Solutions to PBM Pricing Abuses Must Address Entire Drug Supply Chain

DATE: October 17, 2017

SCPC Tells HELP Committee “A comprehensive full-spectrum solution is the only real option”

Washington, DC — In detailed written testimony submitted to the Health, Education, Labor and Pensions (HELP) Committee regarding today’s hearing on the prescription drug distribution chain and its impact on patient costs, the Senior Care Pharmacy Coalition (SCPC) said any solution to address drug pricing issues related to the multitude of PBM pricing abuses must address the entire drug pricing system, not just disparate links along the chain.

“A comprehensive full-spectrum solution is the only real option,” said Alan G. Rosenbloom, President and CEO of SCPC, the only federal advocacy organization devoted exclusively to the interests of the nation’s LTC pharmacies and the patients they serve. “Absent thoughtful and systematic evaluation of the complex strands inextricably link the drug supply chain and the pricing methodologies of Pharmacy Benefit Managers (PBMs), policymakers cannot accurately identify the causes of problems and concerns, and will be unable to craft real and lasting solutions,” he continued.

Said Rosenbloom: “The overall system is like a balloon – squeeze one area (e.g., DIR fees) and PBMs will employ new techniques or more aggressively employ existing ones (e.g., reduce payments even more by manipulating payment methodologies, increasing existing fees or creating new ones or ramping up already unduly aggressive audit practices).  Piecemeal fixes will simply shift the problem from one part of the pricing system to another.”

The SCPC leader pointed out that the nation’s three major PBMs — CVS Caremark, Express Scripts and Optum Rx — control more than 80% of prescriptions dispensed in America, and that for patients living in the nation’s LTC facilities, this percentage jumps to more than 90%. “This anti-competitive environment, which has evolved rapidly since the inception of Part D and accelerated dramatically in just the past few years, demands much closer public scrutiny and government oversight than previously,” said Rosenbloom. “Every American who needs prescription medications will benefit from this effort, and we applaud Chairman Lamar Alexander, Ranking Member Patty Murray, and the full Committee for its work on these issues.”

Please see full testimony for the latest third party research detailing PBM abuses. The following are several key excerpts from the testimony:

LTC Pharmacies Offer a Unique Value Proposition to America’s Seniors 

LTC pharmacies serve a specialized population – largely patients in nursing centers, assisted living and other residential or congregate settings where seniors and other special needs populations live. The typical patient in a nursing center suffers from multiple chronic conditions, significant impairments in the activities and instrumental activities of daily living, mild to moderate dementia — and takes 8-9 prescription medications daily. Effective oversight of medication therapy is crucial to high quality patient care and lower overall health care costs. For example, more than 60% of hospital readmissions from nursing centers involve medication issues. Effective oversight of medications as part of a patient’s clinical care is the single most important factor in reducing hospital readmissions and concomitant costs.

LTC pharmacies — sometimes called “closed-door” or “institutional” pharmacies — are a distinct subset within the pharmacy community. Long-term care facilities typically contract with a single LTC pharmacy to prepare and dispense prescription drugs for patients and to provide an array of services, including specialized packaging, transportation and delivery, medication therapy management, medication reconciliation, antibiotic stewardship and various other consulting services designed to minimize adverse drug reactions, polypharmacy complications, overuse of antibiotics and more generally improve patient outcomes. These obligations derive first and foremost from professional responsibility, but are buttressed by various legal obligations under Medicare, Medicaid and state law.

An Oligopoly Controlled by Three PBMs and their Corporate Partners Keep Patient Costs Artificially High and Threaten Crucial Pharmacy Services 

2017 has surely seen a significant spike in warranted, bipartisan interest in the causal factors driving higher drug prices. As the Committee already understands, the issue is not the increase in retail prices for medications; it is how the actual “negotiated” price works its way through the drug payment system, and how “middlemen,” particularly PBMs, are extracting huge profits from the process — while contributing little to anything of value, and harming patients and pharmacies alike while adding costs to payment programs, especially the Medicare program.

The nation’s three major PBMs — CVS Caremark, Express Scripts and Optum Rx — control more than 80% of prescriptions dispensed in America. For patients living in the nation’s LTC facilities, this percentage jumps to more than 90%. This degree of market control by so few companies is the classic definition of oligopoly and we are seeing oligopolistic practices in action every day. It is crucial that policy makers appreciate this is not a free market, such that any conclusions drawn from a free-market premise necessarily will be inaccurate and solutions necessarily will fail.

The LTC pharmacy arena offers a microcosm to explore the detrimental role these opaque, manipulative and predatory PBMs have in the market today. The Committee should assure that representatives from the Pharmaceutical Care Management Association (PCMA) and its member companies must answer both for their strident defense of opaque, manipulative pricing practices (an argument antithetical to fundamental principles of free and open markets) and for the unseemly partnerships between PBMs and their corporate parents and siblings. These partnerships expand PBMs’ exploitative opportunities in a classic oligopolistic marketplace through consolidation and integration to wield event greater market power to the detriment of patients, pharmacies and the Medicare program.

The Drug Pricing System: PBMs Manipulate Multiple Phases of a Complex Process 

PBMs function as intermediaries for insurance companies. For example, in the Part D context, PBMs are selected by Prescription Drug Plans (PDPs) to act as middlemen between the PDPs and virtually all other actors in the system – pharmaceutical manufacturers, wholesalers, group purchasing organizations, pharmacies and patients. The process from contract negotiation to final “claw backs” after patients receive medications is instructive, and each step in that process should be assessed independently and interactively. From the LTC pharmacy perspective, there are five steps in this process:

1. Contract Negotiations. In this phase, the PBM, on behalf of the insurance plan, negotiates with pharmacies or their group negotiating entities to establish the basic contractual terms each year, including the details of the pricing mechanisms the PBM will use to calculate payment rates for prescription medications.

2. Payment Changes. Virtually all contracts between PBMs and pharmacies establish payment formulas and allow PBMs to change prices based on certain factors. For example, under Medicare Part D, PBMs pay for most generic medications using a formula known as “Maximum Allowable Cost (MAC)” pricing. This methodology allows PBMs to change payment rates daily, provided that payment rate changes are based on identifiable changes in the marketplace.

3. Point-of-Sale Charges. PBMs impose various charges on pharmacies at the time that claims are submitted and processed.

4. Post-Point-of-Sale Fees. PBMs impose various fees, penalties, “incentives” and other charges on pharmacies after claims have been processed and paid. These include but are not limited to Direct and Indirect Remuneration (DIR) fees. For example, the “quality incentive” ExpressScripts uses under certain contracts with LTC pharmacies, as mentioned earlier, are not considered DIR fees, but obviously are post-point-of-sale fees.

5. Unduly Aggressive Audits. PBMs routinely audit claims they’ve paid and routinely assert substantial overpayments to LTC pharmacies. These audits often go well beyond appropriate audit methods, resulting in another layer of clawbacks.

Stated Rosenbloom: “An oligopolistic and predatory environment increasingly demands that LTC pharmacies make a Hobson’s choice: accept contracts under which they slowly bleed to financial death; or cease doing business altogether by rejecting predatory contracts and therefore lose all their business in one fell swoop. When these are the only options available, it is bad for patients, bad for local businesses and economies, and bad for government payers like Medicare. The only winners are PBMs, and their corporate parents and siblings.”

The SCPC President and CEO concluded by noting, “At a time when transparency in the marketplace, in government and within society at-large is a driving force for positive change benefiting every American, the PBM industry’s reliance upon hiding facts, and claiming it their right to make secret deals behind closed doors, should continue to be a focus of lawmaker, regulator and media scrutiny alike.”