FTC’s PBM Investigation Could Lead to Unintended Consequences

Legislative and Federal Trade Commission efforts to rein in the PBM industry could lead to some unintended consequences, according to Susan Lang, CEO and founder of XIL Health. The PBM industry is facing increased scrutiny over policies and practices that have developed over the last decade alongside structural changes in healthcare that have led to more Americans facing higher out-of-pocket costs.

Susan Lang

Structural changes in the market have created several pressures in healthcare, Lang said in an interview with Formulary Watch. “This has created a misalignment between the PBMs, their clients and consumers.” In particular, the consolidation of health plans and PBMs has created a very different healthcare system with different incentives from just a few years ago.

As a consequence, the Federal Trade Commission (FTC) has launched an investigation into PBM practices, including the impact of rebates on formulary design, the costs of prescription drugs to patients, and methods to determine pharmacy reimbursement. Separately, the FTC indicated in an enforcement policy statement that indicates rebates and fees that exclude competitors offering lower-cost drug alternatives can violate competition and consumer protection laws.

Related: FTC Launches Investigation of PBMs

At the same time, numerous lawsuits have been filed and legislative efforts aim to force transparency within the PBM industry, requiring them to report how much money they make through spread pricing and pharmacy fees.

These efforts — as well as a new rule by the Center for Medicare & Medicaid Services to eliminate direct and indirect remuneration fees, the “clawbacks” that PBMs use to take money back from pharmacies — will help address some of the biggest complaints about PBMs.

But Lang said that this is likely to be a win-lose game. “This is a multi-billion-dollar space that is dominated by Fortune 100 companies,” she said. “These big Fortune 100 companies, whether they are drug manufacturers or PBMs, or large pharmacies or a health plans, they are now fighting each other to get to the amount of revenue and profit they need to fund their earnings. So, if you can take the DIR fees away, the question will be, how do they refill that bucket of lost revenue?”

The integration of PBMs and health plans is just one major shift impacting the marketplace, she said. The two others — including high deductible plans and the gig economy — impact consumers’ ability to access healthcare.

Industry Consolidation

On the integration front, the three large PBMs are now part of large healthcare companies, with the most recent one being Cigna’s acquisition of Express Scripts in 2018. Optum and OptumRx are a part of UnitedHealthcare. CVS’s businesses include both the PBM Caremark and the health insurer Aetna.

Lang, who once worked for Express Scripts, said this consolidation changes the way the PBMs think about the industry. “Contracts now are so vague that nobody actually knows what the contract says anymore,” she said. “Even those of us who have written contracts for years can’t even interpret them.”

For example, Lang said, “brand” and “generic” are not defined in these contracts even though FDA approves drugs based on standard definitions. “It’s anything that PBM wants it to be,” she said. “They can take a generic drug and classify that as a brand where you’ll have a higher copay. And they can take a brand drug and classify it as generic, so you’ll have a lower copay, depending on what benefits them the most. This is horrible for the pharmacies, because pharmacies never know how they’re going to get paid.”

She said there has been a slow erosion of clarity overtime in an effort to protect earnings.

“It used to be that when we put a new program in place, we made sure it benefited both our clients and the consumers and that neither were harmed,” she said. “That has gone out the window.”

Additionally, Lang said rebates that PBMs get from manufacturers are not passed along to consumers. This is especially important as more specialty and high-cost therapies have been approved.

Although nine out of 10 prescriptions filled are for generic drugs and less than 2% of the population uses specialty drugs, they now account for more than half of all drug spend. PBMs and insurance companies have developed many strategies to manage specialty drugs, including using prior authorization and other utilization management tools, placing these drugs on higher tiers on the formulary, and asking patients to pay a higher co-pay.

“This has opened the door to GoodRx and others to say if you pay cash, you can get a better price,” Lang said. “Something’s wrong with that picture. If you’re paying premiums to have insurance, and you can get a drug cheaper without insurance, there’s something completely wrong with the economics of this industry. There’s a misalignment going on here.”

Changes in the Marketplace

The integration of PBMs/healthcare companies and the changes in PBM strategies come at the same time that shifts happening on the consumer end are making it difficult for patients to access the care they need. One such trend is the increased use of high deductible health plans. From 2009 to 2020, the percentage of workers at all firms enrolled in plans with a deductible of more than $1,000 has risen from 17% to 47%, according to the Peterson-KFF Health System Tracker. In smaller companies of three to 199 employees, the percentage of workers in these plans was 34% in 2009 and 57% in 2020.

Although premiums in these plans can grow more slowly, consumers face higher out-of-pocket costs. “Families may not be able to afford high deductible plans, so they go later to the doctor, or they won’t take all their medicines,” Lang said.

The Commonwealth Fund’s Biennial Health Insurance Survey from 2020 found that deductibles have grown faster than incomes, and people who get coverage through the Affordable Care Act marketplaces are more likely to face deductibles that are higher relative to their incomes than those in employer plans.

Another significant shift is the growth of the gig economy, placing more pressure on the marketplace,” Lang said.

People working in nontraditional, short-term or contract work may not have health insurance, or they may buy insurance through the ACA marketplaces or from online companies offering short-term plans that may leave them underinsured. Unlike plans offered through the ACA, these short-term plans may have pre-existing condition clauses and may not guarantee renewal.

According to Pew Research Center in a December 2021 survey of people who work for platforms such as Uber, TaskRabbit, or DoorDash, 16% of Americans earned money in. About 30% of those surveyed said this was their main income. And according to Statista, 24% of full time freelancers purchased insurance on their own.

The Marketplace of the Future

These structural changes, Lang said, are likely to lead to a vastly different healthcare market in the future, Already, she said, we are seeing nontraditional entrants in the marketplace such Amazon and Mark Cuban Cost Plus model for prescription drugs. She said there is a lot of private equity money working to develop new technology solutions and new innovations.

Amazon in 2018 acquired the online pharmacy PillPack and now delivers prescription through Amazon Pharmacy. And just recently Amazon agreed to acquire One Medical, a primary care organization, for about $3.9 billion. This proposed acquisition is not without controversy, with concerns about privacy, and Amazon could find it difficult to make a profit in primary care.

But One Medical uses a subscription-based model for providing primary care in 12 markets, as well as through virtual care.

Lang suggests we will likely see more subscription-based models and other innovations in the pharmacy space as well to address some of the misalignments. “Consumers can budget for this without these big out-of-pocket expenses. One of the problems is a lack of transparency especially with the high deductible plans. Consumers go to the pharmacy or the doctor, they don’t know what it’s going to cost until they get there.”