It's Not Happenstance That Americans Pay So Much For Prescription Drugs

A few weeks ago Digby and I went to dinner with Ted Lieu and Ro Khanna, two of Congress' most dedicated legislators-- guys actually looking for ways to make people's lives better. We asked David Dayen to come as well so he could explain the intense research he has been engrossed in involving pharmacy benefit managers. His piece, "The Hidden Monopolies That Raise Drug Prices," is running in the new issue of the American Prospect and it's worth reading in its entirety. But first a 101 definition for those who may not have heard of a pharmacy benefit manager (PBM), simply "a third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans. 266 million Americans are dependent on them doing a good job, which the American Pharmacists Association says includes "contracting with pharmacies, negotiating discounts and rebates with drug manufacturers, and processing and paying prescription drug claims.. striving to maintain or reduce the pharmacy expenditures of the plan while concurrently trying to improve health care outcomes." Sounds powerful, right? And that kind of power inevitably leads to abuse including lawsuits involving fraud, deception and antitrust claims.

Dayen pointed out that most people blame insurance companies and/or pharmaceutical companies for raising costs in the health-care system. He wants you to know how the PBMs have "morphed from processors to predators... Over the past 30 years, PBMs have evolved from paper-pushers to significant controllers of the drug pricing system, a black box understood by almost no one. Lack of transparency, unjustifiable fees, and massive market consolidations have made PBMs among the most profitable corporations you’ve never heard about."

Americans pay the highest health-care prices in the world, including the highest for drugs, medical devices, and other health-care services and products. Our fragmented system produces many opportunities for excessive charges. But one lesser-known reason for those high prices is the stranglehold that a few giant intermediaries have secured over distribution. The antitrust laws are supposed to provide protection against just this kind of concentrated economic power. But in one area after another in today’s economy, federal antitrust authorities and the courts have failed to intervene. In this case, PBMs are sucking money out of the health-care system-- and our wallets-- with hardly any public awareness of what they are doing.

Even some Republicans criticize PBMs for pursuing profit at the public’s expense. “They show no interest in playing fair, no interest in the end user,” says Representative Doug Collins of Georgia, one of the industry’s loudest critics. “They act as monopolistic terrorists on this market.” Collins and a bipartisan group in Congress want to rein in the PBM industry, setting up a titanic battle between competing corporate interests. The question is whether President Donald Trump will join that effort to fulfill his frequent promises to bring down drug prices.

Dr. David Gill is a policy-driven progressive candidate running for Congress against a backbench garden variety Republican incumbent, Rodney Davis, in a central Illinois swing district, IL-13. (Blue America has endorsed him and you can contribute to his campaign here.) This morning, after reading Dayen's article, he told us that as an emergency department physician he doesn't have direct dealings with pharmacy benefit managers. "However," he added, "it comes as no surprise to me that such abuses take place. Given that the benefit managers are subcontractors of insurance companies whose primary mission is to maximize their profit, it should be no surprise to anyone that these benefit managers are also largely focused on maximizing their own profit, and that the well-being of patients is of secondary importance. Until we finally adopt a single-payer healthcare system administered by the federal government ('Medicare for all'), such abuses will continue within many different layers of healthcare here in America. Uncle Sam does not run Medicare in order to make money; if only the rest of our healthcare system was run with such noble intentions."

Jason Westin is a first time candidate, a cancer researcher specialist and physician in Houston, who's running against reactionary GOP incumbent John Culberson, a long-time-corporate puppet. We turned to Jason immediately when Dayen made us aware of the PBM problem. He told us that as a cancer doctor he has "seen first hand the hard choices that patients are often forced to make when it comes to medications. Many of the newest and most promising new anti-cancer medications are also the most expensive due to unregulated pricing by Pharma and by the hidden charges of the pharmacy benefit managers (PBM). This predatory pricing puts desperate and vulnerable patients between a rock and a hard place. If they purchase the drug and it works, they will need to decide if they can continue to pay for it longterm and face financial ruin, or quit after a while and take their chances. If they do not purchase the drug, their families may long wonder 'what if?' As PBMs no longer provide any real benefit to patients, loosening their stranglehold on prescription medications should be a bipartisan issue. Many uninformed GOP members of Congress, like John Culberson of TX-07, think drug pricing would be solved if we could 'open up purchasing across state lines' (actual quote from 3/25/17 Town Hall). Their ignorance on the insidious effects of PBMs on drug pricing means they are completely incapable of regulating them: how can you fix what you do not understand?"

