[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
STATE OF COMPETITION IN THE
PHARMACY BENEFITS MANAGER AND
PHARMACY MARKETPLACES
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HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 17, 2015
__________
Serial No. 114-52
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
97-631 PDF WASHINGTON : 2016
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
LAMAR S. SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
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Subcommittee on Regulatory Reform, Commercial and Antitrust Law
TOM MARINO, Pennsylvania, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia Georgia
MIMI WALTERS, California SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan SCOTT PETERS, California
Daniel Flores, Chief Counsel
C O N T E N T S
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NOVEMBER 17, 2015
Page
OPENING STATEMENTS
The Honorable Tom Marino, a Representative in Congress from the
State of Pennsylvania, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 3
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 14
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 64
WITNESSES
Amy Bricker, R.Ph., Vice President, Retail Contracting and
Strategy, Express Scripts
Oral Testimony................................................. 16
Prepared Statement............................................. 19
David A. Balto, Esq., Law Offices of David A. Balto, PLLC
Oral Testimony................................................. 22
Prepared Statement............................................. 24
Natalie Pons, Senior Vice President, Assistant General Counsel,
Health Care Services, CVS Caremark Corportation
Oral Testimony................................................. 46
Prepared Statement............................................. 48
Bradley J. Arthur, R.Ph., Owner, Black Rock Pharmacy
Oral Testimony................................................. 56
Prepared Statement............................................. 58
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Material submitted by the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law................................... 5
Material submitted by the Honorable David N. Cicilline, a
Representative in Congress from the State of Rhode Island, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 74
APPENDIX
Material Submitted for the Hearing Record
Material submitted by the Honorable Tom Marino, a Representative
in Congress from the State of Pennsylvania, and Chairman,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 90
Material submitted by the Honorable Doug Collins, a
Representative in Congress from the State of Georgia, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 103
Response to Questions for the Record from Amy Bricker, R.Ph.,
Vice President, Retail Contracting and Strategy, Express
Scripts........................................................ 108
Response to Questions for the Record from Natalie Pons, Senior
Vice President, Assistant General Counsel, Health Care
Services, CVS Caremark Corportation............................ 115
Response to Questions for the Record from Bradley J. Arthur,
R.Ph., Owner, Black Rock Pharmacy........................122
deg.OFFICIAL HEARING RECORD
Unprinted Material Submitted for the Hearing Record
Material submitted by the Honorable Tom Marino, a Representative in
Congress from the State of Pennsylvania, and Chairman, Subcommittee
on Regulatory Reform, Commercial and Antitrust Law. These
submissions are available at the Subcommittee and can also be
accessed at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104193.
Material submitted by the Honorable David N. Cicilline, a
Representative in Congress from the State of Rhode Island, and
Member, Subcommittee on Regulatory Reform, Commercial and Antitrust
Law. This submission is available at the Subcommittee and can also
be accessed at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104193.
Material submitted by the Honorable Doug Collins, a Representative in
Congress from the State of Georgia, and Member, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law. This submission is
available at the Subcommittee and can also be accessed at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104193.
STATE OF COMPETITION IN THE PHARMACY BENEFITS MANAGER AND PHARMACY
MARKETPLACES
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TUESDAY, NOVEMBER 17, 2015
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 3:33 p.m., in
Room 2124, Rayburn House Office Building, the Honorable Tom
Marino (Chairman of the Subcommittee) presiding.
Present: Representatives Marino, Goodlatte, Issa, Collins,
Ratcliffe, Bishop, Johnson, Conyers, DelBene, Cicilline, and
Peters.
Staff Present: (Majority) Anthony Grossi, Counsel; Andrea
Lindsey, Clerk; (Minority) Slade Bond, Counsel; and James Park,
Counsel.
Mr. Marino. Good afternoon. The Subcommittee on Regulatory
Reform, Commercial and Antitrust Law will come to order.
Without objection, the Chair is authorized to declare recesses
of the Committee at any time. I don't foresee any because that
was the last vote for the day.
We welcome everyone to today's hearing on the State of
Competition in the Pharmacy Benefits Manager and Pharmacy
Marketplace. And I now recognize myself for my opening
statement.
