The Federal Trade Commission (FTC) recently announced that it will launch an inquiry into the problematic prescription drug middleman industry. In the inquiry, which came on June 7, 2022, the six biggest pharmacy benefit managers (PBMs) are required to provide records and information regarding their business practices. The targeted PBMs include Humana, CVS Caremark, MedImpact Healthcare, Express Scripts, Prime Therapeutics, and OptumRx.
This inquiry by the FTC will help better scrutinize the effect of vertically integrated PBMs on the affordability and accessibility of prescription drugs in the US. Learn more about what this examination will entail and what changes in prescription drug access and affordability may occur in the future.
Uncovering Medicare Beneficiaries’ Struggle to Afford Prescription Medications
More than five million Medicare beneficiaries have difficulty affording their prescription medications, according to the Assistant Secretary for Planning and Evaluation (ASPE).
Among the 65-and-older group, Latino and Black beneficiaries often struggle the most when it comes to the affordability of medications. With the cost of prescription drugs increasing, many Medicare beneficiaries have stopped taking their medications altogether.
Other groups have also encountered affordability problems, including individuals with low incomes, women, and beneficiaries who have been diagnosed with chronic health conditions like diabetes.
The ASPE’s analysis of a 2019 national survey also found that the rates of medication affordability issues among Medicare recipients who are under 65 were considerably higher than those adults 65 and older. Most Medicare beneficiaries who are under 65 have a serious illness, qualifying them for Medicare based on a disability or end-stage renal disease.
Gaining Insight Into The PBM Practices That Increase Treatment Costs and Out-of-Pocket Expenses
While the average person has little knowledge about PBMs, these “middlemen” have a major impact on the prescription drug system in the United States. The FTC’s inquiry will help obtain a better look into the practices of major PBMs and how their decisions affect payers, pharmacies, patients, and doctors.
Treatment costs and out-of-pocket expenses continue to rise and many parties are starting to feel the pinch. The inquiry aims to review practices that may be impacting costs, such as prescription drug overpayments, also known as clawbacks, and fees charged to unaffiliated pharmacies, unfair audits of independent pharmacies, the impact of rebates from drug manufacturers, the prevalence of prior authorizations and similar administrative restrictions, and specialty drug policies and the use of specialty drug lists.
When more is known about the practices of these major PBMs, the necessary steps can be taken to make prescription drugs more affordable for all.
The Controversy Surrounding The Pharmacy Benefit Managers
PBMs are considered “middlemen” as they are tasked with negotiating drug fees and rebates with drug manufacturers. PBMs ultimately decide which medications are covered by a drug plan’s formulary, as well as where patients must go to get their prescriptions filled by pharmacies.
It is common for PBMs to have their own pharmacies where patients can go. For example, CVS is a large PBM that operates its own pharmacies across the US.
There has been much controversy and concern regarding PBM practices, such as the reduction of patient access to prescription medications and forcing some patients to pay more for their policies. PBMs commonly use spread pricing by charging health insurance companies considerably more than the cost paid to reimburse pharmacies.
The FTC’s launching of an evaluation of PBM practices will help shed light on why these practices have not helped patients save money on their drug prescriptions, especially when it comes to generic medications that were created for this exact purpose.
Pharmacy Benefit Managers and Their Influence Over the US Prescription Drug System
PBMs refer to companies that are responsible for managing prescription drug benefits on behalf of employer-sponsored health plans, Medicare Part D drug plans, health insurers, and various other payers. PBMs have a major impact on determining total drug costs which directly affects how much pharmacies are paid and patients’ access to prescription medications.
PBMs perform their job in the middle of the prescription drug distribution chain. They are tasked with developing and maintaining formularies of covered drugs which influences which medications patients use and their out-of-pocket costs.
PBMs also use their purchasing power to help negotiate discounts and rebates from drug manufacturers. In addition, they are responsible for contracting directly with pharmacies to provide reimbursement for medications that are dispensed to beneficiaries.
Due to their in-depth influence over the US prescription drug system, PBMs continue to face scrutiny involving their role in rising prescription drug costs.
Pharmacy Benefit Managers Control the Majority of the Prescription Drug Market
Just three PBMs control nearly 80 percent of the prescription drug market. CVS Caremark owns the largest portion of the prescription drug market share, representing a total of 34 percent of the adjusted claims in 2021. Express Scripts owns the second-highest majority at 25 percent, followed by OptumRx at 21 percent.
Many agree that it is time for Congress to direct the FTC to go after the unfair, arbitrary, and deceptive business practices of PBMs. A new bill introduced in May 2022 by Senators Maria Cantwell and Chuck Grassley would help ban unfair pricing schemes and require reports to be sent to the FTC regarding elements like spread pricing.
If the bill is ultimately approved, it would give the FTC more power to help reduce the grasp that PBMs have on the current prescription drug market and ensure that patients are able to afford the medications they need to stay healthy.
Shedding Light on Practices That Have Drawn Scrutiny Amongst Benefit Managers
PBMs are generally hired by corporate employers, labor unions, health plans, and various other organizations to process prescription drug-related claims and to interface with drug manufacturers. Choosing the right PBM to create an efficient pharmacy benefits strategy and meet the unique needs of employers is vital for the long-term success of a benefits plan.
A PBM has two main goals that they strive to meet: to reduce spending and increase patient access to medications. PBMs help to reduce spending by negotiating costs with a network of mail or retail pharmacies. Based on the size of PBMs, they can also purchase medications directly from manufacturers at a discounted rate.
PBMs are meant to increase patient access to prescription medications by negotiating directly with wholesalers and manufacturers. Purchasing medications via wholesalers can result in quantity discounts and these savings should be passed onto patients.
Unfortunately, recent PBM practices have drawn scrutiny, such as complicated formulas to determine pharmacy reimbursement, the prevalence of administrative restrictions, the effect of rebates from drug manufacturers, unfair audits of pharmacies, and unethical methods designed to push patients towards pharmacies owned by PBMs.
Learn More About the Impact of Rising Prescription Rates with New City
It is clear that PBMs are continuing to drive up prescription medication costs for patients. PBMs have been blamed for a lack of transparency and ballooning drug prices in the prescription drug market.
Fortunately, there are transparent PBMs that operate ethically and charge a small flat fee each time that a prescription drug is dispensed rather than the large inflation of cost that is commonly seen with PBMs. Working with an experienced employee benefits consulting firm is one of the best ways that employers can better structure their employee benefits and cut down on spending.
To learn how much you could be saving on your benefits, reach out to a member of the New City Team by requesting a consultation online or by calling 888.210.2765.