(upbeat music) - Welcome to the ASHP official podcast, your guide to issues related to medication use, public health, and the profession of pharmacy. - Thank you for joining us for the ASHP Advocating for Impact podcast, where every episode covers a policy issue impacting the practice of pharmacy. We'll do our best to translate the policy and the politics to help you understand how these issues affect your practice and your profession. I'm Tom Krauss, Vice President of Government Relations at ASHP, and I'll be your host for today's episode. Today I'm joined by Kyle Rob, ASHP's Director of State Policy and Advocacy. Thanks for joining us. - Thanks for having me. - So this episode is gonna be a first in a series of discussions we're gonna have about pharmacy benefit managers or PBMs. We're gonna learn about their business practices, how those practices affect patients and the profession of pharmacy and how policymakers are seeking to rein them in. - So Kyle, let's jump into that. Earlier this month, July 9th, 2024, the Federal Trade Commission, the FTC, published what's called an interim staff report on PBMs titled "Pharmacy Benefit Managers, The Powerful Middlemen, Inflating Drug Cost and Squeezing Main Street Pharmacies." Siding examples and data, the report paints a really unflattering picture of the largest PBMs that as prioritizing profits over their patients, it singles out PBMs as a key driver of increased healthcare spending, particularly drug spending. And the report contains a lot of information to unpack. So we're gonna get into it. In this episode, we're gonna cover some of the high level findings and what it means for ASHP policy efforts. And then in future episodes, we're gonna get into some of the details on specific claims made in the report. So Kyle, for starters, can you just give us a high level background on why the FTC was looking into PBMs? - Sure, yeah. So the background in this particular report dates back to February of 2022. And in February, 2022, FTC Chair Lena Kahn actually did call a vote to authorize this investigation into PBMs and the initial vote actually failed. There were four members of the FTC at the time and the vote failed a two to two deadlock. The commission members that voted against investigating at the time basically said that they needed more specificity into exactly what we'd be looking into in PBMs. So in February, 2022, rather than starting an investigation then, in lieu of doing an investigation, FTC then opened up public comments, took comments from the public in which they solicited feedback on PBMs anti-competitive practices and how that might be potentially harmful to patients and to the healthcare delivery of healthcare in the United States. During that comment period, FTC received 24,000 comments including from ASHP, we were among the 24,000 commenting. And after reviewing those comments, FTC was able to hone in on some of these specific anti-competitive practices of FTC. So the, excuse me, FTC was able to hone in on some of these specific anti-competitive practices of PBMs and pursuant to that in June 2022, the FTC did vote to authorize an investigation of PBMs and they issued orders requiring the six largest PBMs to provide them with detailed information about their business practices. And those six PBMs are CVS Caremark, Express Scripts, Optum-Rx, Humana Pharmacy Solutions, Prime Therapeutics and Med Impact. So the initial orders for information went out in June 2022. The FTC actually requires the companies that are being requested as information to provide the information within 90 days. However, this report ended up getting released in July of 2024, the FTC voted in a four to one vote to release some of the preliminary findings from that data they requested from PBMs. - And so why do they call this a staff report? - Yeah, so the law generally states again, that the companies were required to respond with the 90 days. Now these were rather complicated requests to these companies. So sometimes it does take a little longer. However, in the executive summary of this specific report, they call out specifically and to say, we don't think the PBMs were being completely honest and forthcoming with us. We think they're trying to delay this investigation. So while it is unusual to release an interim report, typically the FTC only releases a final report. They specifically said they justified it in the executive summary of this by basically saying, we think PBMs are slow rolling this and they're trying to stop this investigation from yielding results. So out of public interest and interest of policymakers, even though our research is not done yet, even though we have not completed this report, we're gonna release our preliminary findings just so it's out there and everybody can see it. - Okay, great. So Kyle, you mentioned that ASHP was one of the respondents to the comments. And in fact, we also had an opportunity to testify. The FTC specifically reached out to pharmacy organizations and offered an opportunity for us to meet with FTC staff and provide some feedback. And so we can link to that testimony as well in the show notes from this episode. But Kyle, can you just summarize some of the key issues that we flagged for the FTC? - Yeah, so an ASHP's initial comments to FTC, we flagged four major buckets that we thought they need to investigate PBMs on. Number one was PDM efforts to steer patients away from health system pharmacies and other unaffiliated pharmacies and towards their own affiliates and commonly owned