When a patient visits a doctor who recommends and
prescribes medication, the patient rarely receives the
prescription drug directly from the doctor. Instead, the
patient submits his prescription to a pharmacy which then
dispenses that ordered medicine. While this may appear to the
patient as a relatively simple exchange, behind the scene
exists a complex system. Within this system is a variety of
different players who engage in millions of interactions that
influence the types of drugs that are available and the prices
that patients pay for them.
Two of the key players in this process are pharmacy benefit
managers and pharmacies. Today's hearing will examine the state
of competition in these two important markets. Pharmacy benefit
managers or known as PBMs, play an important role in the
healthcare system. PBMs oversee and administer the prescription
drug benefits for more than 247 million Americans, or
approximately 95 percent of Americans who receive drug
benefits.
Through the management of these benefits, PBMs perform a
number of varied services. They negotiate the prices of
prescription drugs with manufacturers and wholesalers. PBMs
design drug formularities that dictate the drugs that will be
covered under a benefit plan and the cost-sharing portion the
patient will bear for each drug. PBMs also negotiate with
pharmacies to determine which pharmacies will participate in
their networks, the fees that each pharmacy will receive for
dispensing drugs, and the amount the pharmacy will be
reimbursed for each drug.
By virtue of their central position in the administration
of prescription drug benefits, some would argue that PBMs have
the ability to place downward pressure on the prices of drugs.
PBMs also can achieve efficiencies that result in savings both
to the ultimate patient and the payer of health benefits.
Pharmacies also play a critical role in the delivery of
medicine to Americans. In addition to purchasing prescription
drugs, they typically are the entities that directly engage
with the patients. As someone who represents a district with
many rural communities, I know firsthand how important
pharmacies, particularly independent pharmacies, are to their
customers. Many times these independent pharmacies develop
meaningful relationships with their customers and provide
essential assistance when dispensing the prescription drugs.
Together with doctors, pharmacies are part of an integral
team that ensures patients are receiving the proper drugs in
the correct amounts and administered in the appropriate
fashion. I have been an ardent supporter of independent
pharmacies throughout my time in Congress. In both the 112th
and the 113th Congress, I introduced legislation that would
grant independent pharmacies a specific exemption to the
antitrust laws when negotiating contract terms for provisions
of healthcare items or services. This would have potentially
given the vast network of isolated independent pharmacies a
stronger competitive footing relative to larger national
pharmacies.
Whether this exemption is needed is another item to
consider today. Many PBMs also provide pharmacy services,
either through their own brick-and-mortar locations or through
mail-order services. As a result, PBMs may negotiate services
with competitors to their own pharmacies. Over the years, this
has resulted in tensions between certain pharmacies and PBMs.
The antitrust enforcement agencies have periodically reviewed
PBM activities, finding in some instances that these activities
are appropriate and stepping in when they are not.
Today's hearing with allow us to become better educated
about the services that PBMs and pharmacies provide. The
hearing also will allow us to review whether the proper
economic incentives are in place to ensure that customers are
receiving affordable prescription drugs and to explore some of
the historic tensions between certain PBMs and pharmacies.
The public record generated today will also assist the
Committee with its oversight authority of the antitrust
enforcement agencies. We have before us Express Scripts and CVS
Caremark, two of largest PBMs and pharmacy companies. They will
provide an inside and first-hand perspective of PBM and
pharmacy operations, as well as an invaluable viewpoint into
the prescription and pharmacy industry at large. Additionally,
we will hear from a representative of independent pharmacies
and one of the experts covering both of these markets. I look
forward to today's discussion from this excellent panel of
witnesses.
The Chair now recognizes the Ranking Member of the
Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, Mr. Johnson of Georgia, for his opening statement.
Mr. Johnson. Thank you, Mr. Chairman. Today's hearing is a
welcome opportunity to continue this Subcommittee's examination
of competition in the healthcare marketplace. The topic of
today's hearing, competition in the pharmacy marketplace, will
explore the role of pharmacy benefit managers, or PBMs, in
ensuring competitive and affordable drug prices for American
consumers. In the pharmacy marketplace, PBMs serve as the
intermediary between the manufacturers and wholesalers of
prescription drugs and the payers of health insurance benefits.
In their role as the intermediary in this market, PBMs
administer prescription drug benefits to approximately 95
percent of Americans who receive prescription drug benefits.
