In Reversal, FTC Launches Inquiry Into PBM Industry

The Federal Trade Commission (FTC) on Tuesday moved to investigate how combining health plans with specialty pharmacy providers has affected drug prices and the ability of doctors to prescribe the treatments they think are best for patients.

The commissioners’ 5-0 vote reverses an decision earlier this year to not take up an investigation, which disappointed doctors and patient advocates. They say the role of pharmacy benefit managers (PBMs), the so-called “middlemen” in health care, has put undue influence in medical decisions since a string of mergers several years ago. Putting health plans and pharmacies under one roof creates incentives for the plans to steer patients to their own pharmacies and make formulary decisions based on profitability, not patient needs, according to critics.

The move came after 24,000 comments were turned by the May 24 deadline, according to the FTC statement.

As part of its inquiry, the FTC will demand that the 6 largest PBMs submit records and answer questions regarding their business practices. FTC’s compulsory orders will go to: CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc. The orders are permitted under Section 6(b) of the FTC Act, which allows the agency to conduct studies without a specific law enforcement purpose. The companies have 90 days from the date they receive the order to respond.

“Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the US prescription drug system,” FTC 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, created years ago to negotiate prescription prices and fees with drug manufacturers and develop formularies, have instead become brokers with the power to make or break a drug’s ability to secure a position in the market. As a result, manufacturers have high list prices for drugs but pay rebates back to the PBM; ostensibly these payments are used to lower overall premiums for those in the health plan. But for patients charged a percentage of a drug’s list price as a cost share—or for those without insurance—the rebate system saddles the sickest patients with the highest costs. Some of have described this as “the sick subsidizing the well.”

John M. O’Brien, PharmD, MPH, a former senior advisor at HHS who is the president and CEO of the National Pharmaceutical Council, said the questions in the FTC’s order suggest that the commissioners “had a really good sense of what the wanted to ask—and that there was a desire to do something.”

It’s hard to know what happened between the prior vote and this one, which came shortly after the end of the comment period, he said. But O’Brien is heartened that the order is written with an eye toward creating more fairness for consumers—it’s evident that the FTC is hearing from the public on this issue.

“Clearly, something was behind the commissioners’ decision to move quickly,” he said.

Kathy Oubre, MS, who is CEO of Pontchartrain Cancer Center and among the most active members of the Community Oncology Alliance on this issue, hailed the FTC’s move. She noted how PBM behavior has harmed the biosimilars market, since oncology practices were sometimes forced to use higher-priced brand name products instead of lower-priced biosimilars.

“Lack of PBM transparency and their monopolistic behaviors—through vertical integration—have resulted in increased prescription drug costs and decreased patient affordability and access,” she said. “We have seen this directly undermine the long-term sustainability of the biosimilar market since many PBMs have implemented utilization management strategies which incentivize high and higher rebates given by pharmaceutical manufacturers for formulary placement.

Mergers that have combined health plans with pharmacies have further strengthened PBMs clout. Some now bar oncology practices from dispensing drugs within practices—a system known as “white bagging.” Some force patients to use particular pharmacy, even if it requires more travel. And independent pharmacies that are not affiliated with health plans have complained of abuses, such as:

• being charged new fees or asked to repay funds, a practice known as “clawbacks”;
• facing questionable audits;
• facing a lack of transparency in how their reimbursements are calculated;
• the increased use of prior authorizations and related restrictions; and
• being forced to use a limited specialty drug list—even when doctors try to use lower-price drugs, they are sometimes told “no.”

O’Brien said it’s hard to predict how the PBMs will respond. Some may choose to make changes voluntarily, as they know that whatever information is submitted to FTC will undoubtedly find its way to investigative arms of Congress.

“If I'm an innovative PBM CEO, I may want to decide that my business is going to do something different,” because that might allow companies to craft their own solutions instead of allowing the government to dictate how they will run their operations.

“I might want to think about a different mousetrap,” O’Brien said.