have such freedom to engage in anti-competitive, deceptive and fraudulent behavior than the three PBMs that control 80% of the prescription drug market. They dramatically increase drug costs and drive independent pharmacies out of business with virtually no antitrust enforcement, oversight or regulation.
PBMs were created to be honest brokers, using their influence in the market to negotiate lower prices with drug manufacturers. As the PBM market consolidated and allowed three companies – CVS Caremark, Optum Rx and Express Scripts – to become increasingly powerful, the original focus was abandoned to increase their profit margins. Even though these companies create no products and provide no care, they reap combined annual profits of more than $28 billion by acting as intermediaries in the prescription drug supply chain.
This system, in its current form, is clearly causing serious damage and requires significant reform. Three aspects of the PBM market warrant action by legislators and regulators:
“The tight oligopoly that exists when three firms exercise dominant control over the market creates a paradigm in which they wield enormous market power over manufacturers, payers, and consumers. So, as drugs move from the factory to the pharmacy, PBMs capture a larger share of the money flow along the way. PBM profits have doubled over the past decade, and more of the increase in brand name drug spending has gone to PBMs and health plans instead of patients in co-pay caps or transfer discounts.
“There is virtually no transparency in PBM transactions. Payers are prevented from knowing the amounts of rebates that PBMs have obtained from manufacturers. And even though Congress prohibited PBMs from imposing gag clauses on pharmacists, preventing them from educating recipients of federal health programs about lower-cost alternative medicine, this mandated pharmacist silence is still in effect and consumers are victims of PBM profiteering.
“There are obvious conflicts of interest exploited by PBMs. Since these intermediaries charge fees based on the list price of a drug, they have a financial incentive to encourage the use of the most expensive drugs in each therapeutic class. And because they control drug formularies that restrict what doctors can prescribe to their patients, they can and do block the use of lower-cost generics and biosimilars to force greater consumption of high-priced drugs. Additionally, since the three dominant PBMs also have their own specialty pharmacies and, in the case of CVS, the largest retail pharmacy chain, they have an interest in directing patients to their own pharmacies and discriminating against community pharmacies. independent. Through “take it or leave it” reimbursement contracts, fees and profit recoupment, PBMs were able to shut down many of these pharmacies and do real harm to the communities that depended on them.
Clearly, PBMs should no longer operate in an unregulated area. As FTC Commissioner Lina Kahn said in a recent webinar, today’s PBM environment is not inevitable. It stems from decisions that have been made and can be redone.
If the FTC and Congress are serious about lowering prescription drug prices and helping consumers, new laws and regulations are needed to spell out certain unfair, deceptive, and anti-competitive practices. Policymakers should demand that negotiated discounts are passed on to payers and patients, that PBM compensation is not tied to drug prices, and that programs blocking access to cheaper drugs are prohibited. Furthermore, discriminatory practices against community pharmacies must end immediately before more populations lose an invaluable health resource.
Political rhetoric about drug prices is no cure for Americans who must choose between food and medicine. It’s time to chart a new course to protect consumers at the pharmacy counter.