The owner of one of the three largest pharmacy middlemen in the United States on Tuesday filed suit to quash an attempt by the Federal Trade Commission to investigate industry practices. However, the suit relies on research that the health conglomerate helped pay for and was conducted by an economist who’s become wealthy arguing in support of huge mergers.
The FTC in July issued a scathing interim report saying that Cigna/Express Scripts, CVS Health and UnitedHealth Group appeared to be using their pharmacy benefit managers, or PBMs, to inflate the price of drugs and consequently make patients sicker. In response, Cigna/Express Scripts sued, declaring that the FTC’s findings were “false and defamatory.”
The company is demanding that the U.S. District Court for Eastern Missouri declare that the FTC’s interim report “is not in the public interest,” that the report be vacated, and it demands “FTC Chair Lina M. Khan’s recusal from all Commission actions pertaining to Express Scripts.”
The health conglomerate — the 16th-largest company by revenue in the United States — argued that it and the other big PBMs actually bring down drug costs. As evidence, it pointed to research by an economist who has been paid more than an estimated $100 million in a career of arguing in favor of mega-mergers.
The PBMs owned by the health care giants — CVS Caremark, Express Scripts and OptumRx — control about 80% of their marketplace. They represent insurers in pharmacy transactions by determining which drugs are covered. They create pharmacy networks. And they use a secretive system to determine how much to reimburse pharmacies for the drugs they dispense.
For years their critics have accused them of having an inherent conflict of interest.
Each PBM owns a mail-order pharmacy and CVS Caremark’s parent owns the largest brick-and-mortar retailer. So they’re using secret price lists to decide how much to reimburse their own pharmacies for drugs — and those of their competitors.
As an example of the apparent arbitrariness of the PBMs’ pricing, a recent analysis of Medicare data showed that plans owned by CVS paid 501 different prices for the same drug.
Also controversial are the big PBMs’ practices concerning brand-name drugs, which tend to be under patent and considerably more expensive than generics. Because the middlemen control access to so many patients, makers of such drugs have powerful incentives to pay big rebates to PBMs in exchange for getting their products of lists of covered drugs, or formularies, and for their drugs to have the lowest copayments.
Academic research has concluded that increases in often-secretive rebates correlate with even bigger increases in the list prices of drugs. There are also concerns that because the conglomerates increasingly own middlemen, pharmacies, health insurers and providers such as doctors’ offices, they’re using such “vertical integration” to unfairly advantage their various business units at the expense of their competitors.
The FTC’s interim report that is the object of the Express Scripts lawsuit said it appears that the health conglomerates are using both their size and their breadth to harm consumers.
In its suit, Express Scripts claimed that it and the other large PBM’s were actually helping consumers by using their heft to squeeze discounts out of drugmakers. They have “saved plan sponsors and their members tens of billions of dollars in drug costs over the past decade alone,” the suit asserts.
As evidence, it points to a 17-page report titled “An Economic Analysis of Criticisms Levied against Pharmacy Benefit Managers.”
The report disputes that rebates and other PBM practices are raising drug costs as critics say. Tellingly, though, it says the research is funded by the very people the FTC is investigating — Cigna/Express Scripts, United Group/OptumRx, and CVS/Caremark.
And it was done by an outfit, Compass Lexecon, that pays huge dollars to academics who have repeatedly written papers in favor of mega-mergers, a ProPublica investigation concluded in 2016.
In arguing that such mergers create “efficiencies” that benefit consumers, the authors have a conflict of interest, the investigation shows. The academics “reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers,” the investigation said. “But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose.”
In the case of the study cited in the lawsuit filed against the FTC, the author was University of Chicago economist Dennis W. Carlton. The ProPublica investigation uncovered evidence that he charged at least $1,350 an hour for such work, and estimated that he’d earned more than $100 million in his career of supporting mergers. And that was as of eight years ago.
Meanwhile, the poor and disabled are finding it more difficult to find a pharmacy to go to.
“Amidst increasing vertical integration and concentration, these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies,” an executive summary of the FTC report Express Scripts is suing to quash said.
Independent and small-chain pharmacies have been closing for years, with many citing the big PBMs’ practices as the reason. That created fears that pharmacy deserts could multiply, making it hard or impossible for people without transportation to see a medical professional and discuss their med and chronic conditions such as diabetes or high blood pressure.
Those fears were amplified with this year’s announcement that Rite Aid and Walgreens are planning to close thousands of pharmacies — including hundreds in Ohio and Michigan. Dave Burke, executive director of the Ohio Pharmacists Association, said the announcement of the Walgreens closures especially made him concerned that PBMs’ practices are making the business of pharmacy untenable.
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