Senate Finance Committee Examines How PBMs Cause Higher Drug Prices

This morning, Tuesday, April 9th, the Senate Finance Committee held its first ever hearing on pharmacy benefit managers (PBMs) and how they contribute to higher drug costs. In a two and a half hour session, Senators asked tough questions of five PBM executives, criticized their business practices, and demanded more transparency and accountability.

The witnesses before the Committee were the CEOs of five of the country's biggest PBMs. They were:

Dr. Steve Miller, Vice President of Chief Clinical Officer of Cigna, which recently merged with the PBM Express Scripts

Derica Rice, Executive Vice President and President of CVS Health and CVS Caremark

William Fleming, Segment President of Healthcare Services, Humana

John Price, Chief Executive Officer of OptumRx

Mike Kolar, Interim President and Chief Executive Officer of the PBM Prime Therapeutics.

Senator Chuck Grassley (R-IA), chair of the Finance Committee, opened with a brief statement calling for more transparency in PBM markets and questioning whether the system incentivized PBMs to choose more expensive drugs and increase prices. He stated that together with Senator Ron Wyden, he would be investigating insulin prices and determining whether PBMs were concerned with helping consumers or just with their own profits.

Senator Wyden followed with a fire breathing statement, saying, "Today we are looking at one of the most most confounding, gnarled riddles in America. PBMs are some of the most profitable companies in the country. But what they actually do to rake in all these profits is a mystery...The deals they negotiate with drug companies are a mystery, the rebates they negotiate are a mystery, whether they bring any value to consumers and taxpayers is a mystery."

"PBMs are supposed to negotiate better deals for consumers," Wyden continued. "What they actually are is middlemen who rake in enormous profits as drug prices go into the stratosphere...There is little evidence that PBMs have held down prices in a meaningful way. PBMs actually make more money when they pick a high price drug over a lower price drug. This logic is not complicated!" He concluded that "PBMs guard their operations with greater secrecy than HBO guards the ending of Game of Thrones."

The PBM executives defended their businesses and claimed that they were lowering drug prices and passing rebates on to consumers. But most of the Senators were skeptical. Grassley worried about consolidation and the lack of competition in the PBM market, pointing out that CVS, Express Scripts, and OptumRx control 85% of the market and that PBMs were now merging with insurance companies. Last year he wrote a letter to the Federal Trade Commission expressing concerns about this. Senator John Cornyn (R-TX) bluntly asked if the PBMs negotiated agreements where rebates and fees were a percentage of the list prices of drugs. The CEOs claimed that in most cases they did not.

Senator Debbie Stabenow (D-MI) asked if there were egregious anti consumer practices in the PBM industry. Receiving no response, she commented that PBMs had immense negotiating power since they covered tens of millions of Americans, and yet Americans paid the highest prices for prescription drugs in the world. The Veterans Administration has its own PBM, and it pays much lower prices for drugs. She told the CEOs that despite greater volume, they were not securing lower prices, "and you're pretty bad negotiators."

Senator Maggie Hassan (D-NH) talked about hearing from a constituent who was forced to pay more for a brand drug, because it was the only one covered by the PBM. She pointed out that the Federal Trade Commission can demand more information about PBM fees and rebates, and warned them to fully cooperated with the FTC in providing that information.

All the Senators strongly denounced the practice of spread pricing-this is when PBMs reimburse pharmacies for prescription drugs and then turn around and charge their clients several times more for the drugs, keeping the spread for themselves.

After two and a half hours, the Senators had all asked their questions. Senator Wyden told the CEOs that "you see there are not a lot of Democrats or Republicans holding rallies for spread pricing. Spread pricing is a rip off, plain and simple!" He asked them: if Congress proposes to ban spread pricing, will they support it? Three of the CEOs said yes they would, and the other two said they would remain neutral.

For the first time, the Senate Finance Committee investigated PBMs and how they promote higher drug costs. Senators should follow up this hearing with additional inquiries and research, and pass bills such as the C-THRU Act and the Drug Price Transparency Act to hold PBMs responsible for their actions and bring the prices of drugs down.