pharmacies. In this context, we specifically named out a couple of practices that are rather prominent for health systems. So health system pharmacy professionals might be most familiar with the stuff like white bagging, right? So white bagging is when an insurer, for an infused medication, when an insurer requires that medication to be dispensed via their mail order, especially pharmacy and does not allow the health system or provider that's actually administering the infusion to acquire it themselves and prepare an investor to the patient. Similarly, a lot of payers are also instituting site of care requirements. This is sort of the next level beyond white bagging. White bagging says, you can't get the drug directly site of care mandate, say you can't do the infusion altogether. So the hospital health system care team might be in network for providing the patient with general care, establishing the diagnosis, establishing the need of treatment, even establishing the clinical justification to get authorization for the treatment. But once the treatment is authorized, they're not allowed to actually administer the treatment. Instead, the insurer will say that you have to go to an infusion site that we own. And then additionally, in the steerage portion, we called out specialty pharmacy network access. So many health systems, especially pharmacies, we get all relevant national accredations, show beyond the shadow of a doubt that they are imminently qualified to provide these services, provide a high level quality of care. And at the end of the day, they are still denied access to specialty pharmacy networks. And the only logical reason for that would be that the insurer is trying to steer that specialty pharmacy, that specialty volume to their own commonly owned pharmacies. We also called out discriminatory reimbursement policies of PBMs specifically, that PBMs appeared to be underpaying their non-affiliates and overpaying their affiliates. And there was also 340B dimensions to this too as well, specifically underpaying 340B covered entities. - I think that's something that we call that in the past. - Third, we called out pharmacy performance fees, which are also commonly referred to as DIR fees, basically reflecting a lot of the reports of our members that many of these payers are weaponizing, a lot of these quote unquote quality improvement programs to a simply establish justification to extract further fees from pharmacies. And fourth and finally, we point out that the consolidated nature of these vertically integrated PDM and insurers allows them to exploit loopholes and bypass regulations in the law and generally there's patience and health plan sponsors into needlessly paying more. One example of this is something called the medical loss ratio. So the law in the book says that generally speaking, health insurers, if you take all of the premium dollars and patient cost sharing that's paid into the plan, health insurers have to pay 80 or 85% of all of that money to pay for healthcare. They can only keep 15 to 20% for administrative, for plan administration and profit. If they don't spend that requisite amount of money on claims, they have to return that money back to the patients or issue refunds. We specifically called out in the scenario where an insurer also owns PBMs and providers. If they find out they have quote unquote not paid enough money for medical claims, well they can just overpay themselves and those claims to get up to the appropriate percentage and not have to refund claims to patients. And that dynamic was specifically called out in the FTC report as well. - That's amazing because this is something that we have, we have flagged this in a couple of different settings and flagged it with reporters. And I think it's very opening to people to realize that these games can be played where you can make a payment to an NTT that you own, kind of classify that whole payment as medical spend, even the administrative, what would have otherwise been an administrative portion of that and in doing so, kind of capture all of the margin on that. So okay, we've laid out these four different categories of harm that we've been identifying for FTC. What did the FTC think? Did they, did the report call out any of those? - Well, not only didn't mention all four of the issues that were raised, it affirmed and confirmed that through the evidence that collected that all of those practices were actively occurring. - That's incredible. So as I mentioned, if listeners want to check out some of the comments that we gave the FTC, we'll link to that, it's obviously it's shorter than going through the whole report. If you want to kind of see those as a kind of quick summary of the issues we're talking about. But Kaya, let's get into the details. So let's maybe start with the vertical integration piece. There's quite a bit of a description in this report with incredible graphics that really kind of emphasize the extent to which there's consolidation and integration in this industry. So can you share a little bit about that? - Yeah, some others have developed some similar graphics that try to capture the level of integration, but there's a really powerful figure in this report that really does break down the level of vertical integration and how that corresponds to the market share. They break down the level of integration for the six largest PBMs. And it's looking at one of the starkest things you can see is that market share tends to directly correspond to the level of integration, meaning