CDA: To Protect Patients and Lower Drug Costs, FTC Investigation into PBMs Must Focus on Rebates & Fees from Rx Manufacturers

On June 7th, the Federal Trade Commission announced an Inquiry Into Prescription Drug Middlemen Industry. The industry the FTC is referring to, are Prescription Benefit Managers, often referred to as PBMs.

On principle, PBMs make sense — they purchase prescription drugs in bulk, on behalf of their clients, like multi-employer health plans and insurers. This gives PBMs buying power to negotiate better prices with drug manufacturers and pharmacies. Ostensibly, PBMs should help patients benefit from lower drug prices.

But PBMs — lured by massive profits — have strayed from this cost-savings mission for several reasons, including (but not limited to):

· Using secretive “negotiations” to secure fees and rebates from the drug manufacturers; forcing drug manufacturers to offer high list prices on medications.

· Encouraging high drug list prices because PBMs often receive rebates that are calculated as a percentage of the drug manufacturer’s list price. PBMs get a bigger rebate for expensive drugs than for lower cost ones that may be a better value for the patient.

· Failing to pass on the full rebates that the drug companies offer the PBMs, this means the drug manufacturer is discounting their product, not just to benefit the patient or the insurer, but to pad the PBM’s profits.

· Engaging in “price spreading” by purchasing generic medicines at one price, and then selling it back to their customers at a higher price — again, not bringing down drug costs.

· Charging higher and higher fees on drug manufacturers and payers, resulting in more costly medicines for patients.

· Creating a highly consolidated industry, where just three companies — CVS Caremark, OptumRx, and Express Scripts — accounting for more than 3/4ths of the entire market.

· Using their scale and buying power to make unaffiliated pharmacies uncompetitive, and steering patients to the pharmacies that agree to work solely with that PBM.

· Blurring the lines between PBM and client, aligning themselves with both insurers and pharmacies — all designed to maximize profits not lower drug costs for patients.

· Forcing drug companies to agree to their terms, or leaving their medications off of formularies which determine which discounted medications patients can access.

According to the FTC’s press release, the investigation will mainly focus on both protecting small pharmacies and investigating the fees and rebates negotiated by the PBMs from drug manufacturers.

CDA would like to encourage the FTC to dedicate equal time to protecting independent pharmacies and the drug manufacturers from these anti-competitive practices. Of course, the family-owned pharmacy makes a more compelling PBM victim than a multinational drug company. But, the way PBMs treat both, means higher prices for patients. In fact, how PBMs shake down drug manufacturers and often encourage the use of higher cost medicines, means higher priced drugs for most everyone.

Finally, one might say: well, shouldn’t PBMs be allowed to profit? And, what is wrong with them making money on a price spread, or charging higher and higher fees, or keeping a percentage of the rebate? Well, what is wrong, is that PBMs are supposed to lower drug costs. So, if PBMs are forcing payers and drug companies to charge customers more — than they aren’t really lowering drug prices for patients, are they?