Mike's Blog

Last month I highlighted a myriad of initiatives and other efforts concerning drug prices. Some of these efforts are focused on the most upstream and earliest phases of drug development, emphasizing future licensing deals that include language concerning accessibility clauses. Recently, attention has also focused on a major downstream component of the drug supply chain, specifically, pharmacy benefit managers (PBMs), the ‘middlemen’ that ‘buy’ drugs from the pharma manufacturers and distribute them to all the various eventual “points of sale” such as pharmacies, hospitals, clinics, practices, and mail orders that actually put drugs into the hands (or veins, subQ, etc.) of patients. The reality of the ’middleman’ is a bit more complex as PBMs have evolved to become vertically integrated health care conglomerates that may variably include (in addition to drug distribution activities), health care providers, retail pharmacies, mail order pharmacies, drug rebate aggregators, or health insurers. Currently, three PBMs (out of six total) control 80% of the drug market (6.6 billion prescriptions in 2023) accounting for 22% of overall health care expenditures and almost 4% of US GDP. To put this in perspective, annual drugs sales are >20 times the annual NIH budget. Within the last month, two distinct ‘shots across the bow’ have been fired at PBMs.

The first was an interim report issued by the Federal Trade Commission (FTC) entitled: Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies. The report cites data that between 2013 and 2022, 10% of independent retail pharmacies, mostly serving rural communities have closed primarily due to struggles with “contractual terms imposed by PBMs that they find confusing, unfair, arbitrary, and harmful to their businesses.” The report also concludes, “PBMs and brand drug manufacturers sometimes negotiate prescription drug rebates that are expressly conditioned on limiting access to potentially lower cost generic alternatives.”

The second was a report released by the House Committee on Oversight and Accountability entitled: The Role of Pharmacy Benefit Managers in Prescription Drug Markets. Given the extreme level of extant partisan politics and hyperpolarization, bipartisan agreement on PBMs is remarkable. From the executive summary, “This report describes the Committee on Oversight and Accountability’s findings that PBMs inflate prescription drug costs and interfere with patient care for their own financial benefit.” As an aside, I am reminded of one of my favorite childhood cartoons, Tom THUMB (Tiny Human Underground Military Bureau), who battled against MAD (Maladjusted, Anti-social, and Darn mean), a group of evil scientists “bent on destroying the world for their own gains”. Hard not to draw parallels. Where is Tom when we need him?

This report was followed up by a Congressional hearing with the oversight committee which actually makes for interesting and entertaining viewing. The committee chairman (James Comer, R-KY) remarked on vertical integration, “I would certainly support busting up the PBMs. I don’t think a PBM should be owned by a health insurance company. I don’t think a PBM should own a pharmacy.” Katie Porter (D-CA) commented, “You stop competition, you prevent transparency, you manipulate markets, and you make our health care system more complicated.” Buddy Carter (R-GA) simply commented that he regarded PBM operations as “despicable.” Some committee members actually conducted their own investigations. Jake Auchincloss (D-MA), after one witness (from CVS Caremark) claimed their prices were the lowest, highlighted one of their drugs with a 38,000% markup relative to Medicare’s National Average Drug Acquisition Cost. With regards to the contractual struggles leading to rural pharmacy closures that the FTC highlighted above, Raja Krishnamoorthi (D-IL) remarked that price concessions pharmacies pay from 2010 to 2020 went up 107,400%. He had to add, “I’m not making this up. This number actually comes from CMS.”

Along with these reports and hearings, several groups have begun to take action against PBMs. The state of Illinois secured $45M from CVS Caremark (one of the three big PBMs) for failure to pass through drug rebates over a four-year period. Ironically, an audit conducted by the office of the Inspector General identified another $45M in rebates not recovered over a five-year period by a different PBM (Express Scripts).

At this point, there appears to be uniform agreement on the problem. Unfortunately, that does not necessarily suggest broad consensus on a solution and a path forward.

Like an unskilled doctor, fallen ill, you lose heart and cannot

discover by which remedies to cure your own disease.

- Aeschylus, Prometheus Bound