the more integrated the PBM is, the higher level of market share they have. The PBM with the highest market share is CVS Caremark at 34%. They own not only, not only the commonly owned by an insurer, Aetna, who was previously Aetna, who they've rebranded as Elavance, but CVS also owns mail order specialty pharmacies. Now, all of the five largest PBMs own their own mail order specialty pharmacy. What is unique to CVS is they also own an extensive retail pharmacy network. And that additional market power is reflected in the large market share they have. The other two largest PBMs express scripts has 23% of the market. Optum Health has 22% of the PBM market. Optum Health is owned by United Healthcare and that should be also noted that United Healthcare is heavily invested in the provider side. United Healthcare is actually the number one employer in the entire United States of physicians. They employ more physicians than any other company in the United States. Humana Healthcare has less of a market share than the equivalent quote, big three. But sometimes that is lumped in with the big three. You might hear the big four including, there would be CVS express scripts and Optum and then combined with Humana. The reason Humana is sometimes lumped into them is they are also vertically integrated with an insurer. Looking at these six largest PBMs, the two with the smallest market share are Med Impact and Prime. And again, what stands out in this graphic is Med Impact is not commonly owned with a health insurer and neither is Prime. And Prime specifically is also not vertically integrated with a specialty mailer of pharmacy. Now they are exclusively contracted with a credo specialty pharmacy, which is owned by express scripts. So they're not exactly open for business when it comes to specialty, but they also don't completely own their own, commonly owned specialty pharmacy. And I will just mention too, right? These figures of market share are across every type of health insurance for every covered lives in the United States, over 300 million covered lives total. So even Prime, who has the smallest market share, 3%, you're still talking 10 million people. CVS Caremark, you're talking about managing the benefits for over 100 million people. - And so that's not always been the case. So can you share a little bit about how this integration and consolidation has evolved over time? - Yeah, again, another powerful graphic that's included in the report is sort of a stick chart that shows in the year 2000, we had 39 different independent companies that were providing pharmacy benefit manager services. Those 39 companies have consolidated into three companies as of 2021. And it's not just that the PBMs are folding and not being able to keep up the market, but rather these PBMs are being absorbed, smaller PBMs are being absorbed into the larger PBMs. And that's further explained by another figure that looks at the market share over time of the different individual PBMs. And a couple of things that stand out, for many years, we've known the big three that the big four have had an overwhelming market share of PBMs, but that market share is only getting larger and larger, it was already very large and it's still getting larger. So in 2016, the big four had 77% of the total PBM market share. In 2023, they have 86%. So they've grown that 77% to 86%. Where did that extra come from? The small PBMs. PBMs outside of the big six were managing, had a 13% market share in 2016, and that is down to a 6% market share. All of the major PBMs have either held steady or increased their market share over that period with the exception of prime therapeutics, which again, is the least vertically integrated out of the major PBMs. The big winner over that period of time, period of guest Tom. - Well, it sounds like you're saying that CVS. - It is CVS Caremark. In 2016, CVS Caremark had a 24% market share. They have increased that to a 34% market share. - So what does that allow them to do? Like, what is all that kind of aggregation of market share enabled? - Well, it furthers their control and consolidation over the healthcare sector in general. So not even just looking at the pharmacy component of it. If you look at the parent corporations, these vertically integrated parent corporations, they collectively account their revenue, accounts for 22% of all healthcare dollars spent in the United States. And that's up from 14% seven years ago. And that is a major increase. - That's the PDMs or the parents? - That's the parent companies altogether. So the total revenue of the PBMs and the parent companies, all their different healthcare arms combined is over $1 trillion. That is 4% of the total US GDP. That's probably more than the economies of a lot of countries that we would think is very high income countries. - Well, that's like on par with US military spending. That's like an enormous, enormous number. So, okay, we've established that these are absolutely huge entities with enormous market share. And then the report really highlights some of this consolidation, both vertically and kind of across the industry. I guess you could make the argument that if you control more of that industry that gives you better pricing power, you can negotiate better deals for your clients that are employers and payers to get, it really drive down drug prices. Is that what's happening and why is that a problem? - Well, that's certainly still the argument that these PBMs were making whenever they're questioning about their