Congress has failed yet again to pass legislation to shed light on the Pharmacy Benefit Manager (PBM) market, leaving Puerto Rico desperate to solve the problem. In an attempt to alleviate the problem, the FTC granted a petition to reverse the limitations it imposed on pharmacy group bargaining with PBMs in Puerto Rico, opening the door to what the FTC had previously ruled as collusion.
In 2012 the Cooperativa de Farmacias Puertorriqueñas, known as Coopharma, was representing a group of independent pharmacies in negotiations with insurance and PBMs when the FTC issued a ruling that it was in violation of the Sherman Antitrust Act. The accusation was that the Coopharma was fixing drug prices. The Coopharma claimed that PBMs market power and “oppressive conduct” in the pharmaceutical industry was the problem for creating unfair contracts, not the pharmacies.
Twelve years later, the Coopharma’s claim warning about PBMs is clearly correct, even if their methods to deal with it were not. Eyes are on PBMs as prescription drug spending continues to rise, with consequences for all Americans.
PBMs have been accused of collecting more than half of the money patients spend on pharmaceuticals with tactics like “spread pricing” where the PBM negotiates rebates on drugs, then still charges a pharmacy full price, pocketing the difference. PBMs have also increased fees to other parts of the pharmaceutical industry to pad their bottom lines, doubling from 2018 to 2022. In total PBM fees on pharmaceutical companies have quadrupled over the last 10 years, driving up costs for pharmaceutical companies and therefore drug prices for patients.
There have been more egregious accusations against PBMs as well. PBMs have been accused of taking advantage of the federal 340B program which is intended to help low-income patients, as well as using gag clauses to prevent pharmacies from telling patients when they can get their drugs cheaper. These practices increase PBMs’ revenue without increasing or making more efficient the services it provides, and even directly increase the cost of the medicine patients receive.
PBM’s soaring prices put pressure on pharmacies to either increase costs to patients or go out of business. Of the pharmacies that operated from 2010 to 2020, 29 percent of pharmacies had closed by 2021. Even the largest chains, like CVS and Walgreens’ pharmacies, are closing, leading to pharmacy deserts making it harder for patients to get medicine.
Reform has been a bipartisan issue with bills being proposed and sponsored by members of both parties. It looked briefly like this may be the year congress finally passes legislation reigning in some of the most egregious practices of PBMs, however the recent failure of congress to pass a spending bill pushes this problem to next year and the incoming congress.
The lack of reform has left pharmacies desperate. In Puerto Rico pharmacies have been closing since at least 2016 and are projected to keep on the same path. Puerto Rico and the FTC are making a desperate move in weakening antitrust law to give the Coopharma the legal ability to negotiate on behalf of large collections of pharmacies with insurers or PBMs in Puerto Rico under regulatory supervision.
While the intention to help pharmacies stay in business is laudable, instead of weakening antitrust law the FTC could help more by investigating the business practices PBMs engage in. For example, before FTC’s decision on the Coopharma it had already sued the three big PBMs, accusing them of pushing up the price of insulin. The FTC is well positioned to investigate potential problems like this of market power in the PBM industry like restrictions on formulary lists, how much discounts are passed through to patients, and pharmacy gag clauses instead of weakening antitrust protections and encouraging collusion.
The major problem the next congress should consider is the lack of transparency in the PBM industry. Without bipartisan congressional action to shed light on the PBM market and allow real competition, the situation for pharmacies is only likely to get worse. A healthy pharmaceutical industry supports a healthy populace. Until congress acts to shed light on the PBMs, we will not know the extent of the problems that are currently festering in our pharmaceutical industry.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.
This article was originally published at the Economic Standard here.