Earlier this month, the Federal Trade Commission (FTC) released an interim report on the impact of pharmacy benefit managers (PBMs) on the accessibility and affordability of prescription drugs. Now, the House Oversight Committee has called the "Big 3" PBMs, which control the processing of nearly 80% of all Americans’ prescriptions, to testify on July 23.
Will this finally be a turning point for patients, or will the committee ask the same old questions that will be dismissed with the same canned answers the public has heard for years?
This is a critical time for patients and independent pharmacies as these opaque middlemen finally come under the spotlight. The interim report called out the multitude of levers PBMs have at their disposal to tip the scales to their own benefit, including vertical integration with insurers, self-preferencing for their own retail and mail-order pharmacies, unfair contracts with independent pharmacies, and formulary management that limits access to potentially lower-cost generic and biosimilar treatments.
At the core of the PBM defense lies the admirable tenant that they negotiate with pharmaceutical companies to save money for their plan members. At the inception of the PBM business, they did serve just this function, but in the past decade, they have changed their operating model to line their pockets and those of their clients and parent companies, large insurers. This is why, despite PBMs' “work to negotiate” with manufacturers, we still see insurance premiums increasing to unprecedented levels. In fact, the negotiations more often ensure that PBMs’ profits continue to rise.
The PBMs have one major advantage: the complexity of the system they created. In the defense of lawmakers and regulators, the bizarreness of prescription drug pricing is more complex than any layperson could comprehend. In a June 21 New York Times article, the authors alleged that this opaqueness enables PBMs to “secretly inflate drug prices.” The Committee members are now tasked with asking the right questions to unveil these “secrets” in hopes they will receive answers to clarify and not further confuse.
In retail pharmacies, where most Americans prefer to receive their medications and health counsel, we look at drug pricing from the bottom up. The details released in the interim report pertaining to our portion of the process are factual, in our opinion. But to “dig in,” committee members must get into the minutiae of drug pricing.
The FTC’s interim report concluded what pharmacies have known for years: PBMs often favor high-cost brand medications over lower-cost generics. Instead of fighting against big pharma, PBMs pit manufacturers against each other until one offers the highest possible incentive for the PBM to keep patients on their brand medications. When the brand is dispensed, the PBM receives a rebate – it’s that simple.
But it doesn’t stop there. PBMs have recently set up group purchasing organizations (GPOs), which the FTC is now investigating, to charge manufacturers additional fees. These new, vertically integrated companies were designed to protect PBMs’ profit stream after employers called for greater sharing of manufacturer discounts. The fees extracted by these GPOs drive up list prices by forcing manufacturers to account for the fee when determining a medication’s price.
While much of the attention on pricing is rightfully placed on brand medications, this is only part of the story. As our pharmacy and many other independent pharmacies have experienced, PBMs subject us to reimbursement constraints like Maximum Allowable Cost (MAC). PBMs create MAC pricing, or the most they will reimburse a pharmacy for a medication, for most commonly dispensed generic drugs. Each PBM has a different MAC pricing schedule, and most PBMs have multiple MAC lists, which vary according to the plan they offer and are not grounded in the actual pharmacy acquisition cost. You can assume that if a drug plan is less profitable to a PBM, then the MAC will also be lower. PBMs can change MAC prices daily, resulting in large variations in pharmacy reimbursement and undermining their hopes of profitability.
Now, the Oversight Committee has a chance to expose these middlemen's shady practices and determine why these companies, which claim they have nothing to hide, have failed to comply with the FTC’s requests for information.
On behalf of patients and community pharmacy owners nationwide, I am issuing a challenge to the Committee: ask the tough questions on some of the most pressing issues with PBMs. The Committee needs to ask why these companies have refused to comply with the FTC and to push the leaders called to testify to commit to improving formularies in a way that will increase access to lower-cost treatments like generics and biosimilars.
For pharmacy owners, who these legislators represent, the Committee should press the Big 3 PBMs to explain why their undisclosed, proprietary MAC pricing for generic medications is often below pharmacy acquisition cost and make them commit to stop their unfair and abusive ‘take-it or leave-it' contracting practices, which disadvantage independent pharmacies and contain countless vague fees. Looking ahead, the Committee needs to ask about their plans for Medicare Part D premium increases and formulary changes they plan to enact as a result of the $2,000 out-of-pocket cap on medications beginning in 2025.
The hearing next week provides an opportunity to pinpoint the root cause of our country’s drug pricing dilemma, weighed down by gatekeepers with warped incentives. I hope they approach this responsibility seriously and take steps to enact positive change for all those who rely on prescription medications to live healthier lives.
Todd Stephens is COO of Stephens Pharmacy and Northeast Med-Equip.