Furthermore, through their contracts with health payers such as
health insurance companies, PBMs are responsible for
negotiating the cost and availability of prescription drugs
with manufacturers and wholesalers.
In short, PBMs are a critical gatekeeper in the
prescription drug benefit system. It is, therefore, imperative
that we fully understand the functioning of this market from
both a competition and regulatory perspective to determine
whether consumers are receiving the most affordable prices for
prescription drugs. From a competition perspective, some have
suggested that there is significant horizontal consolidation in
the PBM market.
And, furthermore, that this horizontal consolidation is
compounded by the vertical integration of certain PBMs into the
mail order and retail pharmacy market. While the Federal Trade
Commission has studied this issue on several occasions and
reached the conclusion that the PBM market is adequately
competitive, as Commissioner Julie Brill has noted, the FTC has
not conducted a further study of the PBM industry since 2005,
other than to review the ESI Medco merger in 2012, which did
not examine issues surrounding PBM, plan designs such as PBM
fee and compensation transparency.
It is therefore incumbent upon this Subcommittee to conduct
a thorough inquiry on this matter which I hope that today's
hearing provides. From a regulatory perspective, it has also
been suggested that PBMs pricing techniques, rebate schemes and
formulary designs have resulted in higher costs to consumers. I
hope that today's hearing also serves as a fruitful discussion
of this topic particularly with regard to the Department of
Labor's inquiry into this matter last year.
As Consumers Union has noted, effective regulation and
effective competition work hand in hand. And the less we can
rely on effective competition, the more important it is that
regulation ensures effective transparency to reduce the
potential for abuse. I strongly agree. While the PBM
marketplace is undoubtedly convoluted, today's hearing will
serve as an important basis for determining whether consumers
are receiving the best prices for prescription drugs or whether
we should do more to ensure affordable and transparent markets
for prescription drugs.
I thank the Chair for continuing this series. And before
closing I ask unanimous consent that the written statement of
Lynn Quincy and George Slover of Consumer's Union be made a
part of the record.
Mr. Marino. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Johnson. I yield back.
Mr. Marino. The Chair now recognizes the full Judiciary
Committee Ranking Member, Mr. Conyers of Michigan for his
opening statement.
Mr. Conyers. Thank you, Mr. Chairman. I join you in
welcoming the witnesses and look forward to a very frank and
analytical discussion of the subject matter.
Once when I was Chairman of the House Judiciary Committee,
the Committee reported legislation that would have granted a
limited antitrust exemption for independent pharmacies to allow
them to collectively bargain as to the terms and conditions of
reimbursements from pharmacy benefit managers. This legislation
arose from the recognition that small independent pharmacies
struggle to compete against large pharmacy chains, particularly
with respect to their ability to negotiate reimbursements from
pharmacy benefit managers.
Pharmacy benefit managers administer the prescription drug
benefit portion of health insurance plans for private
companies, unions, and governments. They're responsible for
processing and paying prescription drug claims, contracting
with pharmacies, and negotiating discounts and rebates with
drug manufacturers, all for the ostensible purpose of keeping
drug prices low for health plans.
The hearing today gives us an opportunity to delve more
deeply into the state of competition in the marketplace for
pharmacy benefit managers and to consider its possible effects
on consumers. To that end, we should keep the following in
mind.
As an initial matter, we should assess whether the market
for pharmacy benefit managers is too concentrated and
structurally problematic to maximize consumer benefits.
Although estimates vary, most studies indicate that just three
companies may control up to almost 80 percent of the pharmacy
benefit manager market. Such concentration in any industry
necessarily raises questions about whether the dominant firms
can use their power to the detriment of their competitors and
consumers.
The largest pharmacy benefit managers also own retail
pharmacy businesses which can be in the form of a large
national retail chain, specialty pharmacy business, or online
mail-order pharmacies. According to some experts, these
ownership arrangements create an inherent conflict of interest
because a large pharmacy benefit manager can leverage its
market power to benefit its retail pharmacy business by using
exclusivity arrangements, providing more generous
reimbursements to the detriment of small independent retail
pharmacy competitors. Moreover, such concerns may be further
exacerbated when the industry is relatively unregulated, as may
be the case with pharmacy benefit managers.
