Congressional committee grills top PBM bosses in hearing, House releases investigation report
Lawmakers held a contentious hearing on Tuesday in which they heard testimony from the senior executives at the nation’s three largest pharmacy benefit managers: David Joyner, president of CVS Caremark; Adam Kautzner, president of Cigna’s Express Scripts; and Dr. Patrick Conway, CEO of Optum Rx, a subsidiary of UnitedHealth Group.
Although previous PBM-centered congressional hearings have been held in recent months, this was the first in which the senior-most executives at the leading PBMs participated. The hearing began soon after the House Committee on Oversight and Accountability released its findings from a 32-month investigation into the role PBMs play in prescription drug markets.
The committee’s report supports findings from a similar investigation the Federal Trade Commission conducted on PBM practices. According to The Wall Street Journal, the FTC is preparing to sue the top three PBMs over their drug price negotiation strategies with pharmaceutical manufacturers; the FTC said those strategies contribute to higher costs while restricting consumers’ choices.
The House committee’s report says that despite being “the best-positioned entities to decrease the cost of prescription drugs,” PBMs have instead inflated prescription drug costs and interfered with patient care for their own financial benefit.
Among the House investigation’s key findings:
- CVS Caremark, Express Scripts, and Optum Rx have used their position as middlemen — along with their integration with health insurers, pharmacies, providers, and drug manufacturers — to enact anticompetitive policies and protect their bottom line. Specifically, the report states, the PBMs have steered patients to their own pharmacies and used their position to artificially reduce reimbursement rates for competing pharmacies.
- Although PBMs claim to generate savings for payers and patients through their negotiation techniques, utilization programs, and spread pricing, these “schemes” often increase costs. PBMs have used “opaque pricing and utilization schemes to overcharge plans and payers by hundreds of millions of dollars,” according to the report.
- The largest PBMs strong-arm drugmakers into paying rebates to have their drugs placed favorably on the PBMs’ formularies, a practice that makes it hard for less costly competitor drugs to be included on the formularies, even when the competitors are equally safe and effective.
- Now that state and federal regulators are considering, and in some instances implementing, PBM reforms, the top three PBMs have begun creating foreign corporate entities — group purchasing organizations, to be exact — and are shifting some operations abroad to avoid transparency and sidestep the proposed reforms.
- The use of prior authorizations, fail-first policies, and formulary manipulation tactics have “significant detrimental impacts on Americans’ health outcomes” by delaying market update of less-expensive generics and biosimilars, and by delaying and negatively affecting patient care.
- PBMs’ anticompetitive policies cost taxpayers and limit patients’ choices. The investigation revealed that PBMs have purposely overcharged or withheld rebates and fees from taxpayer-funded health programs and have used their position as middlemen in this programs to steer patients to their own pharmacies rather than pharmacies that may be closer or provide better care.
In reviewing formularies for 2020-22, the committee found 300 examples in which the three leading PBMs preferred prescription drugs that cost at least $500 more per claim than the drug they excluded on their formularies.
“While some of these decisions likely have valid clinical reasons, the sheer quantity and dramatic increase in costs highlight the priority of PBMs,” the report states.
The committee also identified more than 1,000 examples of drugs that would have been less expensive if the excluded drug had been given preference on the formulary or at least had been able to compete on a level playing field, according to the report.
At the hearing, the PBM leaders offered examples of how their companies save consumers money on the cost of their prescription drugs. According to Healthcare Dive, they drew on information from a report published by Compass Lexecon to refute the committee’s allegations.
The executives claimed the PBMs pass almost all rebates on to plan sponsors and have maintained operating margins below 5% in recent years.
CVS Caremark’s Joyner pointed to a lack of competition for brand-name drugs as the culprit for high prices.
“Let me be clear, we do not contribute to the rising list prices,” Joyner said. “Hampering our ability to negotiate lower drug cost only benefits the pharmaceutical manufacturers.”
When Rep. Gary Palmer, R-Ala., stated that the cost of prescription drugs and spending on prescription drugs have increased every year for more than a decade, Express Scripts’ Kautzner responded:
“For patients that we serve, in 2023, patients spent less out of pocket on average for 30-day prescriptions than they did in 2022, despite brand manufacturers raising prices on 60% of those drugs.”
Palmer replied, “What we saw is that some name-brand drugs were costing 35 times more at PBM-owned mail order pharmacies than independent pharmacies.”
The PBM executives denied that their companies steer patients to preferred pharmacies, responding with off-target remarks about offering options such as home delivery.
Committee Chair James Comer, R-Ky., brought up a recent report that found PBMs set dramatically different prices for some drugs from state to state.
“Your companies have constantly claimed that drug companies set market prices, but if that’s the case, why are your companies charging different prices across the country?” Comer asked.
Optum Rx’s Dr. Conway responded, “As you said, manufacturers set the high list prices, but we are committed to providing the lowest net cost options to our clients so the drugs are more affordable to the people they serve.”
“So your testimony today is it’s not the PBMs, it’s the drug manufacturers?” Comer replied. “Because that’s not what our report has concluded, that’s not what we hear from doctors all across America. That’s not what we hear from pharmacists all across America.”
