The FTC Wrongly Blames PBMs for High Drug Prices
The WasteWatcher
Efforts by the federal government to reduce the cost of pharmaceuticals have increased interference in the medical marketplace and failed to achieve any cost savings. One of consistent scapegoats for higher prices has been pharmacy benefit managers (PBMs), which were the subject of the Federal Trade Commission’s (FTC) July 9, 2024, interim reportas part of its June 22, 2022, inquiry into PBMs. The report discredits PBMs and neglects to acknowledge their positive impact.
PBMs play a vital role in administering drug plans for more than 275 million Americans who receive their health insurance from employers, unions, governments, insurers, and other entities. These voluntary and competitive arrangements save an average of $1,040 per payer and patient annually, and the number of patients receiving these benefits continues to grow due to the efficiencies and savings they provide. The negotiating power of PBMs helps to secure 40 to 50 percent savings on prescription drugs and related medical costs for their customers. These savings are then passed on to health plan sponsors and patients. PBMs employ a range of tools, including rebates, pharmacy networks, drug utilization review, formularies, specialty pharmacies, mail-order, and audits, to drive down drug costs, improve quality, increase patient medication adherence, and prevent fraud.
Despite reports from federal agencies about the benefits of PBMs, the FTC under Chair Lina Khan (who just lost another decision in court for overstepping the FTC’s statutory authority by banning non-compete clauses) chose to go after them again. She ignored her own agency’s findings in a September 6, 2005, report on mail-order pharmacies owned by PBMs that in 2002 and 2003, drugs costs at those pharmacies were generally lower than at mail-order or retail pharmacies not owned by PBMs.
The financial impact of not having a PBM was revealed in a March 31, 2023, Department of Labor (DOL) Office of Inspector General (OIG) Office of Audit report, which found that the DOL overspent $321.3 million in a six-year span (fiscal years 2015-2020) on prescription drugs for the Federal Employees’ Compensation Act (FECA) program because the Office of Workers’ Compensation Programs (OWCP) did not use a PBM. There are approximately 2.6 million federal and postal workers in the FECA program. Prior OIG audits determined that OWCP did not have a PBM “to help contain costs.”
The OIG also found that the OWCP failed to adequately keep track of changes in pharmaceutical policy, leading to the issuance of thousands of “inappropriate prescriptions and potentially lethal drugs, including 1,330 prescriptions for fast-acting fentanyl after issuing a policy that restricted its use. The OWCP also had insufficient oversight of drugs that are not usually covered in workers’ compensation programs, leading to hundreds of millions of dollars being spent that “may not have been necessary or appropriate for FECA claimants. … OWCP lacked sufficient clinical expertise and guidelines to ensure appropriate pharmaceutical decisions, which could negatively impact claimants’ health, recovery, and return to work.”
An August 14, 2019, Government Accountability Office (GAO) report, “Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization,” examined how PBMs are used in voluntary Medicare Part D drug plans. In 2016, PBMs were used by drug plan sponsors, like insurers, to provide 74 percent of drug management services, while the sponsors provided the remaining 26 percent. In 2016, GAO found total gross expenditures in Part D were $145 billion, with PBM-negotiated rebates and other price concessions offsetting that amount by 20 percent, or net Part D expenditures being $116 billion.
As the FTC began its study of PBMs’ business practices, CAGW President Tom Schatz submitted comments to the agency on May 25, 2022, which noted, CAGW’s longstanding involvement “in the debate over the regulation of pharmacy benefit managers (PBMs) as part of the effort to lower drug costs. The organization has consistently argued that government meddling in this area does the exact opposite and raises costs.”
CAGW’s concerns about the need for the FTC to examine PBMs following ample evidence of their positive impact was echoed in the dissent by the agency’s Republican commissioners. Commissioner Melissa Holyoak wrote that the report did not meet the FTC’s standards for such a review, and that “the Report was plagued by process irregularities and concerns over the substance—or lack thereof—of the original order. In fact, the politicized nature of the process appears to have led to the departure of at least one senior leader at the Commission. The concerns over process and substance turned out to be warranted. Rather than generate public engagement and fruitful policy discussion, the Report will only exacerbate ideological schisms and further degrade the legitimacy of the Commission. And most importantly, the Report leaves us without a better understanding of the competition concerns surrounding PBMs or how consumers are impacted by PBM practices. I therefore dissent.”
PBMs are in the business of serving their beneficiaries. This mutual relationship has been the key to their success over the years. If the 275 million patients served by PBMs were not getting a positive result, the employers, unions, governments, insurers, and other entities that entered into those voluntary agreements could choose to discontinue their services. However, PBMs consistently offer significant cost savings, convenience, and other benefits, which is why they continue to grow and serve more patients each year. Unfortunately, the FTC report fails to acknowledge this crucial aspect of PBMs.
The FTC and some members of Congress have made it a mission to discredit PBMs and try to regulate them out of existence. PBMs are being used as a scapegoat for high drug prices when the real culprit is the federal government, which continues to adopt onerous regulations and riddle the healthcare marketplace with red tape. The FTC’s report, like much of its other work under Chair Khan, is another attempt to increase government control over healthcare, which will not end well for patients or taxpayers.