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New Analysis Shows FTC Issued Flawed PBM Study To Congress
PHARMACY BENEFIT MANAGERS (PBMS) AND MAIL ORDER
Alexandria, VA - May 12, 2006 The National Community Pharmacists Association (NCPA) today released the findings of a detailed study that exposes the “self-dealing” and inherent conflicts of interest of pharmacy benefit managers (PBMs) in operating their own mail order pharmacies in the Medicare Part D program.
“An Assessment of the Federal Trade Commission Conflict of Interest Study” was conducted by PharmaBio Strategy Consulting and commissioned by NCPA to review the data used and the conclusions reached by the Federal Trade Commission (FTC) in their congressionally mandated Medicare Modernization Act (MMA) study. As a result of PharmaBio’s review of the FTC study titled, “Pharmacy Benefit Managers: Ownership of Mail Order Pharmacies,” NCPA is requesting an immediate correction to the findings of the FTC study.
PBMs administer prescription drug benefit programs on behalf of health plans, employers, and unions. They are middlemen in the health care industry, functioning much like HMOs, but for prescription drugs.
When Congress passed the MMA in 2003, it ordered the FTC to determine whether PBM-managed group health plans result in higher costs to enrollees (prescription drug users) than other group health plans. Specifically, the FTC was requested to report on whether the PBM plans: (1) result in higher costs for the enrollees and plans for drugs dispensed by mail order pharmacies owned by the PBMs, as compared to such costs for mail order pharmacies not owned by PBMs; and (2) act in a manner that maximizes competition and results in lower prescription drug prices for prescription drug plan members.
“Unfortunately, the original FTC study ignored much of what Congress specifically told it to do,” said NCPA Executive Vice President and CEO Bruce Roberts, RPh. “In many cases the information presented by the FTC did not support the conclusions it presented. In fact, the data the FTC gathered often supported totally different conclusions. The FTC also unearthed abundant evidence of potential conflicts of interest on the part of PBMs, but failed to highlight these facts. The PharmaBio assessment clearly shows that the FTC’s study does not correctly address legitimate congressional concerns with PBM mail order practices which precipitated the study in the first place.”
Specifically:
- The FTC concludes that cost of dispensing through PBM mail order pharmacy is lower than other channels. On the contrary, the data provided by the FTC suggests that dispensing through mail order pharmacy disadvantages plan sponsors versus dispensing through retail pharmacy. The FTC study adjusted out the effect of drug mix, the very effect for which Congress had requested analysis. In addition, retail pharmacy provides the benefit of face-to-face counseling and medication management, which are especially important for elderly patients taking multiple drugs, which was totally ignored in the FTC study.
- The FTC suggests that competition in the industry provides plan sponsors with tools to safeguard their interests. On the contrary, plan sponsors do not have sufficient tools to safeguard their interests while PBMs have systematic advantages in protecting theirs. A high retention of rebates paid to the PBMs by the pharmaceutical manufacturers to drive volume increases the use of higher cost drugs; high operating margins; a glaring lack of transparency as to their operations and the growing consolidation in the PBM industry (the three largest PBMs control well over half of the market) all give PBMs a significant advantage. The oligopoly that the three largest PBMs have created runs counter to the ability of group health plans to maximize competition and lower prescription drug prices.
- In other questions that Congress directed the FTC to address, the FTC engaged
in selective use of data and selective analysis from which it makes far-reaching,
but unsubstantiated conclusions. For example, while the FTC-gathered data
proves that fewer generics are dispensed through mail than retail, the FTC
study discounts these results. Specific oversights and misrepresentations
include:
Consistent with prior studies, in assessing differences in Generic Dispensing Rates (GDRs) by therapeutic class between mail order and retail, the FTC study found that mail order GDRs were five percent lower than those at retail pharmacy. A five percent differential in the U.S. marketplace could be as many as 80 million prescriptions per year—saving taxpayers and consumers more than $7.5 billion. The FTC disregarded these findings and then failed to further examine the evidence it uncovered of PBMs using their discretionary influence at mail order to encourage more expensive brand name drugs rather than lower cost medications.
The FTC claims that Generic Substitution Rates (GSRs) show little difference between mail order and retail pharmacy are misleading because GSRs measure the ratio of generic drugs to multi-source brand drugs (MSBs) on which PBMs receive no pharmaceutical manufacturer payments. Instead, what the FTC should have focused on was the ratio of generics to single-source brand drugs (SSBs) for which PBMs receive and retain significant manufacturer payments.
The FTC claims that it is more profitable for PBMs to dispense generic drugs at mail order than SSBs. However, when appropriately adjusting the FTC data to account for unequal distribution of rebates, it is clear that preferred SSBs (on which PBMs receive rebates) are much more profitable for the PBMs than generic drugs. This creates a conflict of interest between PBMs and their plan sponsor customers and would explain why fewer generic drugs are dispensed through mail than retail, rather than therapeutic category as the giant PBMs have claimed, as demonstrated by the lower GDRs.
“These findings are just the latest chapter in a growing book of revelations about the giant PBMs that shine a new light on how they really operate,” Roberts said. “There needs to be greater transparency of the PBMs’ business practices, in order to protect the public and the taxpayer.”
Last year, a U.S. Court of Appeals upheld Maine’s right to require PBMs to disclose more information about their business operations, including payments they receive from drug manufacturers. In December, a jury in Ohio ruled that Medco Health Solutions, Inc., the nation’s largest PBM, breached its fiduciary duty to the Ohio State Teachers Retirement System and engaged in fraud. A number of states are continuing to look into the PBM practices of Medco, Caremark, and Express Scripts.
Download a PDF of the Executive Summary
The National Community Pharmacists Association (NCPA), founded in 1898, represents the nation’s community pharmacists, including owners of more than 24,000 pharmacies, more than 68,000 pharmacists and more than 280,000 employees. The nation’s independent pharmacies, independent pharmacy franchises and independent chains dispense nearly half of the nation’s retail prescription medicines.