In addition, we should consider whether a lack of
transparency with respect to operations of pharmacy benefit
managers helps or hurts competition. Some critics of pharmacy
benefit managers assert that the lack of transparency makes it
difficult to assess whether they are fully passing on whatever
savings they may have obtain from drug manufacturers. These
critics contend that the substantial rise in profits for
pharmacy benefit managers in recent years suggest that such
savings are not in fact being passed on to consumers.
Critics further assert that it is hard to know whether
pharmacy benefit managers are providing fair reimbursements for
generic drugs to small independent retail pharmacies given the
lack of publicly available information about how pharmacy
benefit managers determine such reimbursements. If these
allegations are true, the lack of transparency may well make it
difficult for health insurance plans to secure the lowest costs
or the best quality service for consumers.
Now, while some criticize what they see as lax antitrust
enforcement in the pharmacy benefit manager marketplace, there
is a broader question of whether more direct regulatory
measures are needed beyond stronger antitrust enforcement. And
that's what makes what the witnesses have to say here today
very important as we on this Committee decide what direction we
should pursue.
And I thank the Chairman for the time.
Mr. Marino. Without objection, other Members' opening
statements will be made part of the record and I ask unanimous
consent to enter in some statements and documents for the
record. Representative Carter, Republican from Georgia;
Representative Blum, Republican from Iowa; America's Health
Insurance Plans; American Pharmacist Association; and
Pharmaceutical Care Management Association.*
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*Note: The material submitted by Mr. Marino is not printed in this
hearing record but is on file with the Committee. See also ``For the
Record Submission--Rep. Marino'' at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104193.
Hearing no objection, so ordered.
I will begin by swearing in our witnesses before
introducing them. So would you please stand and raise your
right hand.
Do you swear that the testimony you are about to give
before this Committee is the truth, the whole truth and nothing
but the truth, so help you God?
Let the record reflect that all of the witness have
responded in the positive.
Please take your seat.
We have four distinguished witnesses today. And starting at
my left is Ms. Bricker. She is the Vice President of retail
channel management, contracting and strategy at Express
Scripts, Incorporated. Prior to joining Express Scripts, Ms.
Bricker was the Regional Vice President of account management
at Walgreen's Health Services as well as the Director of
community retail pharmacy at BJC Healthcare. Ms. Bricker is a
graduate of St. Louis College of Pharmacy, and is a registered
pharmacist in Missouri. Welcome.
Mr. Balto, who has been with us before on other occasions
is an antitrust attorney with over 15 years of government
antitrust experience. Mr. Balto worked as a trial attorney in
the antitrust division of the Department of Justice and in
several senior level positions at the Federal Trade Commission
during the Clinton administration. He received his B.A. From
the University of Minnesota and his J.D. From the Northeastern
University School of Law. Welcome, sir.
Ms. Pons is the Senior Vice President and assistant general
counsel at CVS Health. Prior to joining CVS in 2011, Ms. Pons
was the chief compliance officer at AdvancedPCS and a senior
legal counsel at PCS Health Systems. Ms. Pons earned her
bachelor's degree in business administration from the
University of Iowa College of Business, and her J.D. From the
University of Iowa College of Law. Welcome.
Mr. Arthur is the president of the National Community
Pharmacist Association and the owner of two independent
pharmacies in Buffalo, New York, which have been serving their
community since 1957. Mr. Arthur is active in the pharmacist
community and has served on various business and pharmacy
boards during his career. Mr. Arthur earned his bachelor's of
science degree from the University of Florida College of
Pharmacy, and his micro MBA certificate from the State
University of New York at Buffalo.
Each of the witnesses' written statements will be entered
into the record in its entirety. I ask that each witness
summarize his or her testimony in 5 minutes or less. And to
help you stay within the time, there is a light in front of
you. Now, as I'm intent on making my statements--I'm not
looking at any lights and I'm not looking at any clocks. I have
people up here that nudge me. What I will politely and
diplomatically do when we're getting close, when you hit that
5-minute mark, I will again diplomatically raise the gavel and
try to get your attention and ask you by doing that to wrap up
your statement if you would do that, please.
Ms. Bricker, would you like to make your statement, please.
Turn on the microphone, please. Thank you.