practices. However, a lot of critics of PBMs and also reflect this FTC paper, point out that this level of vertical integration has a lot of effects in the sort of core proposition when it comes to health insurance, right? So stripping everything back, the core economic proposition of health insurance is from the provider perspective, if you participate in the health insurance network, then that will give you access to a larger pool of patients that will increase the volume of patients that you're able to see in the overall number of services you can perform. In exchange for being able to treat more patients and getting higher patient volume, that provider is then usually willing to give a discount to the insurer, except less payment than they would have typically or customarily charged for that to offset the increased volume. And again, like you said, PBMs and insurers argue that getting bigger and bigger and controlling bigger pools of patients just potentiates their negotiating leverage in this equation. So if you think about from a drug manufacturer perspective, if they have more people covered under their plans, then putting positive formulary positioning of a specific drug, we'll get that drug, a larger market share, we'll get that drug sold more, and the idea as the drug manufacturer will then offer that PVM at lower price and they would have offered a PVM that manages a smaller pool of patients. - So why should we be skeptical that that's what actually is happening and they're not achieving actually savings that accrue to the benefit of their clients and their patients? - Yeah, so when the insurer also owns the pharmacies and the providers, the people who are actually getting paid for providing the services, it alters the incentive structure of that basic proposition. So in a functioning market, the insurers have the incentive to contract with whichever provider can offer them services at the lowest cost. And that's what historically kept them in business, right? That saves patients money, that saves plan sponsors money, and that's what recruits more clients for them. If an insurance carrier is seen as not doing whatever they can to get the lowest cost possible, then the plan sponsor might look into switching insurers to an insurer that can better do that job. However, in a scenario where the insurer also has an ownership stake in certain providers, well, that can thumb the scale. They're no longer purely looking at the providers that offer the services for the lowest cost, but they now have a competing incentive to maximize the amount of revenue that is collected by the providers that they own. And just to point to the extent of this in the currently integrated system, there's been studies that have pointed out that UnitedHealthcare, which is the largest health insurer of the United States, manages over 60 million covered lives. Out of every dollar that they collect in premiums and patient cost sharing, 25% of that is paid to providers that they own. They pay themselves 25% of all of the revenue that they collect. CVS Health similarly is in the double digits in terms of paying themselves for all the services rendered for all the patients across all of their health plans. So it's not an inconsequential portion of the premiums revenue that's going back to these commonly unaffiliated entities. - I would just be clear. I don't think we're saying that, I don't think we're saying or the report is saying that integration in and of itself is always a bad thing, right? I mean, there can be aspects of kind of improved care coordination. Certainly PBMs would, or insurers would make that claim. But the report is actually calling out where those incentives are breaking down and where it's leading to sort of manipulation of things like you were mentioning the medical loss ratio and actually overpaying your own entities in some cases. - Yeah, and we've long theorized that these sort of things might be in place. But again, this FTC report is a little bit different and it actually puts numbers behind these concepts and sort of shows some of these processes and actions. And I think one of the starkest examples again has been if you look at the desperation and the differences between independent pharmacies and unaffiliated pharmacies and sort of how these market dynamics have coalesced against them in a functioning market. One would think of these insurers and PBMs would want there to be as many independent pharmacies as possible. That way you have a number of sort of different organizations that you can again pick and choose from to compete against each other, bit against each other and try to drive costs down for the privilege of serving your patients. However, again, if you own a lot of the pharmacies, you no longer have a pure incentive to increase competition, but rather you have a competing incentive to drive competition away. So that explains a lot of the contracting practices that we see towards these independent pharmacies. - Okay, so we've talked through some of the potentially negative impacts of this large market share and integration that PBMs have achieved. What evidence does FTC actually provide in the report to support these claims that PBMs are actually engaging in practices like this? - So the report specifically hones in on mail order and specialty pharmacy as a clear example of where one can see that a PBM's ability to eliminate their competition and trap patients is directly correlated with their profitability. So one major stat that was dropped in the