Recently, the House Committee on Oversight and Accountability held a hearing on pharmacy benefit managers (PBMs), “The Role of Pharmacy Benefit Managers in Prescription Drug Markets Part II: Now What the Doctor Ordered.” The hearing included member and witness statements and highlighted the importance of greater transparency in the PBM industry, potentially including Congress addressing PBMs’ pricing tactics. As discussed in the hearing, just three PBMs control more than 75% of the market and they have a heavy hand in deciding what patients pay out of pocket and which medicines they can get.
Present to testify at the hearing were JC Scott, President and CEO of Pharmaceutical Care Management Association (PCMA); Lori Reilly, Esq., Chief Operating Officer of PhRMA; Craig Burton, Executive Director, Biosimilars Counsil and Senior Vice President, Association for Accessible Medicines; Hugh Chancy, RPh, President of the National Community Pharmacists Association (NCPA); and Rena M. Conti, Ph.D., Associate Professor, Department of Markets, Public Policy, and Law Questrom School of Business.
Representative Comer commented that “PBMs started out as beneficial additions to the healthcare system because they were competing with each other to provide clarity to pharmacies, payers, and patients about drug costs. But that environment of competition and transparency is no longer true today. Instead of fierce competition, now just three PBMs control 80 percent of the market. And each of the three major PBMs—CVS Caremark, Express Scripts, and Optum Rx—is owned by a major health insurer and owns, or is owned, by a pharmacy. This means that when PBMs negotiate with a pharmacy or a health insurer, they are either negotiating with themselves or one of their direct competitors. This can create incentives to do things that have negative impacts on patients. That is why the Committee’s examination of PBMs is a priority this Congress.” He further noted that these anticompetitive tactics is likely an issue Congress can combat with bipartisan legislation.
During his testimony, JC Scott emphasized that while PBMs are not required, health plan sponsors often utilize them, even saying that “when PBMs are not used, it costs plan sponsors, patients, and taxpayers money.” He noted that “as an industry, pharmacy benefit companies welcome any opportunity to discuss and advance ways to improve the prescription drug marketplace so patients can better afford their prescription drugs and plan sponsors can continue to offer robust prescription drug benefits.”
Lori Reilly, during her testimony, emphasized the impact PBMs have on innovation, access, and cost containment for the competitive market for prescription medicines. Reilly noted that since 2000, more than 750 new medicines have been brought to the U.S. market, but retain and physician-administered medicines represent just 14% of overall health care spending, with less than half of that spending going to brand biopharmaceutical companies, while the rest goes to PBMs, health plans, the government, hospitals, pharmacies, generic manufacturers, and others. In helping make this point, Reilly pointed to the horizontal and vertical integration PBMs have gone through, which have helped to increase their influence throughout the prescription drug supply chain.
Craig Burton spoke to the value of generic and biosimilar medicines, noting that they represent 90% of all prescriptions filled in the United States, but only account for 17.5% of prescription drug spending. He further discussed the unique challenges generics and biosimilars each face, including achieving preferred formulary coverage.
Hugh Chancy testified as a pharmacist and pharmacy owner, with particular focus on how PBMs have “negatively impacted my ability to care for my community.” Chancy referred to the 80% of market share owned by the three largest PBMs and how the three PBMs are also vertically integrated with their own retail and/or mail-order pharmacies, which has often forced patients into using the PBM-affiliated pharmacy, with nearly no choice in the matter. He raised concerns that “the vertical integration of PBMs into monoliths with affiliated upstream insurance providers and downstream mail-order, specialty, and retail pharmacies has only increased the incentives for PBMs to disfavor independent pharmacies and steer patients to their own affiliated pharmacies, with no regard for the patient’s preference on where they receive care.”
Rena M. Conti, PhD, discussed some proposed current policies and the impact they may have, particularly noting that “while PBMs do provide efficiencies in the U.S. retail prescription drug market, there are emergent challenges.” Conti further noted that “greater transparency into the PBM market may improve consumers and employers’ ability to select plans and PBMs that meet their needs at the pharmacy counter,” but that “simple solutions” may “act perversely in such a complicated market.”
PhRMA and AMA Reports
One day before the hearing, a new report from Nephron research found that PBMs demand double the amount of fees today than they did five years ago. PhRMA summarized four takeaways from the report: (1) the share of PBM profits from fees that are charged to manufacturers, pharmacies, health insurers, and employers increased by more than 300% over the last decade; (2) fees that PBMs charge biopharmaceutical companies doubled in the commercial market over the last five years ($3.8 billion in 2018 compared to $7.6 billion in 2022); (3) PBMs largely tie fees to the price of medicines, which is perceived as a barrier to lower list prices; and (4) rebates and fees received by PBMs account for 42% of every dollar spent on brand name medicines in the commercial market.
The American Medical Association (AMA) also published a report finding that local PBM markets are highly concentrated and had continued to consolidate since the prior report, indicative of a widespread decline in competition in local PBM markets throughout the United States. “The effects of less competition and more vertical integration in the PBM industry deserve regulatory scrutiny as a check against anticompetitive business practices that harm patients by raising drug prices, lowering quality, reducing choice and stifling innovation,” said AMA President Jesse M. Ehrenfeld, M.D., M.P.H. “As momentum grows for PBM reform in Congress, the AMA continues to lend its support to bipartisan bills that help promote greater transparency and oversight of PBM policies and practices to ensure prescription drugs are affordable and accessible.”