TESTIMONY OF AMY BRICKER, R.Ph., VICE PRESIDENT, RETAIL
CONTRACTING AND STRATEGY, EXPRESS SCRIPTS
Ms. Bricker. Chairman Marino, Ranking Member Johnson, and
other Members of the Subcommittee, my name is Amy Bricker. I'm
a licensed pharmacist and serve as vice president retail
contracting and strategy for Express Scripts. Thank you for the
opportunity to be here today and share our perspective on
competition in the pharmacy benefits manager and pharmacy
marketplaces.
Express Scripts is the Nation's largest pharmacy benefit
manager or PBM. We provide pharmacy services to roughly 86
million Americans covered by our clients which are large
employers, health insurers, labor unions, TRICARE, Medicare,
Medicaid, and marketplace plans. Express Scripts employs more
than 25,000 hard working dedicated employees nationally. We
have more than 2,000 employees in Pennsylvania, and more than
700 in the State of Georgia. Our number one goal is to make
prescription drugs safe and more affordable for our patients
and clients. Everything we do at the company is aimed at that
goal. In a changing system, the demand for pharmacy services
and prescription drugs has never been stronger. When used
properly, prescription drugs keep patients healthy and costs
lower for everyone. As the Subcommittee examines PBM and
pharmacy competition, we want to emphasize three takeaways.
First, the PBM marketplace is extremely competitive. Dozens
of national and regional PBMs offer payers competing services
and products. PBMs compete on price, data analytics, customer
service, pharmacy access, clinical support services, and many
other factors. Payers have a wide choice of PBMs and use that
power to demand favorable pricing and contract terms. Express
Scripts is an independently operated PBM. Some PBMs are owned
by chain drug stores while others are owned by health insurers.
We believe our independent business model provides our clients
with a clear choice when choosing a PBM. By operating
separately from both the supply chain and the distribution
channels, we stand alongside our clients as an independent
counterweight in the marketplace.
Second, scale matters. Express Scripts scale allows it to
negotiate discounts from drug manufacturers and pharmacies that
lower costs for our clients and patients. Express Scripts
creates competition by forcing drug makers to compete against
one another for placement on planned formularies and to gain
market share. In a similar way, Express Scripts creates
competition among more than 68,000 retail pharmacies
nationwide. We contract either individually with retail
pharmacies or through group purchasing organizations called
PSAOs which represent networks of pharmacies. Like large chain
pharmacies, PSAOs combine the bargaining power of thousands of
independent pharmacies when negotiating with PBMs. In fact, the
largest PSAOs are as sizable as chain pharmacies.
Under Medicare part D, the TRICARE program and some private
plans, we must ensure patients have access to a minimum number
of pharmacies within a region. In rural areas, independent
pharmacies know that Express Scripts needs them in our network
to meet Medicare access rules and thus command a premium. In a
changing system, our scale helps drive savings. Brand drug
makers may have short term pricing power when bringing a
breakthrough drug to market. However, our scale helps level the
playing field when a brand or generic competitor merges. Scale
also allows us to drive a hard bargain and lower costs for
patients, clients, and taxpayers.
In 2014, prescription drug spending grew more than recent
years. Much of this grown was driven by an increase in the unit
cost of prescriptions, the prices manufacturers charge. But
across our clients, closely managed plans spent nearly one-
third less per member on traditional medications when compared
to unmanaged plans. The tools we use help lower costs for
clients and patients. Any effort to undermine our tools will
mean higher costs for patients and payers.
The third takeaway relates to independent pharmacies. In a
changing system, independent pharmacies are more than holding
their own. This is great news. The National Community
Pharmacist Association recently published its annual digest,
and it contains important data. One, the number of independent
pharmacies has held steady over the past 4 years, even with the
increasing rate of acquisition of independents by retail
chains. Two, over the past decade gross profits have held
steady at around 23 percent. And, third, over the past decade,
annual sales per store have hovered between $3.6 and $4 million
per year.
In conclusion, Express Scripts values our relationships
with our pharmacy partners, including independent pharmacies.
Without independent pharmacies we could not offer clients and
patients a high quality pharmacy benefit. The key lesson of the
past 5 years is that effecting change requires stakeholders to
work together. Rather than pit one part of the pharmacy against
another, we can and must work together to lower costs for
payers and improve patient outcomes.
Thank you again for the opportunity to be here today.
Chairman Marino and Ranking Member Johnson and other Members of
the Subcommittee, I am happy to answer any questions that you
might have.
Mr. Marino. Thank you.
