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Our Take: As anticipated, FTC will investigate business practices of largest PBMs

Jun 13, 2022

Developments over the last few weeks pointed to the likelihood that the Federal Trade Commission (FTC) would pick up where it left off in February and take another run at investigating how pharmacy benefit managers (PBMs) affect access to and affordability of prescription drugs.

Sure enough, the agency announced last Tuesday that it was launching an inquiry into the PBM industry and would require the nation’s six largest PBMs to provide information and five years’ worth of records pertaining to their business practices.

The three largest PBMs — CVS Caremark, Express Scripts, and OptumRx — control almost 80% of the prescription drug market in the U.S. They are owned by CVS (which also owns Aetna), Cigna, and UnitedHealth Group (which also owns UnitedHealthcare).

The other three PBMs that will undergo scrutiny are Humana, Prime Therapeutics (collectively owned by 19 Blue Cross and Blue Shield plans or their subsidiaries or affiliates), and MedImpact Healthcare Systems, the largest independent pharmacy benefit manager in the U.S., according to the company’s Dun & Bradstreet profile.

“[P]harmacy benefit managers often have enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter. Many of these functions depend on highly complicated, opaque contractual relationships that are difficult or impossible to understand for patients and independent businesses across the prescription drug system.” the FTC said in its announcement.

These are among the specific business practices the FTC will look into:
  • Fees the PBMs charge unaffiliated pharmacies and policies regarding payment “claw backs”
  • How PBMs steer patients toward the pharmacies they own
  • How they determine pharmacy reimbursements
  • Their use of specialty drug lists
  • The prevalence of administrative restrictions, such as prior authorizations
  • How rebates and fees from drug companies affect PBMs’ formulary design and the cost of prescription drugs to payers and patients
  • “Potentially unfair” audits of independent pharmacies

The agency said the PBMs will have 90 days from the date they receive the compulsory orders to respond.

Our Take: Looks like Lina Khan, who chairs the FTC, is going to get the “long overdue” inquiry she’s been wanting.

The two FTC commissioners who voted against the proposed PBM study in February had concerns about the focus of that study. They said this study is different because it “is scoped to study the competitive impact of PBM practices, including — critically — how those practices might impact out-of-pocket costs for consumers. … This is a study we can support.”

All five commissioners, including Alvaro Bedoya, who was recently confirmed as the newest commissioner, voted in favor of conducting the investigation.

In light of the various letters that members of Congress have sent the FTC in just the last few months, the 24,000-plus public comments the FTC received, and recently introduced legislation that has bipartisan support, there was little doubt that this investigation would happen — it was more a matter of how soon.

B. Douglas Hoey, CEO of the National Community Pharmacists Association, said, “[PBMs have] escaped serious scrutiny for far too long, but this study will bring their dirty laundry out into the open.”

It might expose other dirty laundry as well.

A research letter published June 7 by the Journal of the Medical Association (JAMA) and written by Drs. Benjamin Rome and Aaron Kesselheim, along with research assistant Alexander Egilman, all affiliated with Brigham and Women’s Hospital, noted that the prices for new drugs launched between 2008 and 2021 increased more than 20% each year.

In 2020 alone, prices for newly marketed brand-name prescription drugs increased health care spending by more than half a trillion dollars, UPI reported, citing the JAMA study.

According to the researchers, the percentage of newly launched drugs costing more than $150,000 per year increased from 9% in the period from 2008 to 2013 to 47% in 2020-2021.

Dr. Rome told UPI in an email last year that drug manufacturers claim rising list prices are offset by rebates, but he said his team’s work showed that patients are not benefiting from the rebates.

“One in four [patients] report that out-of-pocket costs prevent them from taking their prescription drugs as prescribed,” he said.

Will the FTC’s investigation of PBM practices have any effect on drug prices? It’s hard to say, but at least it might crack the door open so we can all get a peek at how the numbers get crunched … and who’s doing the crunching.

What else you need to know
Teladoc is being sued by investors in a class-action lawsuit that alleges the virtual care provider made “materially false and misleading” public statements about the company’s business, operations, and prospects for the future. The original plaintiff, shareholder Jeremy Schneider, claims that he and others suffered “significant losses and damage” as a result of those statements. The lawsuit was filed last Monday in a New York district court on behalf of investors who bought Teladoc shares from Oct, 28, 2021, through April 27, 2022; Teladoc’s CEO and chief financial officer are also named as defendants.

