More Scrutiny and Criticism of PBMs

Senators and most of the witnesses at a Senate Finance Committee hearing on pharmacy benefit managers (PBMs) yesterday leveled unsparing criticism at the industry’s dominant companies, casting them as using market power and secretive practices that make them profits and result in high list prices for drugs that harm patients and the finances of the Medicare program.

Some of the five witnesses acknowledged the industry’s argument that the rebates that the PBMs get from drug manufacturers may help lower premiums. But that point was cast in a negative light.

Karen Van Nuys

“Passing rebates through to the health plans creates its own problems for patients. Health plans may use them to lower premiums, but this decreases the effective generosity of coverage. It transfers resources from sick patients to health beneficiaries,” said Karen Van Nuys, Ph.D., of the Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California and a leading academic researcher of PBMs.

Robin Feldman

Another witness, Robin Feldman, J.D., of the University of California College of the Law, told the senators that “although the pharmaceutical supply chain is a complex system, the overview of these aspects of the problem can be summarized fairly simply: PBMs are able to exploit their role at the center to extract dollars and channel the system into higher priced drugs.”

The industry was not represented at the hearing but its trade group, Pharmaceutical Care Management Association, put out a statement that blamed drug manufacturers for high drug prices, hewing to a line of attack that the association has stuck with as their members come under scrutiny and criticism.

“Testimony heard today in the Senate Finance Committee largely ignored the reality that drug companies set the prices of the products they make and sell – not the companies negotiating for discounts for patients, employers and taxpayers,” said the association’s statement.

Lawton Robert Burns

The hearing featured one witness who was friendly-to-neutral on the PBMs. Lawton Robert Burns, Ph.D., MBA, at professor at the University of Pennsylvania’s Wharton School, said that healthcare is full of intermediaries like PBMs and that no one likes intermediaries. But PBMs serve the interests of health plans and the ERISA plan sponsors who utilize them, Burns said. “The PBMs are agents. They are not rogue actors in the healthcare system, said Burns, suggesting that the bigger problem in healthcare was little or no competition among specialty pharmacies.

The hearing yesterday was latest in a series of hearings and announcements that have thrust PBMs center stage. Sen. Maria Cantwell, a Washington state Democrat and chair of the Senate Committee on Commerce, Science and Transportation, held a hearing in February on the Pharmacy Benefit Manager Transparency Act of 2023, which would ban certain PBM practices and create some annual reporting requirements to the Federal Trade Commission (FTC). The FTC announced in June 2022 that it was launching an inquiry into PBM business practices. Earlier this month, Rep. James Comer, a Kentucky Republican and chair of the House Committee on Oversight and Accountability, announced that he was launching an investigation of PBM tactics.

Jonathan Levitt

The other two witnesses at the Finance Committee meeting yesterday were Jonathan E. Levitt, founding partner of Frier Levitt Attorneys in New Jersey and New York, who has successfully sued PBMs on the behalf pharmacies, and Matthew Gibbs, Pharm.D., president of Capital Rx, a PBM founded in 2017 that is positioning itself as a transparent rival to the three companies that dominant the industry and the targets of today’s hearing, Express Scripts, Optum Rx, and CVS Caremark.

Levitt spoke critically of the direct and direct remuneration (DIR) fees that PBMs collect from pharmacies after drugs have been sold and the general purchasing organizations — he called them rebate aggregators — that the PBMs have set up overseas. Levitt said the PBMs “extracted” $12.6 billion in DIR fees from pharmacies in 2021 and that the adherence methodologies that they use to assess the fees are “designed to cheat pharmacies and are shrouded in secrecy.”

“These top PBMs are driving independent pharmacies out of business, creating pharmacy deserts, especially in rural areas, fueling drug list prices higher for all Americans and delaying and denying treatment for the sickest Americans, including those with serious diseases like cancer.”

Matthew Gibbs

Gibbs focused on pricing and particularly the average wholesale price, which he said PBMs use to their advantage and helps keep the drug pricing uncertain and unclear. Capital Rx uses the National Average Drug Acquisition Cost (NADAC) instead, and Gibbs said compulsory NADAC reporting from retail, mail order and specialty pharmacies would spur competition and bring “cost insights to payers and patients alike.”

The criticism of PBMs was echoed by several senators. Sen. Ron Wyden, an Oregon Democrat and chair of the Finance Committee, said that he believed the industry was going in the wrong direction. “It’s been increasingly apparent that PBMs are using data, their market power and their know-how to keep prices high and pad their profits instead of sharing the benefits of the prices they negotiate with consumers in the Medicare program.”

Wyden also spoke about information from published studies done by Van Nuys — she also mentioned the findings — and Harvard researchers that have shown prices disparities between what PBMs charge and the prices charged by Costco and Mark Cuban Cost Plus Drugs.

Gina Guinasso

Wyden also shared assertions in a letter to the committee from Gina Guinasso, J.D., president of CivicaScript, a nonprofit generic drug in Lehi, Utah, that PBMs have not willing to deliver its version of abiraterone, a prostate cancer drug. Guinasso says in her letter says CivicaScript version is priced at $160, plus a $11 dispensing fee, whereas the average Medicare Part D claim was $3,000.

Guinasso says one of the possible reasons for the reluctance is that abiraterone is classified as a specialty drug and therefore dispensed by specialty pharmacies. The vast majority of the specialty dispensing in the U.S. occurs through PBM-owned specialty pharmacies, she says in the letter. “Therefore, the same entity that is theoretically working on behalf of the health plans, consumers and Medicare to reduce drug costs has an incentive to maximize its revenue from dispensing” wrote Guinasso.