In the conclusion of the House committee’s report, the final paragraph reads:
“The Committee’s findings indicate that the present role of PBMs in prescription drug markets is failing and requires change. Congress and states must implement legislative reforms to increase the transparency of the PBM market and ensure patients are placed at the center of our health care system, rather than PBMs’ profits.”
Our Take: While numerous bipartisan bills have been introduced in both the House and the Senate pertaining to PBM reform, it’s unlikely that any will be passed and enacted before the current session of Congress ends on Jan. 3 of next year.
Still, it’s encouraging that lawmakers seem willing to work together toward reining in an industry that has operated for decades with few guardrails.
Officials at the state level aren’t waiting around for Congress to figure out how to address the problem. According to a March 2024 report by the U.S. Government Accountability Office on states’ regulation of PBMs, all 50 states enacted at least one PBM-related law between 2017 and 2023.
Pennsylvania is the most recent state to pass legislation increasing oversight of PBMs, with Gov. Josh Shapiro signing a law last week that gives the state’s insurance department authority to regulate PBM practices.
And nearly a dozen or so states have taken legal action against PBMs in the last couple of years. Earlier this month, Vermont’s attorney general filed a lawsuit against CVS Caremark, Evernorth (Cigna’s health services segment that includes Express Scripts), and various affiliates for “unfairly and deceptively driving up prescription drug prices.”
At the FTC’s virtual open meeting on Aug. 1, the agenda will include a presentation on the staff’s recent interim report on PBMs. Public comments will be permitted.
What else you need to know
Humana’s CenterWell plans to open 23 clinics in previous Walmart Health locations in four states: Florida, Georgia, Missouri, and Texas. The senior-focused primary care clinics will be adjacent to Walmart Supercenters in Atlanta; Dallas/Fort Worth; Jacksonville, Fla.; Kansas City, Mo.; Orlando, Fla.; and Tampa/St. Petersburg, Fla., and will operate under the CenterWell and Conviva brand names. Together, CenterWell and Conviva represent the largest, fastest-growing senior-focused, value-based primary care provider in the U.S., according to the announcement. CenterWell said it anticipates having the new centers open within the first half of next year. Walmart will lease the spaces to CenterWell. Financial terms were not disclosed.
In separate news, Humana expanded its partnership with Google Cloud through a new multiyear agreement to “further modernize” the insurer’s cloud infrastructure and explore opportunities to develop new generative AI solutions. “Google Cloud’s technology platform can make our contact centers more responsive, our provider networks simpler to navigate, health care coverage easier to understand, and primary care better tailored to individual needs,” said Humana CEO Jim Rechtin. Financial terms of the agreement were not disclosed.
Analysts at S&P Global Ratings downgraded Walgreens Boots Alliance two notches, to ‘BB’ from ‘BBB-’, placing the company in the speculative-grade category. The analysts said in a report that they downgraded Walgreens because the company’s third-quarter results (for the period ending May 31) and fiscal 2025 guidance were “notably” below their expectations. “The negative outlook reflects our view that Walgreens is seeing pressure on both its pharmacy and retail segments and both new and existing operating strategies,” they wrote. “Material strategic changes, limited cash flow generation, and large maturities in coming years are key risks to the business,” they noted. “We are revising our financial risk profile down one notch to aggressive from significant,” the analysts added, but they said they believe Walgreens’ ongoing cost-saving initiatives will mitigate some of the challenges the company is facing.
The nation needs “something like a cyber dome to protect our health care against internet attackers,” nine former secretaries from the departments of Health and Human Services and Veterans Affairs wrote in a commentary published by U.S. News & World Report. “We call for the formation of a new public-private partnership to construct a protective system of information technology to safeguard health care data — one that will lead to the rapid deployment of digital infrastructure to track threats online, anticipate cyber assaults, and prevent as many of them as possible,” they wrote, suggesting the federal government’s Operation Warp Speed initiative to make COVID-19 vaccines widely available during the pandemic as a model for creating the new defense system. The “basic workarounds” currently used in response to cyber attacks “are hugely time-consuming and often ineffective,” according to the former officials.
Molina Healthcare entered into a definitive agreement to acquire ConnectiCare for $350 million. A subsidiary of New York City-based EmblemHealth, ConnectiCare offers Medicare, Marketplace, and commercial products in Connecticut and serves approximately 140,000 members. “The addition of ConnectiCare … brings a well-rounded government-sponsored health care plan, and a new state, to our portfolio,” said Joe Zubretsky, Molina’s CEO. If state and federal regulators approve the transaction and other closing conditions are met, the deal is expected to close in the first half of 2025.
Mayo Clinic and Epic are collaborating with Abridge on a generative AI ambient documentation workflow tool for nurses. The three organizations will work with Mayo’s nurses to prioritize the workflows in which the tool will have the most impact, according to the press release. The nurses will help design and test the tool, which will work in conjunction with Abridge’s physician-facing documentation product. “This collaborative work holds the potential to rethink how nurses document in an electronic health record today by bringing the voice of the patient and the nurse directly into the record,” said Emily Barey, Epic’s vice president of nursing.
What we’re reading
Effect of Cash Benefits on Health Care Utilization and Health: A Randomized Study. JAMA, 7.22.24 (subscription may be required)
Misaligned Pharmacy Incentives in Value-Based Care. JAMA Viewpoint, 7.27.24 (subscription may be required)
