PBMs Get Heavy Dose of Criticism at Senate Hearing

Pharmacy benefit managers (PBMs) came under some harsh attacks and critiques today at a Senate hearing about legislation that would add reporting requirements and ban several PBM practices

Several senators and witnesses portrayed the large PBMs as enemies of independent pharmacies and working against the financial interests of consumers and insurance beneficiaries.

“The way I see the situation on PBMs, I don’t even know the hell they even exist,” said Sen. Jon Tester, a Montana Democrat. “They’re shutting down small businesses, right and left, and those are called our local neighborhood pharmacies.”

A witness, Erin Trish, Ph.D., co-director and an associate professor of pharmaceutical and health economics at the Schaeffer Center at the University of Southern California, said the rebates that PBMs receive reduce premiums but increase out-of-pocket costs. "Put another way, the system transfers financial resources from sick patients to healthy, premium-paying beneficiaries, the opposite of insurance is supposed to do.," she told the senators

Trish summarized research of insulin pricing done by the Schaeffer Center that has shown that less than half of the money spent on insulin goes to the manufacturers. “Instead, the majority gets siphoned away distribution system intermediaries, a parasitic loss if you will.”

The PBMs had a defender in one witness, Casey Mulligan, Ph.D., a University of Chicago economist. He compared PBMs to buying clubs and Costco said they lower prices and help create a system that results in access to new drugs. “Sadly, European patients do not have PBMs working for them and they are treated with less effective, older generation oncology and other drugs,” Mulligan said.

Answering questions from Sen. Ted Cruz, a Texas Republican, Mulligan said PBM legislation sponsored by Sens. Maria Cantwell, a Washington State Democrat, and Chuck Grassley, an Iowa Republican, would increase the federal deficit by as much as $40 billion a year by reducing competition and downward pressure on drug prices. Mulligan also said the legislation would add regulatory burdens on PBMs and agreed with Cruz that an exemption for smaller PBMs would be beneficial.

The other two witnesses at the hearing were Debra Patt, M.D., Ph.D., an oncologist and executive vice president of Texas Oncology, and Ryan Oftebro, Pharm.D., the CEO of Kelley-Ross Pharmacy Group, an independent pharmacy in Seattle. Patt and Oftebro were critical of PBMs.

Cantwell and Grassley’s legislation would require PBMs to file reports with Federal Trade Commission on their fees and rebates, which the industry’s critics say would bring need transparency to arcane pricing practices. The rebuttal from PBMs is the information is necessarily secret for them to bargain effectively. The FTC launched an investigatory study of the PBM industry last year. Such studies can take years to complete.

Cantwell and Grassley bill’s also directs the General Accounting Office to report on the role that PBMs in the drug supply change.

Political pressure on PBMs is increasing as many states are now tightening up regulations and passing laws that ban practices such as spread pricing whereby the PBM collects from from a payer than it does from a pharmacy.

Trish said in her testimony that the character of the PBM industry has changed. PBMs, she said, used to be relatively small businesses that were independent from insurers and added value by encouraging the use of generics and other practices.

“However, a wave of consolidation and other activities in the last few years have distorted behavior,” Trish said. “Unfortunately evidence indicates that PBMs are now leveraging their position to extract profits in ways that are detrimental to patients, payers and the drug innovation system more broadly.”

About 80% of the PBM business is controlled by the Optum Rx, Express Scripts and CVS Caremark. Optum Rx is part of UnitedHealth Group, Express Scripts is owned by Cigna and CVS Caremark is a division of CVS Health, which owns Aetna.

The PBM trade association, the Pharmaceutical Care Management Association, issued a statement from its CEO, JC Scott, before the hearing attacking Cantwell and Grassley’s bill as doing “absolutely nothing to lower prescription drug costs,” misconstruing the role of PBMs and taking away employers’ choices about managing pharmacy benefits. Scott's statement says that PBMs save payers and pateints $1,040 a year on average.