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The Federal Trade Commission on Tuesday released an interim report saying that powerful drug middlemen marked up drugs for cancer, AIDS, multiple sclerosis, and other serious maladies far over the going rate — as much as a thousand percent over the going rate in 22% of instances.
The upcharges provided $7.3 billion in additional revenue between 2017 and 2022 to pharmacies owned by the same companies, the report said. Meanwhile, the middlemen usually paid competitor pharmacies less for dispensing the same drugs, it added.
Over that period, costs to commercial plans for the same class of drugs grew by 21%. For Medicare Part D plans, they grew between 14% and 15%, the report said.
The findings are part of an investigation into pharmacy benefit managers, or PBMs, that was undertaken by the FTC in 2022. Tuesday’s was the second interim report issued in the probe. One issued last July said PBM practices appeared to be raising prices and hurting patients.
The latest interim report looked at the prices of “generic specialty drugs.” The middlemen decide how to categorize drugs but, typically, those are drugs used to treat complex conditions such as cancer but are not under patent. Specialty drugs of all types tend to be a lot more expensive than other medications.
“FTC staff have found that the big-three PBMs are charging enormous markups on dozens of lifesaving drugs,” Hannah Garden-Monheit, the director of the FTC’s Office of Policy Planning, said in a statement. “We also found that this problem is growing at an alarming rate, which means there is an urgent need for policymakers to address it.”
The report was made public just as the FTC met on Tuesday. During the public comment section of the meeting, a spokesman for the Pharmaceutical Care Management Association, a PBM industry group, said he was concerned about how it was done.
“It is rare for the FTC to release an interim… report, and it is unheard of for the FTC to release a second interim report,” the spokesman, Austin Ownbey, said. The Pharmaceutical Care Management Association “is concerned that the second interim report will suffer from the same shortcomings as the first interim report. PCMA has significant concerns that a second interim report regarding specialty drugs is unlikely to be anything other than a piece of advocacy without substantiating evidence.”
Big three
The biggest middlemen — CVS Caremark, OptumRx and Express Scripts — are part of huge health conglomerates that also own insurers, pharmacies, and providers such as doctors’ offices.
Their PBMs facilitate drug transactions by negotiating prices with drugmakers, creating pharmacy networks, determining reimbursements, and reconciling claims. They work on behalf of insurers — including ones owned by the same corporations — and together, the big-three PBMs control access to nearly 80% of insured patients.
The PBMs say they use that clout to achieve savings for insurers and clients.
“PBMs are the only entities in the supply chain dedicated to lowering the cost of prescription drugs,” Ownbey said.
However, industry critics say the big PBMs use their size and a lack of transparency to extract huge, cost-increasing rebates and fees from drugmakers, and to force pharmacies into contracts on such bad terms that droves are fleeing the business.
In its latest report, the FTC said the PBMs’ parent companies are using the fact that they play a big role in multiple phases of drug transactions to advantage themselves.
The PBMs decide which drugs are covered and which will have the smallest copayments, so patients have a great incentive to buy whichever medicines the PBMs prefer, wherever PBMs want people to buy them.
As part of their “vertical integration,” the big PBMs each own a mail-order specialty pharmacy. The big PBMs often require patients to get expensive specialty drugs at their affiliated mail-order pharmacies if they want to get the lowest copayment. Ownbey said such pharmacies provide better service.
“High-cost medications are often misused or under-utilized without PBM and specialty pharmacy management programs, support systems and monitoring tools,” he said.
But many oncologists and pharmacists say mail-order pharmacies are too unwieldy and error-prone to be a good alternative — especially for complex conditions such as cancer.
For example, Elvin Weir in 2018 told The Columbus Dispatch of weeks-long waits to get his cancer drugs from the mail-order specialty pharmacy he was forced to use. He later died.
“Nobody’s really asking for mandatory mail-order pharmacy,” Chris Hobart, a independent pharmacist in Texas, said during the public comment part of Tuesday’s FTC hearing.
Big bucks
Regardless of whether PBMs’ affiliated mail-order pharmacies provide better or worse care, the FTC’s interim report found that when it came to generic specialty drugs, they’re bringing home big bucks for their parent companies.
Among the findings:
- Between 2020 and 2022, the big PBMs’ affiliated pharmacies marked up 63% of the specialty generics they dispensed 100% or more over National Average Drug Acquisition Cost. Twenty two percent were marked up 1,000% or more.
- The big PBMs “almost always” reimbursed their affiliated pharmacies at higher rates than their competitors, the report said. The disparity was greater in cases in which commercial insurance was involved than when Medicare Part D was the payer.
- Between 2020 and 2022, PBM-affiliated pharmacies dispensed 72% of all drugs marked up by $1,000 or more, while they dispensed just 44% of all generic specialty drugs during that period. “Dispensing patterns suggest that the Big 3 PBMs may be steering highly profitable prescriptions to their own affiliated pharmacies (and away from unaffiliated pharmacies),” the report said.
- The big three PBMs generated an additional $1.4 billion by charging more for drugs than they paid the pharmacies that dispensed them. Such “spread” pricing ignited a furor in Ohio in 2018, when it was revealed that CVS Caremark and OptumRx billed the state Medicaid system $224 million more for drugs than it paid pharmacies the previous year.
- Dispensing marked-up drugs from affiliated pharmacies is a key business for their parent companies: UnitedHealth Group, CVS Health, and Cigna-Express Scripts. Each of those companies are among the 20 largest in the country and sales from their mail-order pharmacies account for a whopping 12% of their operating profit, the FTC report said.
Douglas Hoey of the National Community Pharmacists Association said employers especially should take note of the FTC’s findings.
“This exploitative behavior is bad for taxpayers who subsidize Medicare prescription coverage, but the FTC report found that commercial employers are getting hosed even worse,” he said in a statement. “It’s no wonder employees are questioning why their employers are listening to insurance brokers who often recommend one of the giant PBMs.”
This story first appeared in the Ohio Capital Journal, a member with the Phoenix in the nonprofit States Newsroom.
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