Senate Finance Committee Hearing Illustrates Broad Bipartisan Consensus to Combat Pharmacy Benefit Managers
Washington, D.C. — After years of relentless campaigning by patient advocates, healthcare providers, and policy experts, a Senate Finance Committee hearing today showed that Democrats and Republicans now agree Pharmacy Benefit Managers (PBMs) are contributing to today’s drug affordability and access crisis. This is an oligopolistic industry of middlemen controlling which prescription medication you have to take, how much money you and your health plan have to pay for it, which pharmacies you have to use, and how much pharmacies are reimbursed.
Chairman Ron Wyden (D-OR) identified the perverse incentive at the heart of the PBM business model that’s driving up costs:
“In a competitive market, if two products have equal quality, a business should prefer the lower cost option. However, often times PBMs charge administrative fees to drug makers which are calculated as a percentage of a drug list price. That means PBMs get a higher payment if they favor higher cost drugs.”
Senator Marsha Blackburn (R-TN) criticized PBMs for steering patients towards more expensive drugs, saying, “In all transparency, I would do away with the PBMs,” and Senator James Lankford (R-OK) similarly called out this practice for pushing more affordable generic drug makers out of the market:
“The drug companies complain about the PBMs until they cooperate them with them for tiering that when it’s time for a drug to go generic, once the generic’s about to be released, the PBM and the branded drug, they negotiate together some way to get a higher rebate fee if they’ll put the generic drug on the branded tier, which means the copay for the consumer is more and it also is a higher cost for Medicare at this point. . . They’re literally driving generic companies out and driving the prices higher for the consumer.”
Lankford additionally bemoaned the “direct and indirect remuneration” (DIR) fees that PBMs force independent pharmacies to pay, squeezing them of the margin they need to stay in business:
“It’s been remarkable to me how many independent pharmacists have told me the same crazy story that they get a change in quality, they get a drive down in price, and then within about two weeks they’ll get a call from one of the PBM-owned pharmacies and saying, hey we’re trying to expand into your area would you like to merge into our pharmacy. . . What PBMs are doing I believe are actually driving our independent pharmacies and our rural pharmacies into submission or gone from there.”
Multiple senators condemned the exorbitant leverage PBMs have over the market, stemming from horizontal and vertical integration.
“As a result of mergers and acquisitions in recent years, CVS Caremark, Express Scripts, Optum Rx now control approximately 80% of all US prescription drug claims. . . The hyper consolidation with little to no regulatory oversight creates inappropriate negotiating leverage that discourages competition and makes it difficult to achieve transparency, affordability and timely access for patients.” – Senator Robert Menendez (D-N.J.)
“I would say if we were starting up, I would blow up this whole model, the supply chain, because I think it is an antiquated model and I believe the free market works when there’s competition, but you’ve got so much vertical integration, so much consolidation of market power and no transparency.” – Senator John Thune (R-S.D.)
Senators Ben Cardin (D-MD) and Sherrod Brown (D-OH) also blasted PBMs for using what’s known as group purchasing organizations (GPOs) in overseas havens to further squeeze the market, contributing to today’s generic drug shortage crisis. Last year, the American Economic Liberties Project and several coalition partners urged the Federal Trade Commission to investigate GPOs’ anti-competitive conduct and role in this crisis.
As Brown said, “Early this week, [Ohio] sued one of the mysterious group purchasing organizations, GPOs, that are owned by PBMs and used to take dollars from the pockets of people who simply need their medications. It’s unacceptable that these shadowy secretive entities have so much power over people’s healthcare.”
In order to resolve the scourge of PBM predation in our healthcare system, Senator Chuck Grassley (R-IA) called on Congress to pass legislation forcing much-needed price transparency for PBMs. “I think they’ve created their own scapegoat environment because of lack of transparency,” he said.
Economic Liberties urges Congress to go further and fix the underlying causes of market failures.
In addition to reining in Big Pharma’s abuses, as argued by Senators Elizabeth Warren (D-MA) and Sheldon Whitehouse (D-RI), the federal government must force PBMs to comply with the Anti-Kickback Statute in order to align their incentives with payers. They were given an ill-conceived exemption from this law more than 30 years ago, allowing them to take fees from manufacturers as their revenue source.
In addition, the federal government must break up consolidated PBMs and remove their business ties to other actors in the healthcare ecosystem, including insurers and pharmacies, to mitigate their excessive leverage and introduce the competition that will drive down prices and improve access.
To learn more about pharmacy benefit managers, read Economic Liberties “The Pharmacy Benefit Mafia” or watch “How PBMs Impact Drug Prices, Communities, and Patients,” a 2022 event featuring FTC Chair Lina Khan, Senator Sherrod Brown (D-OH), Congressman Buddy Carter (GA-01), and the National Community Pharmacists Association.
Learn more about Economic Liberties here.
The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.