study is that for the big three PBMs, for the plans that they managed, 75% of all mail order market share goes to their affiliates. It's across specialty and non-retail quote unquote retail or excuse me, non-specialty quote unquote retail mail order pharmacy. - So can you just say a little bit more about that? What do we mean when we say specialty in this context? - Yeah, so that's the sort of important crux in the sort of hook I think that's been driving a lot of this is that there is no uniform definition of specialty drugs or specialty pharmacies. This basically means that the payers get to unilaterally to find these terms according to whatever suits of their interests best. So we often see specialty drug designations that seem to be entirely primarily if not entirely driven by financial considerations rather than clinical considerations. And so the report delves into the specialty designation practices of five different PBMs. And it found that all five of them over the last four years between 2017 and 2021 over the four year period there, they rapidly increased the number of drugs they classify specialty drugs. And this outstrips the number of new drugs being approved. This is not just explained by new drug approvals. They found this activity across all five PBMs. Separately, there are other studies that are cited in the PBM report that analyze the big three PBMs. And they found that between all their specialty formularies, only 32% of the drugs were considered specialty drugs across all three payers. 45% of those drugs were only a specialty drug for one out of the three payers, meaning. - So that sort of suggests that they're not actually basing this on something innate about the drug or something about the kind of use of the drug. - Right, highly suggestive these designations are arbitrary and interesting. - So, okay, so if you're doing that in your PBM, how do you play that to your advantage? What does the report find? - Yeah, so despite the fact that there's no actual definition for specialty drugs, a lot of legal and regulatory frameworks still create a separate carve out for specialty drugs, whereas if a drug is a quote unquote spousal drug, then you can restrict access to it in ways that would not be allowed for quote unquote non-specialty drugs. So by designating these drugs as specialty, that often triggers exclusivity clauses within contracts for these PBMs, that then allows them to restrict access to the drugs purely to their own affiliates rather than making them available to their entire network of pharmacies. - Interesting, so that kind of feeds, it feeds this kind of claim that was made earlier in the report about driving volume to your own providers. - Yeah, and just to line it up too, right? You know, we mentioned that the number of designations increased from 2017 to 2021. If you look at the same period, the amount of revenue captured by PBM affiliates, specialty pharmacies increased between 2017 and 2021 from 54% to 68% over that same span. - So, okay, if you're a PBM, wouldn't you wanna argue that controlling all that specialty volume does more to make you competitive, you're gonna be, again, able to kind of negotiate better deals with manufacturers. Maybe you're gonna be able to drive some efficiency and how that care is delivered for those specialty drugs. What's the report actually fun? - Yeah, the payers certainly make that argument, but the report does not support that argument. In fact, it found the very opposite. As you were saying, Tom, if scale allowed you to be more efficient than you would expect to see, the proportion of the expenses from these affiliated pharmacies would outpace the revenue, proportion of revenue, which would indicate that they're being more efficient with their spending. In fact, the report found the exact opposite, and that is that the revenue share captured by these affiliated pharmacies far outpaced their actual volume share. So for example, across all commercial plans, 55% of prescription dispenses were done by these affiliate pharmacies, but they captured 69% of the revenue for those dispenses. - And so again, that might kind of speak to shifting kind of profitability to your own, to your own specialty pharmacies and other entities. Okay, well, so the report obviously gets in a lot more detail, and we, in a future episode, we're gonna drill into some of the very specific kind of themes of the report. But for now, can you just kind of like, talk us through just a couple of the key findings in this study? - Yeah, so some of the very high level key moments in the study, in addition to all the information about specially gaming and steering of especially patients and patients steering. The report also highlights on how PBMs are weaponizing pharmacy improvement programs, as mentioned before, to create justification to claw back funds from pharmacies. They also go into how these PBMs use their market power to the foist unsustainable reimbursements on non-affiliated pharmacies, so-called take it or leave it contracts. It also, perhaps, I think it's the first major report to really allege this, but it actually alleges that payers prioritize prior authorization request from affiliate providers and affiliate pharmacies over non- affiliates. So quote unquote in-house PA request had a significantly faster turnaround times and higher approval rates compared to the request that originated from non-affiliated. - So not only, that not only disadvantages unaffiliated pharmacies, pharmacies in a hospital or a different retail