It is apparent that certain PBM conduct, which independent pharmacies have alleged for years is unfair and anti-competitive, will be facing imminent government scrutiny and likely lead to changes in the law that will more appropriately protect independent pharmacies.
On March 1, 2023, the U.S. House of Representatives Committee on Oversight and Accountability announced its launch of an investigation into the “dubious” practices of pharmacy benefit managers (PBMs) and the effect of these practices on federal healthcare plans.
In letters sent to the three largest PBMs―CVS Caremark, Express Scripts and OptumRx, which control an estimated 80 percent of the PBM marketplace―Republican committee Chair James Comer of Kentucky advised that initial findings of a December 2021 congressional report revealed that “PBM consolidation has negatively impacted patient health, increased costs for consumers, forced drug manufacturers to raise their prices, and created conflicts of interest which distort the market and limit high quality care for patients.”
The harmful practices, as identified in the letters, include:
- “Fail first” policies, also known as “tried and failed,” which require patients to fail on a PBM’s preferred drug before the medication actually prescribed to them can be dispensed by a pharmacy. These policies are enacted so the PBMs can obtain higher rebates from drug manufacturers at the expense of patients.
- “Spread pricing,” in which PBMs pay pharmacies a lower amount than they charge a health plan sponsor, such as the government in the case of Medicare or Medicaid, while pocketing the difference.
- “Retroactive rebates,” in which PBMs force pharmacies to pay retroactive fees in connection with claims that the pharmacy submitted to the PBM months, and even years, beforehand, resulting in additional financial harm to pharmacies and shifting costs from PBMs to consumers and the government.
Recognizing the need for greater transparency in the PBM industry, Representative Comer stated, “We refuse to ignore the harmful role that PBMs are playing in the pharmaceutical marketplace. Greater transparency in the PBM industry is vital to determine the impact PBM tactics are having on patients and the pharmaceutical market.”
In efforts to accomplish this goal, the House Oversight Committee requested numerous categories of documents from the PBMs including, but not limited to, documents related to formulary design, rebates and fees paid to the PBMs by drug manufacturers and wholesalers; incentives for consumers to use PBM-owned pharmacies (as opposed to a pharmacy of the patients’ choice); PBM contracts; PBMs’ threats of network termination to pharmacies; and allegations by pharmacies that PBMs have violated of the federal Any Willing Provider Law.
In addition to seeking information on the above from PBMs, the House Oversight Committee is also seeking the assistance of the following federal agencies through the provision of documents and information that could shed light on PBMs’ impact on federal healthcare programs: the Office of Personnel Management, the Centers for Medicare and Medicaid Services and the Defense Health Agency.
Coupled with a current investigation by the Federal Trade Commission in PBM conduct that mirrors the conduct identified by Representative Comer, it is apparent that certain PBM conduct, which independent pharmacies have alleged for years is unfair and anti-competitive, will be facing imminent government scrutiny and likely lead to changes in the law that will more appropriately protect independent pharmacies.
Duane Morris attorneys will continue to monitor developments in this area and other related issues and report on the key details for the industry in subsequent Alerts.
For More Information
If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Group or the attorney in the firm with whom you are regularly in contact.
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