Federal probe of drug middlemen urged

By: - May 11, 2021 6:00 am

A pharmacist retrieves a a medication. Credit: Joe Raedle/Getty Images.

After years of accusations in Minnesota and elsewhere, a bipartisan group in the U.S. Senate wants federal regulators to investigate whether drug middlemen and their parent companies are rigging the system to raise prices and pad their pockets.

Sens. Chuck Grassley, R-Iowa, and Maria Cantwell, D-Wash., last month filed legislation that would require the Federal Trade Commission to investigate whether health care giants are using their dominance to bilk consumers and government payers such as Medicaid out of enormous sums of money.

They also want the FTC to examine whether the corporations are unfairly driving community pharmacists and other competitors out of business.

Pharmacy benefit managers, or PBMs, “play a significant role in determining how much patients and the government pay for prescriptions,” Grassley said in a statement. “Much of their business model is cloaked in secrecy, and the industry has experienced significant consolidation in recent years. Our bill will provide Congress with a better understanding of the PBM industry, so any future legislation can better protect patients and safeguard competition.”

In recent years, a bipartisan coalition at the Minnesota Legislature has sought to rein in the industry — which is largely unregulated — with limited success.

In Ohio, a years-long investigation by the Columbus Dispatch unearthed allegations that CVS Health overbilled the state Medicaid system by millions. In 2017, CVS Caremark — its pharmacy benefit manager — worked for four of the five managed-care organizations administering Medicaid benefits to about a quarter of all Ohioans.

The company used an opaque system of price lists to reimburse pharmacists considerably less for generic drugs than it was collecting from the state. An analysis showed that during that one year, CVS Caremark and a fifth PBM — OptumRx, which is owned by Minnesota-based UnitedHealth — billed their managed-care organizations almost a quarter-billion dollars more for generics than they paid the pharmacists who bought and dispensed them.

Ohio Attorney General Dave Yost is already suing OptumRx over other business dealings with state agencies. Now he’s suing Medicaid managed-care giant Centene, alleging that it used its own PBMs and CVS Caremark to improperly bill the state Medicaid system for tens of millions. At least three other states, Kansas, Arkansas and Mississippi, are reported to be considering similar litigation against Centene.

CVS, OptumRx and Centene have strongly denied that they acted improperly and insist that they’ve saved money for taxpayers and consumers. A spokesman for a PBM industry group said it welcomes an FTC investigation.

“The core mission for PBMs is to advocate on behalf of patients to increase access to affordable prescription drugs,” Greg Lopes of the Pharmaceutical Care Management Association said in an email. “We look forward to working with Sens. Grassley and Cantwell on real solutions to lowering drug costs.”

Others aren’t so sure that pharmacy benefit managers and their parent companies have been a benign influence. Among the things the Prescription Pricing for the People Act would require FTC to do is “provide policy or legislative recommendations to Congress on improving transparency, preventing anticompetitive behavior, and ensuring consumers benefit from any cost savings,” Grassley’s summary of the bill says.

Some Ohio pharmacists said that CVS Health engaged in anticompetitive behavior in late 2017 and early 2018. They say its PBM slashed Medicaid reimbursements, and then CVS Pharmacy, its retail arm, sent them letters citing “declining reimbursements, increasing costs, a more complex regulatory environment. Mounting challenges like these make selling your store to CVS Pharmacy an attractive and practical option.”

In addition to that allegedly anticompetitive behavior, the Grassley-Cantwell bill instructs the FTC to determine whether PBMs reimburse pharmacies owned by their parent corporations more than they do their competitors.

In 2019, The Dispatch obtained a confidential copy of the Ohio analysis that seemed to indicate just such behavior within the state Medicaid system.

It indicated that in 2017 CVS Caremark reimbursed independent pharmacies slightly more than its own for generic drugs. But it also found that it was reimbursing pharmacies owned by big retail competitors far less than CVS pharmacies.

In the case of Walmart and Sam’s Club, it would have had to pay those pharmacies 46% more for generic drugs if CVS were to equal the rates it was paying its own pharmacies.

CVS insisted that its PBM’s reimbursement system was impartial and that it wasn’t part of a larger business strategy.

Grassley’s summary of the bill also says, “Recent consolidations between PBMs and insurance providers has resulted in vertical integration whereby a small number of companies now manage the vast majority of prescription drug benefits and often own other players in the health care industry.”

That’s a reference to the fact that the PBM marketplace is already highly consolidated, and now the big players are merging with other giants in the health chain.

The three largest PBMs — CVS Caremark, OptumRx and Express Scripts — control 74% of that marketplace, Yost’s lawsuit against Centene says.

OptumRx was already owned by insurer UnitedHealth to make it the nation’s seventh-largest corporation by revenue. Then in 2018, insurer Cigna bought Express Scripts for $54 billion, making it the 13th-largest corporation in the United States.

The same year, CVS began its $70 billion purchase of Aetna to make it the 5th largest corporation. Federal regulators allowed the deal to go forward despite fears that it would use its massive insurance, PBM and retail operations to unfairly advantage one another.

An organization representing the dwindling ranks of community pharmacists said the Grassley-Cantwell bill is long overdue.

“Momentum is growing to reform and rethink antitrust enforcement in the United States,” B. Douglas Hoey, CEO of the National Community Pharmacists Association, said in a statement. “Independent pharmacists have been pressing for this for many years. There’s a severe lack of competition in the PBM market, and it is driving up the cost of prescription drugs. Unfortunately, patients, employers, and small business pharmacies suffer as this consolidation has so far gone largely unchecked by regulators and been permitted to grow.”

The legislation is cosponsored by Sens. Marsha Blackburn, R-Tenn., Richard Blumenthal, D-Conn., Thom Tills, R-N.C., and Joni Ernst, R-Iowa.

This story first appeared in the Ohio Capital Journal

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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017 and coming to the Ohio Capital Journal in 2020. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.

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