Okay, maybe it wasn’t a rap battle. But there was plenty of drama on Wednesday night, when bipartisan group of six Congressmen took to the House floor for an hour-long airing of the abuses of Pharmacy Benefit Managers, or “PBMs.” Rep. Doug Collins (R-GA), Brian Babin (R-TX), Buddy Carter (R-GA), John J. Duncan, Jr. (R-TN), Dave Loebsack (D-IA), and Austin Scott (R-GA) participated in the Special Order to explain how PBMs abuse consumers and community pharmacies. Mr. Collins also recently introduced the Prescription Drug Price Transparency Act, H.R. 1316, “to protect taxpayers and the community pharmacists who serve them by requiring greater transparency from pharmacy benefit managers (PBMs).”
Just as Hamilton was critical to the nation’s start, Congressman Collins is an indispensable advocate for community pharmacists, especially the rural and suburban patients whose healthcare is most impacted by accessibility and service. Introducing the topic for his hour of time, he correctly framed the issue of PBMs as an essential, yet oft-excluded part of the conversation on drug pricing. In debating drug prices, we cannot leave out one of the most egregious actors – not just in the drug supply chain, but in the entire health care industry – PBMs.
Monopolistic, abusive conduct that reduces choice and access
Mr. Collins introduced the PBM problem for community pharmacies, emphatically characterizing their actions as monopolistic and abusive.
There are three PBMs that dominate the market, capturing a combine 80% market share: Express Scripts, CVS Caremark, and United Health/Optum/Catamaran. While this may not represent a monopoly in the textbook sense, the behavior engaged in by PBMs toward independent pharmacies is just as problematic for everyday consumers and the marketplace. PBMs have massive market power, meaning they can set drug prices above competitive levels, reduce access, reduce reimbursement for pharmacies, and find new ways of making consumers pay more for less, raking in more profits for themselves, and then turn around and pay other actors on the supply chain (like independent pharmacies) very low rates. This is essentially what monopolies do. PBMs call the difference between these two prices the “spread.” As Congressman Collins put it Wednesday,
“PBMs commonly manipulate the pricing by something called spread pricing. PBMs charge employers a higher price for drugs than necessary, and reimburse pharmacies at the MAC, or the maximum allowable cost, which is typically lower. Spread pricing allows PBMs to skim money from the difference between the high rate they charge for a prescription and the low rate they reimburse pharmacies. Spread pricing is artificially raising the acquisition cost of pharmacy drugs by overcharging at the expense of retail pharmacies, consumers, and health plans. And that is probably one of the better things they do.”
As drug prices inflate, PBMs extract more and more cash from the healthcare system. Consumers and the economy as a whole suffer, while the PBMs gain more profits. That sounds an awful lot like a monopoly.
Ask any independent pharmacist, PBMs have a talent for making community pharmacies feel pain. Take DIR fees – a sum of money clawed back by PBMs long after pharmacies have dispensed prescriptions. According to the National Community Pharmacists Association, a group that has endorsed Mr. Collins’ bill, “Approximately 67 percent of [pharmacists polled] said that PBMs provide no information as to how much and when DIR fees will be collected or assessed, and 87 percent of pharmacists said ‘DIR fees’ significantly affect their pharmacy's ability to provide patient care and remain in business.”
Of course, in a competitive market, suppliers can’t come up with phantom fees and force their business partners to pay them. The DIR fee problem is a sign of how dysfunctional the market is.
Community pharmacists, who are often the most accessible healthcare professional to poor and rural communities, keep their doors open and dispense drugs to their patients, despite knowing that they could be losing money on those drugs. They also do this with the knowledge that PBMs could send them a claw-back bill for thousands of dollars at a time, putting their business in jeopardy. Mr. Collins took to the House floor to speak for these pharmacists, many of whom cannot speak out against PBMs for fear of breaching their contracts – and losing access to patients through insurance.
Connecting back to EpiPen
We at the CPPC have written in the past that we believe Mylan has been criticized for more than was under its control, due to the fact that people do not understand the role PBMs play in the pricing of prescription drugs. Congressman Buddy Carter, a pharmacist who knows the ins and outs of the industry, explains perfectly:
“We had a problem with Mylan Pharmaceuticals and a drug that they had, EpiPen. It went up to $600. Unbelievable. Here was a drug that is a lifesaving drug that people have to have for anaphylactic shock. We in Congress actually passed legislation that required that drug to be on hand in gyms and in schools in case there was a problem. Yet, they went up to $600. It was really interesting because, during the time that we were asking questions of the CEO, she mentioned, well, when it leaves us, it is this price right here—I am just going to use round figures—it is $150. By the time it gets to the pharmacist and by the time it is dispensed to the patient, it is $600. I asked her: What is that difference there? Where is that coming from? I don’t know. I don’t know either. Now, there is the beginning and the end. The beginning is the pharmaceutical manufacturer. She doesn’t know. The end is me, the dispensing pharmacist, and I don’t know. That is what I’m referring to when I talk about the man behind the curtain. That is where the PBMs come in. Now, they will tell you: Well, we are taking that money, and we are giving it back to the companies, to the insurance. Well, if they are, and they’re not keeping any of it, then why are their profits going up so much? Why have their profits gone up over 600 percent? It’s because they’re keeping it. They’re keeping it, and they’re adding no value whatsoever to the system. Now, they will argue the fact, they will say: Well, we are keeping drug prices down. Oh, yeah? Well, how is that working out for you?”
As of Friday morning, the public has not heard from the PBMs justifying their egregious and anticompetitive conduct. Their silence is telling. Perhaps they will show up late in the show, like King George in Hamilton and promise to “show their love by sending battalions” of lobbyists. It would take a large battalion, as the public and Congress become increasingly aware of these abusive practices. Like the Revolutionary War, their battalion won’t succeed.
As the drug price debate moves forward, like the Congressmen who spoke Wednesday night, we believe it is absolutely essential to reform the role of PBMs. That starts with passing H.R. 1316, the Prescription Drug Pricing Transparency Act.
PBMs are not yet being talked about much at the highest levels of government. Hopefully Donald Trump was watching Wednesday so we can say, “If you don’t know, now you know, Mr. President.”