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Federal Trade Commission to investigate pharmacy middlemen


Federal Trade Commission to investigate pharmacy middlemen

Jun 09, 2022 | 3:55 am ET
By Marty Schladen
Federal Trade Commission to investigate pharmacy middlemen
A group representing small pharmacists says large chains, especially CVS, are moving patients' prescriptions to their own stores without consent. CVS adamantly denies that. Photo by Marty Schladen, Ohio Capital Journal.

After years of pleading, the Federal Trade Commission on Tuesday voted to investigate the practices of some of the nation’s largest companies. They’re accused of using their dominance in myriad sectors of the health care space to drive up costs, drive out competition and reap profits.

Four of the six companies to be investigated have huge contracts with the Ohio Department of Medicaid and two of them have been accused of wrongdoing in the Buckeye State.

The commission, or the FTC, is supposed to promote competition by stopping practices by large companies that are intended to stifle it. After deadlocking in February, the commissioners voted 5-0 Tuesday to mount the probe. This comes after the U.S. Senate last month confirmed a third Democratic nominee to the commission, breaking the deadlock.

The probe will specifically focus on pharmacy benefit managers, or PBMs. 

“Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the U.S. prescription drug system,” commission Chair Lina M. Khan said in a statement. “This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients.”

PBMs contract with insurers to handle prescription benefits. They determine what drugs are covered and negotiate rebates with drugmakers in exchange for covering their products. They also contract with pharmacies and determine how much to reimburse them for the drugs they dispense.

PBMs have claimed that they’re saving money for consumers and taxpayers, but the biggest three jointly control more than 70% of the marketplace and each is owned by a corporation that also owns a top-ten insurer. In addition, the corporations own their own pharmacies and some even own doctors’ offices.

“The largest pharmacy benefits managers are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies,” the FTC statement said.

CVS Caremark, OptumRx, Inc., Express Scripts, Inc., Humana Inc., Prime Therapeutics LLC, and MedImpact Healthcare Systems, Inc. are the PBMs  subject to the federal probe. 

CVS Caremark is owned by CVS Health. OptumRx is owned UnitedHealth Group and Express Scripts is owned by Cigna. Each does big business with the Ohio state government and by revenue, they’re the fourth, fifth and 12th-largest corporations in the United States, respectively.

In addition to owning the largest PBM, the third-largest insurer (Aetna), and a mail-order pharmacy, CVS also owns the nation’s largest retail pharmacy chain. That means that the largest PBM is determining reimbursements both for its own stores and its competitors.

In 2016 and 2017 — before the purchase of Aetna was complete — Ohio independent pharmacists saw what they thought was evidence of an anticompetitive practice by CVS. 

Reimbursements for Medicaid drugs from the CVS PBM dropped below their costs, the pharmacists said, making it tough for those with lots of Medicaid patients to stay in business. Then CVS’s real-estate operation sent them letters saying it knew reimbursements were down and offering to buy their stores.

After being reported by The Columbus Dispatch, independent pharmacists in other states reported similar experiences. But CVS denied that it was engaged in what its critics called “squeeze and buy.” It said it maintained a strict firewall between its PBM and its other operations.

But in Ohio there were other signs that taxpayers and consumers might not be getting the best deal.

Following a newspaper analysis, the Medicaid department in 2018 commissioned a study of pharmacy reimbursements for the previous year. It determined that in 2017, the CVS and UnitedHealth-owned PBMs billed taxpayers $224 million more for prescription drugs than they paid pharmacists, three to six times the going rate.

In addition, state Attorney General Dave Yost has sued OptumRx, UnitedHealth’s PBM, and ExpressScripts, accusing them of defrauding other state agencies.

Those suits are ongoing, but the state Medicaid department has huge contracts with both companies. In addition, Director Maureen Corcoran last year signed billion-dollar contracts with CVS and UnitedHealth, even though she owns stock in both companies, but refuses to disclose just how much.

Also last year, Corcoran signed a huge managed-care contract with Humana, another of the six companies whose PBM operations the FTC will investigate.

While the FTC, with its new Democratic majority, is going ahead with its investigation of the biggest PBMs, the industry’s trade group is advocating that all parts of the prescription-supply chain be investigated.

“We believe that policymakers need information that provides a guide to lower prescription drug costs for consumers, not an increase in revenue for drug manufacturers or pharmacies,” JC Scott, president and CEO of the group, the Pharmaceutical Care Management Association, said in a May 25 statement. “An examination of prescription drug pricing that includes the entire prescription drug supply and payment chain will provide the information necessary to determine the factors increasing drug costs for consumers.”

But to community pharmacists at least, the corporations owning the biggest PBMs and insurers are the primary culprits for the high cost of prescription drugs — and the loss of independent pharmacies and small chains.

“PBMs behave like monopolies,” B. Douglas Hoey, CEO of the National Community Pharmacists Association, said in a statement. “Their secretive, anticompetitive practices increase prescription drug prices, limit consumer choice, and stymie competition. They’ve escaped serious scrutiny for far too long, but this study will bring their dirty laundry out into the open.”