Bipartisan policies in Congress meant to lower drug costs by targeting middlemen in the pharmaceutical supply chain are likely to run up against a fundamental issue: the three major pharmacy benefit managers’ chokehold on the U.S. drug market, experts said during a drug pricing transparency forum in Washington, D.C. this week.
Influential lawmakers on both sides of the aisle have gotten behind proposals to force more transparency in the sector, delink PBM compensation from the drug rebates they negotiate with drugmakers and ban PBMs from profiting off of the difference between what they charge payers and reimburse pharmacies for a drug.
But the so-called “Big Three” PBMs — CVS’ Caremark, Cigna’s Express Scripts and UnitedHealth’s Optum Rx — currently hold almost complete control over how patients access medications and the cost of those drugs.
Going after their business practices without changing that reality won’t help, experts said Wednesday during the Transparency is Rising event hosted by a coalition of small upstart PBMs.
“The solution to this can’t be just to ban existing practices. It has to be to remove the choke points that people have over particular parts of the supply chain,” said Reed Showalter, a former advisor on competition to the White House during the Biden administration and attorney with the Federal Trade Commission.
The PBM ‘pivot’ problem
Caremark, Express Scripts and Optum Rx jointly control 80% of U.S. prescriptions. The companies are all subsidiaries of massive healthcare corporations that also own a major national health insurer and pharmacy business, giving them the ability to influence multiple stages of a drug’s journey from a manufacturer to a patient — and a significant profit motivation to do so, according to experts.
Caremark, Express Scripts and Optum Rx say they use their market power to drive down drug prices for their payer clients and the members they serve.
But that power also allows the Big Three to sidestep past efforts from Washington and the states to affect their business model, Antonio Ciaccia, the president of consultancy 3 Axis Advisors, said.
Ciaccia cited an example from the state of Ohio, which banned spread pricing in its Medicaid program in 2018 after discovering it overpaid PBMs by nearly $225 million in one year due to the practice.
But Ohio didn’t end up saving any money, because the PBMs began paying pharmacies beyond the contractually agreed price and clawing back the difference after the fact, he said.
“What we’re talking about is essentially this: the nimbleness of the industry to pivot around policy reforms,” Ciaccia said.
Instead of targeting specific business practices, Congress and antitrust regulators should instead prioritize weakening the Big Three’s control by reversing years of unchecked integration that have allowed PBMs to find these opportunities for arbitrage, speakers said.
“I’m skeptical when you don’t touch the underlying power of the Big Three PBMs, when they still cover 100 million lives each, when they still have influence over formularies, they’re going to find new avenues to pad their profits,” said Alejandro Molina, a policy advisor for the White House during the Biden administration.
Washington could follow Arkansas’ lead, Molina suggested. In April, the state passed a law preventing PBMs from owning pharmacies in a bid to protect independent pharmacies.
The law, which would force companies like CVS that own both PBMs and pharmacies to divest one or the other, was quickly met with criticism and legal challenges from the PBM industry.
Still, bills with similar provisions were recently introduced in Vermont, Texas and New York, according to the National Community Pharmacists Association.
Some federal lawmakers also support breaking up PBMs. In December, a bipartisan group of legislators introduced a bill that would force PBMs to sell their pharmacy businesses.
There’s a unique window for concrete reform now, given Congress’ attention on the issue and interest from the FTC and the Department of Justice in cracking down on some of the Big Three’s most egregious actions, speakers said.
The FTC, for example, is currently suing Caremark, Express Scripts and Optum Rx for allegedly inflating the cost of insulin, while the DOJ is reportedly investigating UnitedHealth over a variety of antitrust concerns.
“I think there’s a lot of opportunities,” said Charlie Katebi, the deputy director for health at the conservative America First Policy Institute. “There are so many issues where Republicans and Democrats — on many important issues — see things with totally different realities. That is not the case right now.”
Meaningful PBM reform at the federal level is unlikely in the near term. The House included a handful of PBM policies in the GOP reconciliation megabill currently being hammered out on the Hill, but the Senate stripped them out in its version earlier this month.
That doesn’t mean the Senate isn’t on board, Conor Sheehey, a director at Leavitt Partners, said.
It’s just more likely that legislators will work to pass PBM reform in appropriations legislation closer to the end of this year, where healthcare policies are normally enacted, according to Sheehey, who previously worked as a senior health policy advisor to Sen. Mike Crapo, R-Id., the chair of the Senate Finance Committee.
Tackling rebates, transparency
Some policies being thrown around in Washington have merit even if they don’t break up the oliogopy enjoyed by the Big Three PBMs, according to the panelists. For example, the Trump administration has signaled it’s interested in reforming rebates that PBMs negotiate with pharmaceutical companies in exchange for including their drugs on plan formularies.
During the first Trump administration, regulators attempted to require PBMs and insurers to pass through all rebates in Medicare’s prescription drug benefit to patients, but that rule has yet to be implemented.
PBMs should voluntarily find ways to move away from the rebate “kickback” system, lest the federal government do it for them, CMS Administrator Dr. Mehmet Oz said Tuesday, also speaking at the Transparency is Rising event.
Going after rebates won’t solve systemic issues with the market for prescription drugs, experts cautioned. The Big Three say they already pass through the vast majority, if not all, of those savings through to their clients.
And reabtes no longer make up the majority of PBM profits, according to research. Instead, manufacturer fees and specialty pharmacy dispensing are making up more and more of PBMs’ bottom lines.
“As long as the Big Three PBMs have the covered lives of their insured parents they are going to find a way to influence formularies, reimbursements, networks in whatever configuration they want,” Molina said. ”I just feel like we are 10 years behind, and that PBMs are already creating new corporate structures, new revenue sources that we’re going to have to regulate in 10 years. So until we tackle the upstream power of insurers and the Big Three PBMs and vertical integration, we’re not really solving any structural issues.”
But transitioning away from a compensation stream directly tied to drug prices may be good in the long run, given the rebating system continues to function in perverse ways, according to Sheehey.
For example, when one corporate parent owns both the PBM and the payer, they do get to retain profit from rebates even if their PBM is ostensibly passing it through.
“This is no disrespect to CVS Health, but when they’re like, ‘Oh, look, like Caremark’s not getting a really fat portion of that rebate revenue.’ But then their parent company is? This is a company that has one ticker on all the markets,” Sheehey said.
In the absence of a top-down overhaul, PBM transparency reform to shine more light on contracting practices, pharmacy fees and other financial arrangements is a good starting point to make the market and policymakers more informed, panelists said.
That’s something the CMS is moving toward as well, with Oz saying that the agency could issue rules forcing payers to share more information on their drug transactions as soon as this year.
But as Washington appears poised to step into the fray, it’s imperative that lawmakers and regulators think about the root problem to avoid creating new ones, according to the panelists. For example, experts said that regulatory scrutiny is one reason why major PBMs have spun off affiliated companies like rebate aggregators that live offseas, adding more complexity into the prescription drug supply chain.
“We need to realign incentives more structurally, and in any efforts to change transparency we need to be very careful that we are not basically emboldening the next layer of opacity, because the unfairness hides in the opacity of the system,” said Showalter.
