Bills
| 3.23.22

Should the FTC Conduct a Study on Pharmacy Benefit Managers’ Role in the Drug Supply Chain? (S. 1227)

Do you support or oppose this bill?

What is S. 1227?

(Updated October 24, 2019)

This bill — the Prescription Pricing for the People Act of 2019 — would require the Federal Trade Commission (FTC) to conduct a study on the state of competition in the drug supply chain. This study would focus on whether pharmacy benefit managers (PBMs) have engaged in anti-competitive practices such as steering patients to pharmacies for anti-competitive purposes, giving such pharmacies more favorable rates than it offers to competing pharmacies, or using its market power to depress the use of lower-cost prescription drugs. 

As part of this study, the FTC would specifically study whether PBMs: 

  • Charge certain payers, including Medicare and Medicaid, a higher price than reimbursement rates for competing pharmacies while reimbursing pharmacies in which the PBMs have an ownership interest at the rate charged to payers;
  • Steer patients to pharmacies in which the PBM has an ownership stake; and
  • Use formulary designs to depress the market share of low-cost, lower-rebate prescription drugs.

This bill would also require the FTC to evaluate the current state of the PBM industry, determine whether more information about beneficiaries would benefit consumers, and provide policy recommendations to Congress to improve transparency, foster competition, prevent anti-competitive behavior and protect consumers.

Argument in favor

Pharmacy benefit managers (PBMs) play an important role in the drug supply chain, but their role and how they influence drug prices isn’t well understood. Requiring the FTC to study PBMs will help lawmakers and pharmaceutical consumers better understand how PBMs affect prescription drugs and, therefore, prescription drug costs for consumers.

Argument opposed

The role that PBMs play in the American health care system is defined by legislation and well-studied by health care experts. If Congress isn’t sure that it sufficiently understands PBMs, it can easily convene expert testimony to get answers without spending millions of dollars and the FTC’s time on this topic.

Impact

Prescription drug pricing; prescription drug supply chain; PBMs; and the FTC.

Cost of S. 1227

The CBO estimates that this bill would cost about $2 million over one year for the FTC to produce the report it requires, totalling $2 million over the 2019-2024 period.

Additional Info

In-Depth: Sen. Chuck Grassley (R-IA) introduced this bill to require the FTC to study PBM’s roles and recent merger activities, as well as their potential engagement in anticompetitive behavior: 

“Competition and transparency are key ingredients to improving affordability of prescription medications. While PBMs play a significant role in determining how much patients and the government pay for drugs, much of their business model is cloaked in secrecy, and the industry has experienced significant consolidation in recent years. The Prescription Pricing for the People Act helps provide a better understanding of the PBM industry through a comprehensive FTC review designed to inform policymakers, protect patients and safeguard competition. This bill is just one of many steps I’m taking as Finance Committee chairman to improve access to affordable medications.”

Original cosponsor Sen. James Lankford (R-OK) adds that PBMs’ position of power in the pharmaceutical supply chain necessitates a better Congressional understanding of their effect on the supply chain from both a cost and access perspective: 

“Pharmacy Benefit Managers (PBMs) are the power players in the pharmaceutical supply chain nationwide. Since 2005, the overall PBM industry has consolidated itself to the point that only three companies dominate the lion’s share of the marketplace. With so little competition left, a select few companies now have sweeping power over the cost of drugs, decision-making authority over which drugs patients can access, and which pharmacies can sell each drug. In light of this market concentration, Congress must understand what effect PBMs have on supply chain, as it relates to both cost and access. I am proud to join my colleagues today in asking the Federal Trade Commission (FTC) to take a look at the PBM marketplace companies and identify any anticompetitive practices.”

House sponsor Rep. Doug Collins (R-GA), Ranking Member of the House Judiciary Committee, adds that this bill is needed to shed light on the role PBMs play in the American health care system: 

“PBMs have an important role to play in America’s health care system, but too often they operate in the shadows, manipulating drug prices, steering patients and engaging in other anticompetitive behaviors that increase costs and force out community pharmacies. The Prescription Pricing for the People Act of 2019 would shed light on how PBMs are affecting prescription costs and patient choice. This would support Congress as it crafts evidence-based solutions to address the anticompetitive role PBMs play as pharmaceutical costs continue to rise. I’m grateful for Chairman Nadler’s leadership as we partner to bring needed transparency to the drug pricing landscape.”