[The prepared statement of Ms. Bricker follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Mr. Balto.
TESTIMONY OF DAVID A. BALTO, ESQ.,
LAW OFFICES OF DAVID A. BALTO, PLLC
Mr. Balto. Thank you, Mr. Chairman, Ranking Member, for
inviting me to testify today. This is a very important subject.
My testimony today is based on my years as a government
enforcer and in representing consumers, public interests
groups, PBMs, payors, and pharmacies, and PBM matters. And I've
testified on several occasions for consumer groups. I have a
simple message. By any measure the PBM market is severely
broken.
If you look at my testimony on pages 7 and 8 you see that
profits are increasing rapidly. Margins are increasing rapidly.
By any measure this market is not behaving competitively. Why
is that? Normally for a market to function effectively, you
need threes things: choice, transparency, and a lack of
conflicts of interest. On all three of these measures, the PBM
market receives a failing grade. Think about just the issue
of--my testimony documents how as drug prices are increasing
PBMs are increasing their profits too. They're profiting from
increased prices through increased rebates. You don't have to
guess about this. If you look at page 7 of the Consumer Union
testimony, they document instances where there have been
government enforcement actions where PBMs have forced consumers
to higher priced, less efficacious drugs in order the maximize
their rebates. Now, normally a payor faced with this situation
would go and ask for information on rebates. But the PBMs won't
provide that. They won't provide that kind of transparency.
Now, in the Department of Labor proceeding that the Ranking
Member mentioned, the Department of Labor is considering
careful regulation to require transparency. And on one side of
the table, you have Fortune 50 corporations, Consumers Union,
and the AFL-CIO all saying: We want that greater transparency.
And who pops into the room but the FTC. And the FTC says: No.
Transparency regulation would be a bad idea. We know what
marketplace realties are, but economic theory teaches us that
transparency would be bad.
I don't know what counts as regulatory chutzpah to this
Committee, but to me that's really regulatory chutzpah.
Obviously the Department of Labor and other entities should go
and regulate and require the kind of transparency that these
PBMs fight tooth and nail to try to avoid.
Why do these problems occur? Because the FTC has
effectively made this a regulatory free zone. They have stopped
investigating mergers. The last two big PBM mergers they didn't
even require a document or conduct a deposition. Including CVS'
acquisition of Omnicare which major consumer groups cried out
do an investigation, but the FTC says, no.
What does this mean for consumers? First it means these
folks can go and merge at will. If these two companies wanted
to merge tomorrow, if they wanted to go to the FTC's marriage
chuppah, and ask it be merged, we don't know what would keep
the FTC from saying no by the standards they are applying
today. But there are worse effects. When you wonder about why
Walgreens would acquire Rite Aid, it is so that they can battle
against the dominance of these PBMs so they can have a fair
seat at the table. Now that may or may not be a good merger,
but the need for that merger is on the FTC's doorstep.
But, when you create an enforcement free zone, everybody
listens. It is not just the PBMs who will engage in
increasingly abusive conduct, increasingly abusive conduct.
It's everybody else. So a pharmaceutical manufacturer who says
what keeps me from increasing prices 6,000 percent? The FTC is
asleep at the switch, let me do that.
What does this Committee need to do? First, pass
legislation to provide for a fair MAC transparency. The
consumers care about whether or not community pharmacists know
what they are buying a drug for, because that pharmacist is the
consumer's agent. And when they are forced to dispense drugs
below cost, everybody suffers except PBMs which are increasing
their profit.
Second, go and investigate in restricted networks,
restricted part D networks but especially restricted networks
for vulnerable consumers who have critical disabilities and
specialty drugs. Specialty drug spending is increasing
dramatically. That's the major mover to drug spending. And
having a market where the PBMs increasingly force consumers
into their own specialty pharmacies is sort of like putting the
fox in charge of the hen house.
Third, the PBMs have a new--there's a new approach in going
and attacking patient assistance programs. Patient assistance
programs are programs by pharmaceutical manufacturers to enable
patients to afford drugs they might otherwise not be able to
afford. Those also should be investigated.
The most important thing I say in my testimony, and I
really urge the Committee to spend time looking at this is what
I say on page 6, it is really heartfelt and it is based on
years of representing consumers. Who represents the consumer
when in getting drugs it's the pharmacist who represents the
consumer. The pharmacist, as the Chairman has indicated, will
go to battle with the PBMs to make sure the consumer receives
the right drug at the right price and they need to be
protected. I welcome any questions you have.
