On Nov. 17, the House Judiciary Regulatory Reform, Commercial and Antitrust Law Subcommittee held the third in a series of hearings on the impact of consolidation in the health care marketplace. Republicans and Democrats demonstrated unusual unity – for Congress as a whole and for this Committee in particular – in questioning how much of the PBMs’ savings are passed along to consumers and in charging that PBMs had “disproportionate market power” and were trampling independent pharmacies. Particularly strong questioning came from Representative Doug Collins (R-GA), who has sponsored H.R. 244, the MAC Transparency Act. Additionally, Subcommittee Chairman Tom Marino (R-PA) outlined his personal connection to the issue when he shared that his independent community pharmacist had been very helpful to his family, particularly to his daughter who has cystic fibrosis and is on dozens of medications.
The Nov. 17 hearing, titled “The State of Competition in the Pharmacy Benefit Manager and Pharmacy Marketplaces,” featured testimony from the following witnesses:
- Ms. Amy Bricker R.Ph - Vice President of Retail Contracting & Strategy Express Scripts
- The PBM marketplace is extremely competitive. Express Scripts is unique as an independently operated PBM, not owned by retail pharma or a health insurance company. Independent community pharmacies are holding their own; the number of pharmacies has held steady, and gross profits remain around 23 percent, with annual sales per store of $3.6-$4 million per year. Stakeholders have to work together to save costs and improve patient outcomes.
- Mr. David A. Balto Esq. - Law Offices of David Balto
- The PBM market is severely broken. Choice, transparency, and lack of conflicts of interest are needed for a competitive market; the PBM market fails on all three counts. The Federal Trade Commission (FTC) is “asleep at the switch” and not effectively overseeing mergers of the PBM market.
- Ms. Natalie A. Pons Esq. - Senior Vice President and Assistant General Counsel CVS Health
- We help to control costs by sharing discounts with our clients. Our role is advisory; clients always have the final say. With more than 60,000 pharmacies in the U.S., consumers in all parts of the country have many outlets to fulfill their prescription needs.
- Mr. Bradley J. Arthur R.Ph - Owner Black Rock Pharmacy
- An independent pharmacy owner and president of the National Community Pharmacists Association (NCPA), Mr. Arthur described pharmacies as the most accessible provider in health care, serving as a safety net in natural disasters and in regular practice. Community pharmacists must continually agree to “take it or leave it” contracts with PBMs and cannot walk away from those contracts, which comprise a large segment of the independent pharmacists’ business.
Members’ Opening Statements:
Subcommittee Chairman Tom Marino (R-PA) opened the hearing by outlining the pharmacy benefit process and noting that PBMs provide prescription drugs for 95 percent of Americans who receive prescription drug benefits. Chairman Marino observed that, as a member representing a rural district, he was acutely aware of how important independent pharmacies are to their patients and how they serve as an integral part of a patient’s healthcare team. Chairman Marino has been an ardent supporter of independent pharmacies and introduced legislation to grant independent pharmacies an exemption from antitrust law to negotiate prices and services, in an effort to give smaller pharmacies a more level playing field when competing against larger pharmacies. (The legislation referenced, “Preserving Our Hometown Independent Pharmacies Act,” was introduced as H.R. 1188 in the 113th Congress and as H.R. 1946 in the 112th Congress but has not be introduced in the current Congress.)
Subcommittee Ranking Member Hank Johnson (D-GA) offered that PBMs are a “critical gatekeeper” in the healthcare system, but observed a need to examine whether the consumer is receiving the best price for prescription drugs, as there has been no study of the PBM industry since 2005.
Full Judiciary Committee Ranking Member John Conyers (D-MI) questioned whether the PBM market was too consolidated to benefit consumers, whether PBMs were providing fair reimbursements to independent pharmacies – particularly given the lack of transparency in generic pricing, and whether more direct regulatory measures might be needed. Representative Conyers referenced legislation approved during his time as chairman of the committee that would allow independent pharmacies an exemption from antitrust law to negotiate reimbursements and allow them to compete more fairly. During the course of the hearing, several members offered their support for such legislation.
Full Judiciary Committee Chairman Bob Goodlatte (R-VA) noted that while PBMs work to negotiate lower drug prices, it is troubling that those prices continue to rise. Chairman Goodlatte spoke about the importance of independent pharmacies, particularly in rural areas like his congressional district and lamented that many of these independent pharmacies have closed. Chairman Goodlatte recalled his concern, since enactment of the Affordable Care Act (ACA), that the law would compel consolidation across a number of health sectors and asked the Subcommittee to examine what effects prior transactions have had on prices, and whether the ACA or competitive forces have driven these consolidations.