Like David Gill and Jason Westin, progressive candidates Tom Guild in Oklahoma and Kim Weaver in Iowa are running against extreme right wing incumbents, respectively Steve Russell and Steve King. Both had the same reaction to the GOP attack on Americans' privacy yesterday. "It's disappointing and disgusting that Big Corporate donations of nearly $100 million doled out  to members of Congress," said Tom, "including my opponent incumbent Clyde 'Steve' Russell, carried the day. Russell joined the list of U.S. House Members who were all but bribed to vote to take away Americans internet privacy, to the extent that even our browsing history can be peddled to the highest bidder, like a cyber-Snickers bar. As they say about Clyde and other career politicians who voted for this outrageous legislation, they can’t be bought but they can be rented for long periods of time. I’m looking forward to defeating Wall Street lackey Russell in November of 2018, and taking back our rights and freedoms, including the right to privacy, that Clyde blithely sells to the highest Wall Street and Big Corporate Bidder. Has he no shame? Apparently, not!"

"Once again Steve King showed that his loyalty rests with his corporate sponsors rather than with the people of Iowa," Kim told us. "I'm appalled that he thinks it's okay for cable and internet companies should have the right to sell our private information. The people of this district will be outraged when they see this vote-- American's privacy should not be for sale!"

Back to Dayen's piece, which doesn't end quite as bleakly as it starts. He's looking for a way to solve this mess:

Amid frustration on all sides of the market, some private-sector actors are attempting to break the PBM stranglehold. A group of 20 large employers representing four million patients, including Coca-Cola, Marriott, and Verizon, have formed the Health Transformation Alliance, seeking to break away from the “patchwork of complicated, expensive, and wasteful systems” in modern health care, including the pharmaceutical supply chain.

The alliance has expressed interest in a “transparent PBM” model, which takes a flat administrative fee on each prescription, with all rebates and discounts fully disclosed and no hidden spreads. Transparent PBMs only have a sliver of the market, but they can get results: A hospital nonprofit network named Meridian Health Systems claimed to Fortune magazine that a transparent PBM saved it $2 million in the first year, about one-sixth of its total drug costs.

But many employers don’t know enough about the system to go outside the Big Three, says Susan Hayes. “They’re trying to manage something they don’t understand. If you put blinders on, and hire one of the Big Three, you won’t get in trouble with the boss.”

Another model would empower pharmacies. A 2016 report from the Institute for Local Self-Reliance highlights a quirk of law in North Dakota, which only allows drugstores to operate if owned by pharmacists (similar laws exist in Europe). The law prohibits chain pharmacies from entering the state. Not surprisingly, North Dakota’s independents deliver among the lowest prescription drug prices in the country, along with better health outcomes and more drugstores per capita than any other state. This flies in the face of industry claims that big chains and giant conglomerates save consumers money or improve services.

Why can’t this successful model be replicated elsewhere? “The answer is PBMs,” says Stacy Mitchell, the report’s author. “Because in North Dakota, independents are the only game in town, PBMs have to negotiate with them. In other states, they have no leverage.” Unsurprisingly, PBMs and chains want the North Dakota law overturned rather than adopted in other states.

For a more immediate impact, we must turn to Washington. And there, solutions often emerge when one large industry starts pointing the finger at another. Under fire for their many drug-pricing scandals, from Martin Shkreli to Valeant, the pharmaceutical industry has tried to deflect blame by citing PBMs. GlaxoSmithKline CEO Andrew Witty said in a February conference call that so much of the list price on the company’s drugs went to “non-innovators in a system which thinks it’s paying high prices for innovation,” a veiled reference to PBMs. An industry-funded report in January asserted that manufacturers took only 63 percent of gross drug revenues, attributing the decline to discounts and rebates paid to PBMs. (Of course, this hasn’t stopped pharmaceutical companies from earning higher profit margins than any other industry.)

For their part, PBMs insist that drug prices would be even higher without them, arguing that they deliver broad access to medications and 90 percent customer satisfaction rates. But in an industry-on-industry arms race, the millions of dollars that leading PBMs and their trade groups spend each year on lobbying would be no match for the pharmaceutical industry. That creates opportunities for longtime PBM opponents in Washington, which include several Republicans representing rural districts, where independent pharmacies are getting crushed.