Mr. Marino. Thank you, sir.
[The prepared statement of Mr. Balto follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Ms. Pons.
TESTIMONY OF NATALIE PONS, SENIOR VICE PRESIDENT, ASSISTANT
GENERAL COUNSEL, HEALTH CARE SERVICES, CVS CAREMARK
CORPORTATION
Ms. Pons. Thank you. Good morning, Chairman Marino, Ranking
Member Johnson and Members of the Subcommittee. My name is
Natalie Pons and I'm senior vice president and assistant
general counsel with CVS Health. We appreciate the opportunity
to testify on the critical role that pharmacists and pharmacies
play in local community all across America in providing
convenient access to affordable high quality prescription drugs
within the vibrant marketplace in which we compete.
From our company's earliest days CVS Health has been
singularly focused on helping people on their path to better
health. Our values are the same as those of our consumers,
businesses and communities we serve. We want to make health
care more accessible and help improve health outcomes in more
affordable effective ways.
Our goal is to work with health plans, employer plans and
government plans who contract with us to ensure that their
enrollees have access to a well coordinated, safe and
affordable prescription drug benefit.
Our patient centered model is organized around how
consumers access and use medication. It provides multiple
points of care and extends across all of our business units.
Our pharmacy benefit management program, our retail mail
specialty and long-term care pharmacies, our Medicare part D
plan and our MinuteClinics.
In addition to our active medication adherence and care
coordination for chronically ill patients, we also provide
access to key preventative care such as vaccinations, smoking
cessation and weight loss programs.
Our overriding commitment to improving American's health is
the main reason we decided to end tobacco sales last year and
forego $2 billion in annual revenue. CVS Health is proud of its
commitment to and success in constraining prescription drug
costs through the discounts in savings we share with our
consumers business, labor, health plan and government partners
while helping to improve outcomes.
Using our clinical tools we're able to help keep premiums
low and save tens of billions of dollars for patients,
employers and taxpayers. Our success is driven by on how
effectively we help our partners and patients achieve the best
return on their health care dollars. We manage prescription
drug benefits on behalf of a diverse set of purchasing partners
that include health plans, as well as employer and government
plans including Medicare part D and State managed Medicaid
programs.
Health care purchasers rely on pharmacy benefit managers to
negotiate the lowest possible prices from drug manufacturers,
put together networks that provide convenient access to
pharmacists and pharmacy services and provide a portfolio of
clinical programs and services that help ensure positive
outcomes and secure overall value for both the patients and
clients alike.
To help us achieve this outcome, we encourage the use of
cost effective generics over more expensive branded products
which helps consumers and plans save money on prescription
drugs, without compromising clinical efficacy. To be clear
though, our role in the design of these plans is advisory, the
plans always have the final say when creating their drug
benefit and how it is implemented.
Competition in the PBM industry has aptly described as
vigorous by the Federal Trade Commission. In fact there are 30
different large and mid sized PBMs that offer businesses,
Labor, consumers and government a variety of choices when
considering options for best managing of pharmacy benefit.
In addition, the pharmacy marketplace is a very competitive
one, with over 60,000 pharmacies in the United States,
consumers in all parts of the country have many outlets to fill
their prescriptions. To ensure broad based access our PBM
contracts with every category of pharmacy, including drugstore
chains, grocery stores and over 20,000 independent pharmacies.
We welcome competition indeed our success is predicated on it.
Healthy competition drives innovation and allows us to
effectively help the consumer business labor health plan and
government partners that we serve achieve the best returns on
their health care investments.
We look forward to working with the Members of this
Committee and others to continue promoting a competitive health
care landscape. Thank you for this opportunity to testify and
I'll be happy to take your questions.
[The prepared statement of Ms. Pons follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you. Mr. Arthur.
TESTIMONY OF BRADLEY J. ARTHUR, R.Ph.,
OWNER, BLACK ROCK PHARMACY
Mr. Arthur. Thank you, Chairman Marino, Ranking Member
Johnson and Members of the Subcommittee. Thank you for
conducting this hearing today and providing me the opportunity
to share my views and personal experiences regarding the state
of competition in the pharmacy benefit manager and pharmacy
marketplace.
