Pharmacy benefit managers (PBMs) — middlemen between pharmacies, health insurers, and drug companies — are responsible for driving up prescription drug prices and shuttering independent pharmacies, witnesses said during a hearing held by the Senate Commerce, Science, & Transportation Committee.
Three of the four witnesses — an economist, a physician, and a pharmacist — called on Congress to require greater transparency and accountability from PBMs.
“Since 2014, prescription drug prices have increased 35%, outpacing increases in wages, gas, internet service, and food,” committee chair Maria Cantwell (D-Wash.) said at Thursday’s hearing. And “the evidence suggests that PBMs are part of the high drug cost increase.”
When PBMs first entered the healthcare space, they were independent from health plans and helped bring down prices by encouraging more use of generic drugs and by increasing mail-order services, explained Erin Trish, PhD, an economist and co-director of the USC Schaeffer Center at the University of Southern California School of Pharmacy. “However, a wave of consolidation and other activities in the last few years have distorted behavior,” Trish said.
Three PBMs currently control 80% of the market, Cantwell noted, with pharmacy chains and health insurers buying up the biggest PBMs. This leaves independent pharmacies, care providers, and patients with no other options when PBMs raise their prices, she said. Congress is determined to rein in these “mysterious middlemen,” Cantwell said, and won’t be deterred by things like the complexity of the drug-pricing system.
PBMs’ Impact on Patients
Debra Patt, MD, PhD, a breast cancer specialist for Texas Oncology in Austin and vice president of the Community Oncology Alliance, said PBMs can threaten patients’ access to care.
Cancer patients need timely access to treatment, and PBMs, by steering prescription fills to specialty and mail-order pharmacies, have denied and delayed that care, she said. “The delays and detours are difficult to anticipate and limit a doctor’s ability to effectively control the cancer,” which can result in “poor disease control, morbidity, and mortality for the patients we serve.”
Tania, a 40-year-old woman with metastatic breast cancer who is one of Patt’s patients, was blocked by a PBM from accessing abemaciclib (Verzenio), which Patt believed to be one of the most effective treatment options for Tania’s particular case. As she watched Tania’s cancer grow, Patt knew she could not wait for the PBM and insurer to approve her appeal for abemaciclib, and so she turned to “less effective and more toxic chemotherapy,” she said. As of last week, Tania has two new brain metastases for which she’ll need radiation.
While she can’t say definitively that Tania would be in better health had she received abemaciclib, the literature suggests Tania might have doubled her chances of living without her cancer progressing, in comparison to chemotherapy. And because it would have caused less toxicity, Tania likely would have been able to continue working and live a “more normal life,” Patt said.
Another problem with PBMs is that they create “extremely expensive waste,” she said. Physicians, particularly oncologists, often modify treatments to optimize them and mitigate toxicities, sometimes as quickly as 1 or 2 weeks after starting a medication, However, PBMs sometimes require scripts that must be filled for a 90-day supply, which means patients often end up with a month or even 2 months’ supply of a drug they can’t use, Patt said.
PBMs’ Power over Independent Pharmacies
For independent pharmacies, PBMs create a whole other set of challenges.
In his opening statement, Ryan Oftebro, PharmD, owner of Kelley-Ross Pharmacy Group in Seattle and an associate professor at the University of Washington School of Pharmacy, shared examples of PBM abuses.
In 2021, a PBM moved a generic cholesterol drug, rosuvastatin (Crestor) from tier 1 to tier 3 of the formulary and raised copays from $15 to $141 for the same 90-day supply. (A 90-day supply of rosuvastatin cost $10 to buy from a drug wholesaler, while the “highly inflated and completely arbitrary,” as Oftebro put it, average wholesale price (AWP) was $805.40 for 90 tablets.)
The result of the formulary change was “an unnecessary out-of-pocket spend” for the patient and a “windfall” for the PBM, which then collected money that it characterized as “overpayments” to pharmacies under the new pricing structure, even though the pharmacy itself had not received the extra money, according to Oftebro’s written testimony. This happened over 150 times in 2021, with rosuvastatin and with “several other medications,” he noted.
Independent pharmacies are also forced into “totally unbearable” contracts with PBMs where they have “zero negotiating power,” Oftebro told the committee. Because of one such contract and the unmanageable retroactive fees it was subjected to — which rose from $81,000 in 2018 to over $538,000 in 2021 — one Kelley-Ross pharmacy in the East Lake neighborhood of Seattle, and the only one in that community, was forced to close, he told the committee.
In Defense of PBMs
Casey Mulligan, PhD, professor of economics and program director of the Initiative on Enabling Choice and Competition in Healthcare at the University of Chicago, was the only witness to argue in favor of PBMs.
He likened the PBM model to that of a buyer’s club, for example Costco or Sam’s Club. If Costco negotiated with skateboard manufacturers individually they could hike their prices, so instead, Mulligan said, “Costco limits who can sell to their members to those pricing the lowest.” The “best response” for a seller in that scenario is to steeply discount their products and make up the loss through volume. “Much like Costco excludes [expensive] skateboard manufacturers, PBMs can place manufacturers’ products to incentivize discounts for consumers,” he said, referring to placement on formulary tiers.
Cantwell said that while she loved the Costco model, the comparison didn’t hold water. “If you buy in bulk, yes, you should get a discount. The question here is who is getting the discount? Is the consumer getting the discount or are the very manufacturers who own the PBMs getting the discount and pocketing it?”
Ranking Member Ted Cruz (R-Texas), however, defended PBMs and argued that the PBM Transparency Act, a bill introduced by Cantwell and Sen. Chuck Grassley (R-Iowa) would do more harm than good. The bill prohibits PBMs from charging a health plan a different amount than the PBM reimburses the pharmacy and would also prohibit the practice of “unfairly or deceptively … clawing back reimbursement payments.”
Cruz said it’s important to consider the tradeoffs with any bill and that “government regulation can create substantial compliance costs and also create barriers to entry for competitors.” He asked whether the bill would lead to more or less consolidation, and Mulligan suggested it would “disproportionately hurt small businesses” and increase consolidation.
When asked about the bill’s impact on drug prices, Mulligan said the increased regulation would drive prices up. “You’re going to undermine the one tool [PBMs] had to try to create some competition in that space by burdening the very companies whose job it is and who have successfully gotten lower prices for the consumer,” Mulligan said.
However, most senators on the committee, from both sides of the aisle, questioned that logic. “I’ve yet to find a patient who says that PBMs have saved them money,” said Sen. Marsha Blackburn (R-Tenn.).
Cantwell and Grassley’s bill passed out of the committee during the last session of Congress by a vote of 19-9. On Friday, Cantwell said she hopes to see it advance out of the Senate soon and be considered by the House.