Question and Answer:
Chairman Goodlatte asked Ms. Bricker and Ms. Pons about the impact of price spikes in generic drugs and whether PBMs have a role to play in negating the price and reimbursement of drugs, particularly in holding manufacturers accountable. Ms. Bricker testified that high prices are not a new phenomenon and that Express Scripts encourages competition to decrease prices. Ms. Pons responded that CVS continually works to get the best prices on behalf of clients and agreed that there have been “some very egregious examples in the marketplace.” Mr. Arthur explained that these price spikes have different impacts on different players in the market; PBMs have the ability to respond to market fluctuations quickly, whereas independent community pharmacists are often burdened with dispensing critical generic medications at a loss. Chairman Goodlatte cited Ritalin as an example of a generic product that had quadrupled in price over a short period of time and asked Ms. Bricker and Ms. Pons whether a conflict of interest existed since PBMs negotiate contracts with pharmacies that directly compete with pharmacies owned by a PBM’s corporate parent. Ms. Pons responded that CVS puts together a MAC list to encourage pharmacies to buy generics at the lowest cost and testified that CVS wants to ensure pharmacists receive a fair margin. While there may be times when a pharmacy is underwater with regard to a particular drug, CVS looks at pharmacies’ overall reimbursement across all generic claims to ensure they have fair margins and continued incentive to dispense as many generics as possible, as high dispensing of generics is critical to a PBM meeting commitments to its clients. When pressed again by Chairman Goodlatte, Ms. Pons responded that an appeals process exists to address situations where a pharmacy is losing more than it is gaining.
Representative Johnson asked Mr. Balto how lack of transparency in the PBM marketplace may undermine competition and consumer choice. Mr. Balto noted that a lack of clarity in rebate information makes it difficult to understand how and whether, despite escalating drug prices, these rebates are being passed along to consumers. Ms. Bricker commented that Express Scripts’ clients demand transparency, and that the additional transparency suggested by Mr. Balto could actually harm competition and be considered price fixing and potentially collusion. Mr. Balto countered that a competitive market would not increase profit per script by 75 percent, as has happened since the Express Scripts/Medco merger.
Representative Johnson asked Mr. Arthur whether he saw evidence that PBMs are able to negotiate effectively to keep patient premiums and cost sharing manageable. Mr. Arthur commended the goal but noted that this negotiation benefits the parent company rather than the consumer, as he saw numerous examples of beneficiaries being thrown into the Medicare Part D “donut hole” prematurely, due to pricing methodologies of the large PBMs.
Representative Johnson asked about the lack of FTC oversight and enforcement efforts. Mr. Balto testified that the FTC has allowed economic theory to replace marketplace reality, failing to see the real harm to consumer.
Representative Johnson asked Ms. Pons about the consumer impact of CVS’ acquisition of Omnicare, which made CVS a retail pharmacy, PBM, and LTC provider with sizeable market share. Mr. Pons testified that CVS believes it is in a position to coordinate patient care better for those patients that leave those facilities, leading to improved outcomes and lowest-possible costs.
Representative John Ratcliffe (R-CA) asked Ms. Bricker to respond to charges that PBMs do not update their reimbursement rates often enough to keep up with market fluctuations and ensure generic drug price drops do not harm local community pharmacists. Ms. Bricker responded that teams of people at Express Scripts are dedicated to this issue and ensuring its pricing is appropriate for all retail pharmacies, and these updates are no less frequently than seven days. Mr. Bricker observed that they review prices daily and, if a dramatic price change occurs, they will make the change earlier than seven days. Mr. Ratcliff asked whether pharmacists are able to see in real time what their reimbursement for dispensing a generic, or are fees charged after the point of sale. Ms. Bricker responded that the pharmacist receives an instant response from the PBM on what co-pay, if any, to collect and what reimbursement he or she will receive. Ms. Pons testified that CVS updated its MAC lists on exactly the same basis. CVS also has a team of people constantly monitoring market sources, and that team responds as soon as market forces may suggest updates are needed.
Representative Johnson and Representative Ratcliffe each asked Mr. Arthur whether pharmacies could simply refuse a PBM’s proposed terms. Mr. Arthur responded that 98 percent of his business’ revenue came from third party agreements - private, commercial, or government payer - and refusing that business is not a realistic option. When he has attempted to negotiate, he has been met with a “take it or leave it” response. Mr. Arthur also observed that MAC timely update requirements in 20 states were not the result of voluntary industry efforts but rather the result of lobbying from the independent community pharmacists to create some fairness in the marketplace.
Representative David Cicilline (D-RI) complimented CVS for its “extraordinary corporate citizenship” and its “courageous and impactful” decision to forgo selling tobacco products at a loss of $2 billion in revenue. Representative Cicilline asked Ms. Pons for her response to suggestions of increased transparency, which sound “like a reasonable proposition.” Ms. Pons testified that CVS supports transparency with its clients, but does not support transparency of proprietary information with its competitors, noting the FTC has said transparency in some cases can also have the opposite effect, in terms of reducing costs. Representative Cicilline cited a 2005 FTC report that PBM-administered prescription drug coverage resulted in consumers paying between 15-50 percent less for drugs than non-insured consumers. In response to Mr. Balto’s charges that PBMs had increasing disregard for antitrust laws, Representative Cicilline entered into the hearing record a 2012 letter from the FTC concluding no anti-competitive findings, following an FTC investigation of CVS begun in 2009, into allegations the company was engaged in anticompetitive behavior. Representative Cicilline observed that pharmaceutical companies have very little control on their ability to increase drug prices and that we should attempt to preserve the bargaining power that PBMs do have against pharmaceutical companies.
