The following story originally appeared in the Ohio Capital Journal and is featured on News5Cleveland.com under a content sharing agreement.
The owner of one of the nation’s three largest drug brokers filed a lawsuit on Sept. 16 to throw out the Federal Trade Commission’s attempt to investigate industry practices, but the suit is based on research funded by the medical conglomerate and conducted by economists who have gotten rich by backing megamergers.
In July, the FTC released a scathing interim report alleging that Cigna/Express Scripts, CVS Health, and UnitedHealth Group used pharmacy benefit managers (PBMs) to inflate drug prices and potentially worsen patient health. Cigna/Express Scripts responded by suing, arguing that the FTC’s findings were “false and defamatory.”
The company is asking the U.S. District Court for the Eastern District of Missouri to declare the FTC’s interim report “against the public interest,” void the report, and “remove FTC Chairman Lina M. Khan from all Commission activities related to Express Scripts.”
The healthcare conglomerate, the 16th largest in the United States by revenue, argued that it and other large PBMs are actually lowering drug costs, citing as evidence the work of an economist whose career backs big mergers earns an estimated $100 million or more.
PBMs owned by healthcare giants CVS Caremark, Express Scripts and OptumRx control about 80% of the market. These PBMs represent insurers in pharmacy transactions by determining which drugs are covered. They also set up pharmacy networks. And they use a secretive system to determine how much pharmacies are reimbursed for the drugs they dispense.
For years, critics have charged that they have an inherent conflict of interest.
Each PBM owns mail-order pharmacies, and CVS Caremark’s parent company owns the largest brick-and-mortar retailers, so they use secret price lists to determine how much to reimburse their own pharmacies, and their competitors’ pharmacies, for drugs.
As an example of the apparent arbitrariness of PBM pricing, a recent analysis of Medicare data revealed that CVS-owned plans paid 501 different prices for the same drug.
Also controversial are the practices of large PBMs regarding brand-name drugs, which are often off patent and therefore significantly more expensive than generics. Because middlemen control access for many patients, manufacturers of these drugs have a strong incentive to pay large kickbacks to PBMs in exchange for having their products listed on health insurance drug lists, or formularies, and for offering the lowest out-of-pocket costs for their drugs.
Academic studies have concluded that rising kickbacks, which are often secret, are correlated with further increases in drug list prices. And as conglomerates increasingly own middlemen, pharmacies, health insurers, clinics and other service providers, there are concerns that they are using this “vertical integration” to unfairly benefit their own various business units at the expense of their competitors.
The FTC’s interim report, which is the subject of the Express Scripts lawsuit, said the health care conglomerate appears to be using both its size and breadth to harm consumers.
Express Scripts argues in its lawsuit that it and other large PBMs actually help consumers by using their influence to squeeze discounts from drug companies. The suit asserts that the company has “saved plan sponsors and their members tens of billions of dollars in drug costs in the past decade alone.”
As evidence, the report cites a 17-page report titled, “Economic Analysis of Criticisms of Pharmacy Benefit Managers.”
The report disputes claims that kickbacks and other PBM practices drive up drug costs, as critics say, but notes that the study was funded by the very companies the FTC is investigating: Cigna/Express Scripts, United Group/OptumRx and CVS/Caremark.
And this was done by a group called Compass-Lexcon, which repeatedly paid huge fees to academics who wrote papers in support of mega-mergers, a ProPublica investigation concluded in 2016.
The authors, who argue that such mergers create “efficiencies” that benefit consumers, find themselves in a conflict of interest, the study found. The academics “have reshaped their fields through academic research showing that mergers create efficiencies of scale that benefit consumers,” the study said. “Yet they make the most money by lending their academic authority to mergers proposed by their corporate clients.”
In the case of the study cited in the lawsuit against the FTC, the author was University of Chicago economist Dennis W. Carlton. A ProPublica investigation found evidence that Mr. Carlton was charging at least $1,350 an hour for such work and estimated that he made more than $100 million in his merger-backing career. And this was eight years ago.
Meanwhile, it is becoming increasingly difficult for the poor and disabled to find a pharmacy to go to.
“As vertical integration and concentration increases, these powerful middlemen may be able to profit from inflating drug prices and squeezing Main Street pharmacies,” said an executive summary of the FTC report that Express Scripts is trying to invalidate in court.
Independent pharmacies and small chains have been closing for years, many citing the practices of large PBMs, raising concerns that this will lead to growing pharmacy deserts, making it difficult or impossible for people without transportation to see a medical professional for advice on medications and chronic conditions such as diabetes and high blood pressure.
Those concerns were heightened this year after Rite Aid and Walgreens announced plans to close thousands of pharmacies, including hundreds of stores in Ohio and Michigan. Dave Burke, executive director of the Ohio Pharmacists Association, said the Walgreens closure announcement makes him particularly concerned that PBM practices are making pharmacy businesses unsustainable.
