Wrong prescription for drug competition

For a health care market to work you need consumer choice, transparency and a lack of conflicts of interest. When it comes to Pharmacy Benefit Managers (PBMs), the intermediaries that manage drug benefits, each of these elements is missing and ultimately consumers suffer from less choice and higher costs.   

PBMs are the least regulated aspect of the healthcare delivery system. The market is dominated by two firms -- ESI/Medco and CVS/Caremark -- which deny consumers information, create barriers for access and reimbursement and use their market clout to raise costs and deny consumers access to their valued pharmacy. The result is almost always higher prices, less access, and endangered patient health. PBMs ratchet down reimbursement for pharmacies but any savings are not being passed on to the consumer. The profits of the dominant PBMs, meanwhile, have increased from $900 million seven years ago to over $9 billion today..

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Normally we could expect the nation’s antitrust enforcers to put a stop to this type of egregious conduct. Surprisingly though, the Federal Trade Commission has been entirely silent while the situation has worsened for consumers - permitting massive consolidation among PBMs, taking no enforcement actions against deceptive or anticompetitive practices, permitting massive conflicts of interest, and opposing state efforts to reign in PBMs.

The PBM market seems to be on a clear path to monopoly.  In the past decade there have been dozens of mergers culminating with Express Scripts acquisition of Medco and CVS’ acquisition of Caremark.  Those two firms now control over 80% of the market.  All evidence demonstrates more concentration leads to less access for consumers, higher prices and poorer service.

Market concentration is only a small part of the problem.  PBMs were supposed to be “honest brokers” acting as an intermediary seeking the lowest price and best service while treating all pharmacies in a similar fashion.  But since they own their own mail order businesses (or in the case of CVS/Caremark – their own pharmacies) the PBMs have a conflict of interest.  PBMs use their power to force consumers to use mail order or “heist” the customers of community pharmacies. But mail order is often a bad deal for health plans and consumers, since it results in greater waste and far less use of lower cost generic drugs.  Ultimately consumers pay more.

Nowhere is the conflict of interest more severe than when it comes to expensive specialty drugs used for consumers with life threatening conditions such as HIV, hemophilia, Hepatitis C, and various forms of cancer or infertility. Specialty drugs are very expensive and are often difficult to administer.  The two major PBMs dominate the market and increasingly force consumers to get these specialty drugs via mail order, which endangers their health and can be more costly and less safe.

Let’s remember a simple principle: the key relationship in the healthcare system is between the patient and the provider. A community pharmacy is often the most accessible health care provider available, especially in underserved rural markets.  The pharmacy helps the customer to manage the elaborate reimbursement process and get coverage from the PBM.

Community specialty pharmacies in particular are crucial members of the healthcare delivery team that monitor the patient’s health, help secure benefits, and provide essential advice. Yet PBMs have gamed the system so they make far more money on a single prescription than the pharmacist who buys the drug, dispenses the drug, and provides crucial health care advice.  Additionally, the PBMs’ strong-arm tactics – like refusing to pay for prescription unless they are provided by mail – prevent consumers from using their trusted community pharmacies. If we want our health system to work we want to be paying for service, not paying for moving money.

Fortunately, state attorneys generals have brought cases against the major PBMs and secured over $370 million in penalties and fines.  Some of the conduct attacked includes switching patients to more expensive drugs to pad profits, not passing on rebates, and shipping or billing for medication that was never ordered. 

Yet when states try to regulate PBMs, the FTC intervenes and sides with the PBMs, protecting the PBMs' unregulated world.  Fortunately some states know the real risk is in allowing the PBMs to become the robber barons of the drug industry and have dismissed the FTC’s advice.

Now it is time for Congress to act.  On December 3, the U.S. House of Representatives’ Energy and Commerce Committee will evaluate the FTC on its 100th birthday.  It should start by taking the FTC to task on the lack of PBM enforcement and the impact of that lax enforcement on consumers and pharmacies. 

Balto is a public interest and policy attorney in Washington D.C. and former policy director of the FTC.

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