Representative Doug Collins (R-GA) launched a series of hard-hitting questions directed at the PBMs. He began by observing the lack of competitiveness in the PBM marketplace, noting Express Scripts, CVS Health, and OptumRX together control 80 percent of the PBM market, covering about 180 million lives. He stated that community pharmacists routinely incur losses of $100 or more on many prescriptions because PBMs or insurance middle men reimburse below cost of generics – one of the most pressing issues for Congress to address and the reason for his introduction of H.R. 244, the MAC Transparency Act. Representative Collins focused on PBMs owning their own mail-order pharmacies and steering patients to mail-order pharmacies, and he asked to make documentation regarding this part of the hearing record. Representative Collins also took issue with CMS’ allowing PBMs to auto ship new prescriptions without express beneficiary consent, an issue that recently affected his father. In response to a request from Representative Collins to comment on the mail-order issue and more broadly on PBMs and their practices, Mr. Arthur testified that the pharmacy marketplace has deteriorated dramatically since the early 2000s, when legislation was introduced by Representatives Tom Campbell (R-CA) and Conyers attempted to provide a limited antitrust exemption for independent community pharmacy. Mr. Arthur observed the generic utilization rate in independent community pharmacy far exceeds mail-order or any other sector. Representative Collins asked about the teams of people at PBMs examining the MAC lists, citing a specific example from a pharmacy related to the pricing of Omeprazole, and asked directly whether there were two sets of pricing for MAC. Ms. Bricker and Ms. Pons each responded that there were multiple MAC lists. When asked whether this was to “keep the ball hidden” from community pharmacists, Ms. Bricker responded that they have multiple clients. Representative Collins asked about the disparities in MAC pricing paid to LTC pharmacies. Ms. Bricker responded that she does not know the acquisition cost of any given pharmacy but that their policy is to survey the market on a number of price points to ensure they are reimbursing a fair amount. To the extent they get the reimbursement rate wrong, an appeals process is available. Representative Collins followed up by asking whether either Ms. Bricker or Ms. Pons were aware that a pharmacy had been told it would be cut off from a plan if it appealed any more. Ms. Bricker and Ms. Pons responded that they were not aware of ever making that statement. Representative Collins went on to say that there must be a disconnect, because pharmacists are being told not to pursue additional appeals. Representative Collins vowed to continue to fight for a level playing field for independent pharmacists, so that pharmacists would not close because of the anti-competitive nature of this field and that patients will be able to retain the healthcare professional they trust.
Representative Darrell Issa (R-CA) cited financial results for both CVS and Express Scripts, indicating modest, but not excessive, increases in profits and asked Mr. Balto where were the excess profits he claimed existed. Mr. Balto testified that their margins have increased substantially but asked to respond in writing, as it was a complicated question.
Representative Issa asked the PBMs about the impact of increased price transparency and potentially more level pricing and cited the example of the airline industry – where two people could sit next to one another and pay dramatically different prices. Representative Issa also observed that getting some price transparency might be helpful to community pharmacists.
Chairman Marino asked the panel to outline the downside of independents coming together to purchase in bulk. Mr. Balto responded that there was no downside and noted that while PBMs may tout Pharmacy Services Administrative Organizations (PSAOs) as the answer, they are ineffective for individual pharmacies. Ms. Bricker observed that pharmacies can join group purchasing organizations or join PSAOs. Ms. Bricker welcomed a robust dialogue about the whole supply chain and how to make drugs safer and more affordable. While less than 5 percent of independent pharmacies served a rural area, they command a premium, as they should, for serving a population no one else is. Ms. Pons echoed Ms. Bricker’s remarks and noted PSAOs were able to negotiate very effectively.
Chairman Marino asked what services independent community pharmacies offer that customers did not see in big chains or through mail order. Mr. Arthur testified that community pharmacists offer a host of services in a very personalized way and develop relationships over time. Chairman Marino outlined his personal connection to the issue, sharing that his independent community pharmacist had been very helpful to his family, particularly to his daughter who has cystic fibrosis and is on dozens of medications.
Chairman Marino asked about the landscape for independent pharmacies 5-10 years from now. Ms. Bricker and Ms. Pons testified that the independent pharmacy is viable and that the industry is quite robust, with the number of pharmacies holding steady and constant.
Chairman Marino invited witnesses to make closing remarks:
- Mr. Balto testified that it is in the interest of PBMs to drive consumers away from community pharmacies in order to maximize profits.
- Ms. Bricker testified that Express Scripts is committed to making prescriptions safer and more affordable.
- Ms. Pons testified that independent pharmacies are critical to CVS and to its ability to deliver a service to the Medicare population.
- Mr. Arthur testified that independent pharmacies have survived by evolving, noting his pharmacy is half the size and employs half the people it did 20 years ago. Pharmacy will continue to meet these challenges, even as it runs into challenges with the MAC and has to fight against industry efforts to repeal the state timely filing requirements.