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Federal regulator: Pharmacy middlemen appear to be raising prices, hurting patients


The federal trade watchdog on Tuesday released an interim report saying that sprawling health care conglomerates are driving out competition in the pharmacy sector and appear to be increasing prices in the process.

The interim report comes after the Federal Trade Commission in 2022 announced that it was undertaking a sweeping investigation of pharmacy middlemen known as pharmacy benefit managers or PBMs.

Each of the largest three PBMs — CVS Caremark, Express Scripts, and OptumRx — is part of a much-larger corporation that also owns a top-10 health insurer. They also own pharmacies, doctors’ offices, and other links in the health chain, prompting the FTC to say they’re “vertically integrated.”

The corporations’ pharmacy benefit managers act as insurers’ representatives in pharmacy transactions. They decide which drugs are covered, they create pharmacy networks, and, through an opaque system, they decide how much to reimburse pharmacies for the drugs they dispense.

The three biggest PBMs together handle nearly 80% of prescription-drug transactions on behalf of insured Americans, the FTC report said. The largest six PBMs manage nearly 95% of all such prescriptions in the United States, it said.

“Amidst increasing vertical integration and concentration, these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies,” an executive summary of the report says.

The summary adds that the big PBMs “wield enormous power and influence over patients’ access to drugs and the prices they pay. This can have dire consequences for Americans, with nearly three in 10 surveyed Americans reporting rationing or even skipping doses of their prescribed medicines due to high costs.”

For its part, and industry group representing PBMs said the businesses “have a proven track record of reducing prescription drug costs” and that they “recognize the vital role pharmacies play in creating access to prescription drugs for patients.”

Unfair treatment

JC Scott, president of the industry group, the Pharmaceutical Care Management Association, said the FTC had treated the PBM industry unfairly.

“Throughout this process, FTC leadership has shown that they have pre-determined conclusions that they want to advance irrespective of the facts or the data, and this report demonstrates an intention to follow through on their agenda regardless of the evidence,” Scott said in a statement.

But many independent and small-chain pharmacies dispute that PBMs have their interests at heart.

Because they control access to so many patients, most pharmacies — especially small operations — feel they have little choice about signing the contracts the big PBMs offer them. For years, they’ve been complaining of declining reimbursements and seemingly arbitrary clawbacks from the huge PBMs. Many have been fleeing the business, saying they’re unable to cover their expenses.

Late last month, for example, news broke that Rite Aid would close hundreds of stores in Ohio and Michigan, with many more likely to close in the other 14 states where the bankrupt chain operates. The company tends to operate in smaller communities and the FTC says pharmacy closures in such communities are particularly harmful to patients.

“PBMs also exert substantial influence over independent pharmacies, who struggle to navigate contractual terms imposed by PBMs that they find confusing, unfair, arbitrary, and harmful to their businesses,” the agency said in a statement accompanying the interim report.

“Between 2013 and 2022, about 10% of independent retail pharmacies in rural America closed. Closures of local pharmacies affect not only small business owners and their employees, but also their patients. In some rural and medically underserved areas, local community pharmacies are the main healthcare option for Americans, who depend on them to get a flu shot, an EpiPen, or other lifesaving medicine.”

‘Extraordinarily opaque’

CVS operates the largest retail chain, so when its PBM decides how much to reimburse pharmacies for drugs, it’s using what the FTC called an “extraordinarily opaque” system to pay its own pharmacies and its competitors for the drugs they dispense.

Similarly, all three of the biggest PBMs operate mail-order pharmacies for expensive “specialty” drugs such as cancer medication. And they often encourage — if not require — patients to get their medicine from them. That has resulted in PBM-affiliated specialty pharmacies controlling 70% of sales in that class of drugs, the FTC report said.

Using mail-order for complex, quickly changing cancer drug regimens has led to horror stories among patients forced to get their drugs that way. Meanwhile, the FTC report uncovered evidence that in at least some instances, PBMs are paying their own companies’ pharmacies more for drugs in those transactions than they do their competitors.

“Our analyses also highlight examples of affiliated pharmacies receiving significantly higher reimbursement rates than those paid to unaffiliated pharmacies for two case study drugs,” it said. “These practices have allowed pharmacies affiliated with the three largest PBMs to retain levels of dispensing revenue well above estimated drug acquisition costs, resulting in nearly $1.6 billion of additional revenue on just two cancer drugs in under three years.”

Such practices have already prompted Ohio Attorney General Dave Yost to sue Express Scripts under the state’s antitrust law, the Valentine Act.

PCMA, the industry group, accused the FTC of using an unrepresentative sample in its analysis.

“Today’s interim FTC report falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market,” Scott, the group’s president said.

“Members of the commission themselves disagree with the content of the report and the decision to release it. This report is based on anecdotes and comments from anonymous sources and self-interested parties, and supported only by two cherry-picked case studies that are implied to be representative of the entire market. The report completely overlooks the volumes of data that demonstrate the value that PBMs provide to America’s health care system by reducing prescription drug costs and increasing access to medications.”

Rebates, discounts

The FTC report also slammed arrangements under which the big PBM’s negotiate huge rebates and other discounts from drugmakers.

Because PBMs control access to so many patients, they have great leverage when they negotiate rebates and other discounts from makers of patented or “branded” drugs. The middlemen control the “formulary,” or list of covered drugs, and manufacturers have to cough up big if they want their products to be on it.

The system of granting huge, non-transparent discounts has already been shown to increase the “list” price of drugs. That’s the amount you would pay if you didn’t have insurance — and often the price on which your copayment or deductible is based.

The FTC said it came across another way the rebate system appears to be costing patients — by locking them out of cheaper generics that would work just as well.

“While this interim report principally focuses on the relationship between PBMs and pharmacies, we share evidence that PBMs and brand pharmaceutical manufacturers sometimes enter into agreements to exclude generic drugs and biosimilars from certain formularies in exchange for higher rebates from the manufacturer,” the report said. “These exclusionary rebates may cut off patient access to lower-cost medicines and warrant further scrutiny by the Commission, policymakers, and industry stakeholders.”

FTC Chairwoman Lina Khan in March said that some of the PBMs weren’t cooperating with the investigation. Those problems apparently persist.

“The report notes that several of the PBMs that were issued orders have not been forthcoming and timely in their responses, and they still have not completed their required submissions, which has hindered the Commission’s ability to perform its statutory mission,” the agency said in a statement.

“FTC staff have demanded that the companies finalize their productions required by the 6(b) orders promptly. If, however, any of the companies fail to fully comply with the 6(b) orders or engage in further delay tactics, the FTC can take them to district court to compel compliance.”

This story first appeared in the Ohio Capital Journal, a member with the Phoenix in the nonprofit States Newsroom network. Florida Phoenix is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Florida Phoenix maintains editorial independence. Contact Editor Michael Moline for questions: info@floridaphoenix.com. Follow Florida Phoenix on Facebook and X.


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  • rayfusco68

    Go to this link and compare Canadian and US drug costs:


    Medicare doesn't even need to negotiate drug costs for its members the 340B program that is available for the VA, Critical access hospitals, Federally Qualified Health Centers and Medicaid recipients has already set significantly reduced costs for patients of these healthcare systems. If Congress were to mandate access to the 340B medications to be sold to Medicare recipients at cost plus a reasonable dispensing fee there would be a dramatic savings for all Medicare patients.

    Friday, July 12 Report this