House Judiciary Committee finds problems with pharmacy market, discusses corrective measures
The House Judiciary Committee held an extensive hearing yesterday in order to discuss the pharmacy market alongside its relationship with pharmacy benefit managers (PBMS). The primary concerns that the committee discussed were rising prescription prices and the effects of PBMs on the market and on independent pharmacies.
“A recent Wall Street Journal investigation found that increases in drug prices routinely outpaced inflation and often by a significant amount," House Judiciary Committee Chairman Bob Goodlatte (R-VA) said in a press release addressing the hearing. "These increases were found despite reduced demand for the drugs studied and even in the face of new, competing drugs. If true, this represents a troubling trend as Americans face a progressively aging population and an ever-growing amount of taxpayer money used to fund the purchase of prescription drugs.”
The committee wanted to explore whether proper economic incentives exist for PBMs and pharmacies to place a genuine check on rising drug prices. The hearing was the third in a series that examines the health care marketplace.
Rep. Doug Collins (R-GA) echoed Goodlatte’s concern but directed his attention toward the PBMs and their dominance in the market.
“To be truthful, I am very discouraged by what I see in the pharmacy landscape,” he said. “Ms. Bricker, you state in your testimony ‘PBM marketplace is extremely competitive.’ That’s an interesting statement since three companies -- Express Scripts, CVS Health and Optimum RX -- control about 80 percent of the PBM market, which translates to 180 million lives. Not a great deal of competitiveness there.”
PBMs oversee the administration and management of prescription drug benefits and interact with nearly every step of the prescription drug supply chain. Consequently, they have the ability to negotiate lower prices for prescription drugs.
Bradley Arthur, an independent pharmacy store owner, testified that PBMs negotiate for their benefit.
When asked by Rep. Hank Johnson (D-GA) about how some witnesses contend that PBMs benefit consumers because their scale allows them to negotiate effectively with drug companies to keep patient premium and cost sharing manageable, Arthur offered a blunt and contrarian answer.
“Well, that’s a noble goal," he said. "I don’t believe that to be the case. I think the scale that is employed is often for the betterment of the parent corporation.”
Arthur stated that the big three PBMs control almost 80 percent of the entire market and have the upper hand in both negotiating the contract with the payer as well strongly influencing the actual plan design itself. The PBM industry typically states that it can use its economic power to harness and enhance market efficiencies. The annual revenues of the big three that continue to grow each year, however, suggest that these efficiencies are going directly to their corporations’ bottom line, Arthur said.
The other topic addressed at the hearing was the role of independent pharmacies in the community.
“Independent pharmacies play a critical role in the delivery of personal prescription drug care, especially in rural areas," Goodlatte said. "During my tenure in Congress, I have seen many community pharmacies in my district shutter their doors. While we should allow the free market to operate, we should also ensure that there is a level playing field for both large and small pharmacies. Today’s discussion will help shed some light on the nature of the competitive playing field in the pharmacy market.”
Arthur, owner of Black Rock Pharmacy in Buffalo, New York, affirmed that independent pharmacies are struggling against the strength of the large PBMs.
“Small community pharmacies like mine are faced on a daily basis with the impact on the PBMs disproportionate market power," he said. "Community pharmacies routinely must agree to take their leave at contracts from the PBMs just to continue to serve our long standing patients. The PBMs also directly set the reimbursement rates for pharmacies, the very same pharmacies that stand in direct competition of these PBM owned mail order and specialty pharmacies. Therefore, it comes as no surprise when the PBM present the employer and government payers with carefully tailored, suggestive plan designs that steer beneficiaries to these PBM owned entities. As the owners of two pharmacies, I have limited ability to negotiate network participation or reimbursement terms with these entities.”
Arthur then explained how community pharmacies are bound to contracts with the PBMs, losing a significant amount of the prescription revenue if they were to walk away from the contracts. Although independent community pharmacies relied on pharmacy services organization to contract on their behalf, he stated that the organizations are no match for the PBMs, having little success in modifying certain contract terms as a result of the negotiations.
“Many PBM contracts contain standard terms and conditions that are largely non-negotiable,” Arthur said.
In his final statement, Arthur said the only way independent pharmacies could survive was to evolve. He believes that they will continue to survive.
Closing the hearing, the committee sought suggestions on how improve the quality of life for Americans from every player in the pharmacy market, even the PBMS.
Organizations in this story
United States House Committee on the Judiciary Washington, DC 20515