The lawsuit contends that during specified period the defendants minimized the potential of Teladoc’s competition, especially for mental health and chronic care services, and issued a financial forecast for 2022 that was “unrealistic.” Late on April 27, Teladoc released lower-than-expected earnings for the first quarter and disclosed a $6.6 billion impairment charge associated with the $18.5 billion acquisition of LIvongo in late 2020. Teladoc’s share price then tanked in after-hours trading. A Teladoc spokesperson said the lawsuit has “no factual basis,” multiple sources reported.

Civica has chosen a German CRO as its clinical trial partner in the quest to develop more affordable insulins. In March, the Lehi, Utah-based nonprofit drugmaker announced its plans to produce ”significantly” lower priced insulin biosimilars (glargine, lispro, and aspart), with the intent of making at least the insulin glargine biosimilar available as soon as 2024. Civica said in a press release that Profil, a clinical research organization based in Neuss, Germany, has conducted more than 30 biosimilar insulin trials and is the leading CRO for diabetes-related studies.

In separate news, California may try producing its own biosimilar insulin, the Los Angeles Times reported. A spokesman said Gov. Gavin Newsom is asking the state’s lawmakers to earmark $100 million for CalRx, the state’s own drug label. If lawmakers approve the initiative, the state would contract with an established drugmaker to start supplying CalRx insulin while California builds its own manufacturing facility, according to the report.

Shields Health Care Group confirmed that data for 2 million patients may have been compromised in a March cyberattack. A notice on the company’s website said an “unknown actor” gained access to certain systems at Shields from March 7 to March 21 and acquired data that may have included patients’ personal information. The Quincy, Mass.-based company offers imaging and outpatient surgical services at more than 30 of its own facilities throughout New England. It also provides management and imaging services on behalf of more than 30 other health care facilities in the region, including Tufts Medical Center and MRI centers owned by UMass Memorial.

CMS issued the first fines to hospitals for failing to comply with price transparency regulations that went into effect at the start of 2021. Northside Hospital Atlanta and Northside Hospital Cherokee, both in Georgia, were collectively fined more than $1 million. CMS sent warning letters before issuing the fines. The hospitals have 30 days to appeal or 60 days to pay the fines, and they could be subject to civil monetary penalties if they continue to violate the laws. The regulations are intended to allow consumers to price-shop among hospitals so they know how much they can expect to pay for services, but several analyses have found extremely low rates of compliance. For example, in a research letter recently published by JAMA, researchers said less than 6% of the hospitals in their analysis had complied with the mandate’s two components. Hospitals have said the cost of implementation is high and language in the rules needs to be clarified. CMS has faced criticism for not enforcing the requirements.

Meanwhile, the American Hospital Association sent a letter to CMS asking for an extended delay in enforcing a provision of the No Surprises Act, which went into effect earlier this year. The provision requires “convening providers” to anticipate care that a patient might need from other physicians and to get cost estimates from them. The convening providers are supposed to use the estimates to create a comprehensive estimate for the patient before the service or procedure is performed. CMS acknowledged the complexities involved in meeting this requirement when it finalized the rule and said it would delay enforcement until next January. The hospital lobbying organization wants CMS to find a technical solution that all convening providers can use to collect the estimates — and it wants CMS to wait until all providers can implement the solution before enforcing the provision.

HCA Healthcare is facing a second antitrust lawsuit in connection with its acquisition of Mission Health in 2019, Fierce Healthcare reported. Last summer, several residents in Buncombe County, N.C., sued HCA claiming the hospital chain’s actions following the acquisition led to higher costs and reduced quality of care. In that lawsuit, the plaintiffs said HCA holds approximately 90% of the market share for inpatient hospital care in the county. The city of Brevard (N.C.) recently filed a similar lawsuit in which it alleges that HCA bought Mission Health’s assets “because Mission had monopoly power” in the general acute care market in the Asheville region and HCA knew it could “maintain and enhance” that power. The complaint states that HCA controls over 85% of the general acute care market in the Asheville region and more than 70% of the market in surrounding counties, as measured by patient volume. The complaint alleges that HCA cut outpatient services in the region around Asheville after it acquired Mission Health, reducing access and causing patients to travel to HCA’s facilities in Asheville.

What we’re reading
E Pluribus Unum. NEJM, 5.26.22
A Vision For Supporting And Reforming The CDC. Health Affairs, 6.10.22
Does Your Company’s Culture Reinforce Its Strategy and Purpose? Harvard Business Review, 6.10.22

What else we’re reading
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