pharmacy, an independent pharmacy, that also puts that patient who's served by that pharmacy. If they're gonna face delays, they're gonna not be able to get the access to the same medication that they would have otherwise. - Oh, absolutely, it directly makes access to care content on utilizing an affiliate. The report also delves into how PBM's use misleading marketing practices. So even in scenarios and when they can't completely block other providers from providing services to patients, they still attempt to mislead patients into believing that is the case. So inside examples of how a letter was sent to a patient telling them that their local pharmacy had been removed from the network and they had to transfer all of their prescriptions to an affiliate. When in fact, the pharmacy was never terminated from participating in the network. And even if they had then, the patient still had other options rather than being transferred to the affiliate. In the specialty space, there's a lot of reports detailed about how these PBM's will use claims data to see when some of these targeted drugs have been dispensed by non-affiliates. They will then reach out to those pharmacies in an attempt to transfer the prescription away, even though the patient never actually requested that to happen. Again, sort of getting vulturing some of this volume away from non-affiliates. I mean, these findings are incredible and I just wanna remind folks, this is not our findings, this is not ASHP's claims. This is the federal government through the Federal Trade Commission making this report. So in a future episode, we're gonna try to dive into each of these kind of specific thematic claims that FTC is making. But for now, our role is advocacy. So how, from an advocacy perspective, can we leverage this information in the report? - Yeah, so, so much of advocacy around this, when it comes to these PBM issues is our side saying, like look, these policies are barriers to patients' access to care. They're fracturing the patient care process. They're hurting patients, right? And PBM says, "No, no, no, it saves money and patients love it." Well, this is direct counter-evidence using the actual information that was subpoenaed directly from PBM to show that that doesn't appear to be true, that care delivered through these channels, they're steering it through, is not more cost-effective, and in fact, it is the opposite. So I think it's going to provide, you know, very sort of powerful counter-programming to some of the prevailing arguments around, from the industry against regulation of PBM's. And again, a lot of that information is provided through visuals that are very powerful and easy to understand. It also just includes explanations of a lot of these concepts and manners that are very concise and in words that a lot of policymakers can easily understand. I mean, I think this has the potential to really supercharge some advocacy around PBM issues. You know, if you're in a state that is advocating for restrictions on payer-mandated white-bagging, like this can be exhibit one in that conversation with the state legislator. So, you know, and I think there's other areas where we'll see that sort of conversations around biosimilar substitution, conversations around network access. This can be, you know, a supporting document in all of those advocacy efforts. And so there have been conversations on Capitol Hill at the federal level about increasing oversight of the PBM industry. Kyle, do you have any sense of how this report is likely to affect those conversations? - Yeah, I mean, I think this will, you know, add further urgency to Congress and the states to act on these abusive PBM practices. Again, it's further evidence to, this can't be dismissed as simply not being a problem. And, you know, I think payers have for a long time held over, you know, held over the head of policymakers that if you make any changes and you increase regulation, then you run the risk of greatly increasing patient costs. Again, having this data showing that patient costs are already being inflated by the lack of regulation is again a powerful counter-argument for this. So, you know, PBMs will certainly be a focal point of ASHP's legislative day activities in September. Shout out, please come join us in the Washington to talk to the members of Congress about PBMs. And, you know, I think it will create a lot of, again, opportunities for ASHP and state affiliates that are pursuing state PGM reform to do call to actions with their members to really engage policymakers around us. - Yeah, that's great. Okay, as we mentioned, we're gonna come back to some of these issues, but that's all the time we have for today. So, thank you, Kyle, for walking us through some of the high-level findings of this FDC report regarding PBMs. The next episode in our series is gonna look at the way that the sort of gaming of specialty pharmacy that we talked about a little bit today and we'll get into that deeper. And we'll look into how these practices actually impact patient care and the pharmacy professionals that are trying to serve those patients. So, thanks so much, Kyle. - Thanks. - Thank you for listening to ASHP official, the voice of pharmacists advancing healthcare. Be sure to visit ashp.org/podcast to discover more great episodes, access show notes, and download the episode transcript. If you loved the episode and wanna hear more, be sure to subscribe, rate, or leave a review. Join us next time on ASHP official. (upbeat music) (upbeat music)