Consumer Reports, which has long supported efforts to bring down prescription drug prices, supports this bill. In an April 29, 2019 letter to House Judiciary Committee leadership, it wrote:

“[This bill] would direct the FTC to conduct a thorough study on the effects of the way pharmacy benefit managers operate. As originally conceived, they can perform a valuable function as intermediaries between drug makers and health plans, helping negotiate lower wholesale prices. But their opaque operation makes it difficult to know whether they are acting in the interests of the health plans they ostensibly serve, or if they are operating in their own interests and taking kickbacks from drug makers in exchange for favoritism that keeps prices inflated and choices restricted. These concerns have grown more pronounced as the PBMs have become more consolidated, and have merged with other parts of the healthcare marketplace in ways that further increase the potential for conflicts of interest. A thorough study by the FTC will be very useful in helping determine what needs to be done to ensure competition and transparency.” 

This bill passed the Senate Judiciary Committee on a voice vote and has seven bipartisan Senate cosponsors, including five Republicans and two Democrats. The House companion bill, sponsored by Rep. Doug Collins (R-GA), unanimously passed the House Judiciary Committee by a voice vote with the support of five bipartisan cosponsors, including four Democrats and one Republican.


Of Note: PBMs serve as middlemen between drugmakers and health plans, negotiating medication pricing with payers, pharmaceutical companies and pharmacies. PBMs claim these negotiations reduce consumer costs — however, prescription costs have risen in recent years. Additionally, PBMs often manipulate patient formularies to create financial incentives to force patients to use higher cost drugs and pharmacies — namely, pharmacies that are owned by the same company as the PBMs themselves.

According to Pharmacy Times, PBMs’ role in healthcare delivery has increased over the past decade due to a number of factors, including coverage expansions under the Medicare Part D prescription drug benefit and the ACA and an increase in prescription drug spending that has motivated commercial health plans and self-insured employers to outsource their spending management on outpatient prescription drugs. 

In 2018, then-Senate Judiciary Committee Chairman Sen. Chuck Grassley (R-IA) wrote to FTC Chairman Joseph Simons requesting that the FTC conduct an assessment of recent and ongoing consolidation in the pharmaceutical supply chain and its potential impact on U.S. consumers’ prescription drug prices. In the letter, Sen. Grassley requested that the FTC respond to a series of questions in light of industry consolidation and increasing concerns about the role and influence of supply chain intermediaries such as PBMs and group purchasing organizations and wrote: 

“[I]t is critical for Congress to understand the FTC’s perspective on these issues, including the potential impact of concentration on the marketplace, and more broadly whether the presence of pharmacy benefit managers and other intermediaries in the pharmaceutical supply chain tends to reduce, control, or increase the cost of healthcare in the United States. In the past, the FTC has asserted that allowing competition among PBMs will yield more benefits than contract terms mandated by government. The pharmaceutical industry, however, has experienced significant changes and consolidation in the intervening years.”

In remarks at an April 9, 2019 Senate Finance Committee hearing, “Drug in America: A Prescription for Change, Part III,” Sen. Grassley expounded upon the need for lawmakers to have a better understanding of PBMs: 

“PBMs negotiate with the drug companies, as well as pharmacies, to arrive at a price for a drug and its ultimate cost. This system of private entities negotiating is what I envisioned as an author of the Part D program. I still believe this is absolutely the right approach. I oppose any effort to undo the ‘non-interference clause’ currently in statute. However, it’s our duty to understand how the system is working today and what we can do to improve it. In addition to negotiating prices, PBMs also determine what drugs are covered and what patients pay out-of-pocket. Despite this vast influence over what often amounts to life and death, many consumers have very little insight into the workings of PBMs. PBMs report rebates and other price concessions to the Centers for Medicare and Medicaid Services (CMS). But, the statute severely restricts what can be done with that information. More transparency is needed. The current system is so opaque that it’s easy to see why there are many questions about PBMs’ motives and practices… Mergers and vertical integration is another area that has increasingly prompted concern. All of the PBMs here today are owned by or affiliated with a insurance plan. In many cases, the combined company also owns pharmacies and other players in the health industry. It’s important we look to see whether such integration actually helps patients and consumers, or whether it just opens the door for anti-competitive behavior.”

In response to Sen. Grassley's questions for the record at a Senate Judiciary Committee hearing on “IP and the Price of Prescription Drugs: Balancing Innovation and Competition” on May 28, 2019, Rutgers Law Professor Michael Carrier stated that the PBM industry isn’t competitive due to the fact that three major players (CVS Health, Express Scripts and OptumRx) control 85% of the market, allowing those three PBMs to “exercise undue market power against manufacturers and against the health plans and beneficiaries they are supposed to be representing, thus generating outsized profits for themselves.” He added that PBMs have increased prescription drug prices, citing cases in Texas, West Virginia and Ohio to prove this point, and have distorted the pharmaceuticals market.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / ziquiu)