Doug Collins, a third-term House member, experienced the PBM issue personally, when his mother couldn’t get her regular medications and her plan had no substitute on the formulary. “I am a free-market person, as conservative as they come,” Collins says. “When dealing with this, it’s not a free market.” Buddy Carter, his colleague, has worked in independent pharmacies since 1980, and sees himself as their voice in Congress. I asked him if he had difficulty explaining the PBM market and its problems to his colleagues. “Heck, it’s difficult for me to understand and I’ve worked in the industry over 35 years!” Carter says.

Watch some hearing soundbites from these two and you’d think you’re seeing the second coming of William Jennings Bryan. “Who will my folks in my district of Georgia call, when they need someone at night and their local pharmacist is the one they trust?” Collins asked two PBM representatives in 2015. “They’re going to try and find their local pharmacist, who has been closed because of the anti-competitive nature of this field.” Carter grilled top PBM lobbyist Mark Merritt in 2016: “I notice that the profits of the PBMs have increased enormously over the past few years. In fact, almost doubled. And I find that very disturbing.” These are conservative Republicans!

What can Congress do to reform PBMs? More than 20 states have passed laws to require more frequent MAC list updates, so PBMs can’t drag their feet and generate large pricing spreads. But PBMs started to circumvent the laws, in one case by eliminating the term “maximum allowable cost” from contracts. Collins’s bill, the MAC Transparency Act, would take care of this at a federal level, to stop the game-playing.

Other bills in the House and Senate would prohibit retroactive DIR fees on Medicare Part D plans, stopping the after-the-fact clawbacks on pharmacy reimbursements. A separate bill would allow any willing pharmacy to participate in a PBM’s preferred pharmacy networks if they agree to the terms, increasing access in communities without chains. All of these bills would add transparency to the system, and reduce the incentives to constantly jack up prices. And they all have bipartisan cosponsors.

...The wild card in all this is Donald Trump. At his one and only pre-inauguration press conference, Trump singled out drug companies for “getting away with murder,” vowing to create “new bidding procedures” for Medicare and earning praise from the likes of Bernie Sanders. But when Trump met with pharmaceutical executives two weeks into his presidency, he focused more on speeding up new drug approvals from the FDA and cutting regulations than on reducing industry profits. This lines up with the perspective of a key aide, Silicon Valley billionaire Peter Thiel, who wants to overhaul the FDA process. (In fact, the Republican Congress just overhauled the FDA process in one of the last bills signed by Barack Obama.) Trump doesn’t appear to understand the cost excesses in the supply chain.

Trump did say in his address to a joint session of Congress that he would “bring down the artificially high price of drugs.” And in his confirmation hearing, Health and Human Services Secretary Tom Price, discussing Trump’s idea for competitive bidding in Medicare, said that “right now the PBMs are doing that negotiation… I think it is important to have a conversation and look at whether there is a better way to do that.”

But where Trump’s team will ultimately land is unknown. “We need to get to a point of clarity about whether the administration is serious,” says the NCPA’s John Norton. Furthermore, any attempt to move forward legislatively on any part of health-care policy will run headlong into the deeply polarized debate over the Affordable Care Act. While a bipartisan alliance appears possible on the PBM issue in isolation, it will be difficult to separate anything health-related from the Obamacare vortex.

The PBM industry’s leading trade group isn’t sleeping on the possibility of an attack. Days after Trump met with pharma execs, the Pharmaceutical Care Management Association issued an internal memo leaked by Buzzfeed, stressing the need for “building a political firewall” in Congress to stop any legislative action.

Frightened about drug manufacturers highlighting a “bloated supply chain,” PCMA CEO Merritt laid out a six-point strategy that included meetings with White House staff and key members of Congress, a digital ad campaign targeting congressional leaders, partnerships with right-wing think tanks like the American Action Forum, and working groups to shape regulatory changes that make PBMs the savior instead of a villain. “We will continue to show how competition—not government intervention-- is the way to manage high drug costs,” Merritt wrote, apparently without irony. Merritt even scheduled a meeting with the main health insurance lobby, AHIP, “to make sure the payer community is aligned and coordinated.”

With drug companies on one side and PBMs and insurers on the other, both camps will have plenty of resources. In that environment, is bipartisan action possible to break up a powerful monopoly? “My answer would be absolutely,” says Representative Carter. “Everyone is impacted by prescription drug prices.”