The pressure on pharmacy benefit managers (PBMs) is ramping up. Both Congress and the Federal Trade Commission (FTC) are probing alleged anti-competitive practices by PBMs, and they’re doing so in parallel. Given the intense bipartisan pressure on PBMs, it’s increasingly likely that action of some kind will be taken to reform the drug pricing system.
Last month, in a bipartisan vote of 18-9, the Senate Committee on Commerce, Science and Transportation advanced a bill, the Pharmacy Benefit Manager Transparency Act, to increase PBM transparency and crack down on what legislators and many policymakers are calling “deceptive practices.”
Specifically, the bill stipulates what it deems are “unlawful activities” for PBMs to engage in. These include spread pricing – charging payers more than PBMs pay the pharmacy for a medication and then keeping the “spread” or difference as profit – and clawing back reimbursement payments from pharmacies. Regarding claw backs, PBMs assess direct and indirect remuneration fees on pharmacies that dispense Medicare Part D (outpatient) drugs. Such fees are often charged long after a pharmacy has filled a Medicare prescription. PBMs claim they are clawing back money due to a pharmacy’s performance on certain quality measures. However, observers point to the arbitrary and opaque nature of these quality metrics.
On March 30th, the Senate Finance Committee held a hearing on PBMs. Here, both Democratic and Republican Senators probed a PBM link to higher out-of-pocket costs for patients. Senator Menendez (D-NJ), for example, asserted that the rebate game which is being played by PBMs and drug makers is creating a warped incentive structure that drives up out-of-pocket costs for patients. Rebates are payments from drug manufacturers to PBMs in exchange for moving market share towards preferred products on the formulary.
In February, the Senate Commerce Committee held a similar hearing in which members on both sides of the aisle raised pointed questions about the practices of PBMs. Legislators called for more transparency and accountability from PBMs. Some were more explicit in their criticism than others. To illustrate, Senator Jon Tester (D-MT) said “there is no transparency in PBMs. When you combine that with anti-competitive tactics, this is a recipe where the only people who win … are PBMs.”
The Senate Judiciary Committee has also been active. In February, it moved five bills forward, including S.113, Prescription Pricing for the People Act, that if passed would launch an investigation into the role of PBMs within the pharmaceutical supply chain. The bill would mandate PBM reporting of spread pricing and other pharmacy fees to the FTC. In turn, the bill would require the FTC to report to Congress any observed anticompetitive practices and “other trends within the pharmaceutical supply chain” that may raise the out-of-pocket costs of prescription drugs for patients. Further, the proposed legislation calls on the FTC to provide recommendations to increase transparency in the drug supply chain.
It’s a two-pronged attack on PBMs, with Congressional proposals running parallel with an ongoing FTC inquiry. In June 2022, the FTC opened an investigation into six large PBMs: CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems.
Around the time the inquiry began the FTC had cited instances in which cheaper generics and biosimilars are excluded from PBM formularies, as this may violate competition and consumer protection laws.
The FTC raised the stakes when the agency included terms like “commercial bribery” in statements to describe what it perceives as anti-competitive rebates in the insulin market. The FTC has repeatedly warned of legal action against PBMs if its inquiry finds proof of anti-competitive practices.
In any given month, it’s not hard to find indeed numerous instances that point to how distorted the system is. One recent example has come to light in connection with the launch of the first Humira-referenced biosimilar, Amjevita (adalimumab-atto). PBMs favor the use of a much higher-priced version of the same product (Amjevita). This indicates a perverted incentive structure that disadvantages the less costly version of the product. It implies that many patients will have to pay more for the exact same product because PBMs place the higher-priced agent on certain formularies, while excluding the lower-priced therapeutic. Alternatively, PBMs consider the higher-priced agent “preferred,” which means they put it in a favorable spot on formulary compared to the lower-priced version.
Former Assistant Director at FTC of Policy and Evaluation, David Balto, wants “corrective action taken” to address the oligopoly that characterizes the PBM market. Balto was Assistant Director, Policy and Evaluation at the Federal Trade Commission from 1997 to 2001. According to Balto, the most optimal way to effect change is when the FTC works in concert with Congress.
Balto asserts that the time has come for Congress to ensure less gaming of the system. In his opinion, PBMs have evaded scrutiny and accountability for far too long, all the while pursuing “abusive, deceptive practices.”
What’s particularly problematic, says Balto, is when rebate traps or walls are involved. Branded drug manufacturers leverage their position as market leaders by offering financial incentives to PBMs and health insurers in the form of “all or nothing” conditional volume-based rebates, in exchange for (virtually) exclusive positioning on the formulary. This can mean keeping competitors off the formulary entirely, or severely limiting formulary access to a competing drug with drug utilization management tools like step edits. In this context, a patient must use a preferred drug and fail on it (a so-called “fail-first” policy) before stepping up to a non-preferred drug.
Because the portion of the rebate retained by PBMs is often calculated as a percentage of a drug’s list price, PBMs can have incentives to establish formularies that favor branded drugs with higher list prices and larger rebates over lower priced biosimilars, specialty generics, or even branded competitors. Rival drugs entering the market lack sufficient sales volume to be able to offer the same level of rebates to PBMs that originator firms can provide. The higher the list price the greater the rebate. This is good for fattening PBMs’ wallets, but bad for patients whose co-insurance is calculated on the basis of the list price.
Until now, the FTC has virtually ignored PBMs. Moreover, FTC hasn’t enforced in a meaningful way in two decades. Balto suggests the FTC needs to now “test the use of a broad range of tools it has at its disposal.”
Senators Maria Cantwell (D-WA) and Chuck Grassley (IA) have been at the forefront of the bipartisan push to force PBMs to be more transparent in their business practices and ban unfair pricing schemes.
And, in yet another effort to investigate PBMs, House Oversight Committee Chair James Comer (R-KY) is beginning an investigation into PBM “tactics that are harming patient care and increasing costs for consumers.”
PBMs are again in the crosshairs of Congress and the FTC. This time, Congress is seeking ways to coordinate with the FTC to enact reforms. It’s becoming increasingly probable that some kind of action will be taken to create a more transparent drug pricing and rebate system.