My name is Brad Arthur and I'm a pharmacist owner of the
two independent pharmacies in the Black Rock community of
Buffalo, New York, a very historic, ethnically diverse and
predominantly blue color community. My pharmacies have been
serving these communities since 1957 when my dad opened his
first pharmacy. I'm also the President of the National
Community Pharmacists Association which represents the
pharmacists owners, managers and employees of nearly 23,000
independent community pharmacies across the United States.
I'm here today as a healthcare provider, a small-business
owner and hopefully to present some of my experiences and those
of my fellow independent pharmacists in dealing with the PBM
industry.
Community pharmacies represent the most accessible point in
patient centered health care, where typically consumers do not
need an appointment to talk with a pharmacist about
prescription medications, over-the-counter products or really
any health related concern.
In this way community pharmacies also serve as the safety
net health care provider on the front lines. Not only in
natural disasters which occur often in Buffalo, tornados,
hurricanes, flooding, whatever it may be, everyday when
patients need help, their independent pharmacies are there to
assist.
According to the Pharmaceutical Care Management
Association, PBM has managed pharmacy benefits for over 253
million Americans. Three large companies lead the PBM market.
Express Scripts, CVS Health, and OptumRx. In total the cover
more than 180 million lives in the United States or roughly 78
percent of Americans whose pharmacy benefits are managed by a
PBM. In addition, the annual revenues for these three entities
are staggering. In 2014, annual revenues for Express Scripts
were approximately $100.9 billion. Annual revenues for CVS
Health were 139.4 billion, and for OptumRx $31.97 billion. In
2015, OptumRx acquired Catamaran and other PBM which reported
annual revenues to combine into that number of $21.67 billion.
Why should the Federal Government be concerned about this
dynamic for large plans? Including the Federal Medicare part D
program which was mentioned today, TRICARE the FEHBP. There are
only three PBMs to choose from. Because although there are
other PBMs, none of them in spite of what we've heard are large
enough to administer the prescription drug benefits for these
programs. The big three PBMs control almost 80 percent of the
entire market and these PBMs have the upper hand, both in
negotiating the contract of the payer, as well as strongly
influencing the actual plan design itself. The PBM industry
typically states that they can use their economic power to
harness enhance market efficiencies, but for whom? However, the
staggering annual revenue that continue to grow each year of
the big three suggest that these efficiencies are going
directly to their corporation's bottom lines.
Small community pharmacies like mine are faced on a daily
by basis with the impact of the PBM's disproportionate market
power. Community pharmacies routinely must agree to take it or
leave it contracts from the PBMs just to continue to serve our
long-standing patients.
As if that weren't, enough, the PBMs also directly set the
reimbursement rates for pharmacies, the very same pharmacies
that stand in direct competition of some of these PBM owned
mail order and specialty pharmacies. Therefore it comes as no
surprise when the PBMs present employer and government payers
with carefully tailored suggested plan designs that steer
beneficiaries to these PBM owned entities.
As the owner of two pharmacies, I have limited ability to
negotiate network participation or reimbursement terms with
these entities. However, from a business standpoint, community
pharmacies can't just walk away from these contracts. If we
did, I would lose a significant amount of the prescription
revenue given the large share of these covered lives that these
PBMs represent.
Although many independent community pharmacies rely on
pharmacy services organizations to contract on their behalf,
these PSAOs are no match for the PBMs. In 2013, the GAO
conducted a study on the role and the ownership of the PSAOs
and stated that over half we spoke with reported having little
success in modifying certain contract terms as a result of the
negotiations. This may be due to the PBMs use of standard
contract terms in the dominant market share of the largest
PBMs. Many PBM contracts contain standard terms and conditions
that are largely nonnegotiable.
Mr. Chairman, that's the conclusion of my testimony. I
welcome any questions.
Mr. Marino. Thank you.
[The prepared statement of Mr. Arthur follows:]
Prepared Statement of Bradley J. Arthur, R.Ph., Owner,
Black Rock Pharmacy
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. The Chair now recognizes the Chairman of the
full Judiciary Committee, Mr. Bob Goodlatte of Virginia for his
opening statement.
Mr. Goodlatte. Thank you, Mr. Chairman. In late July,
Chairman Marino, Ranking Member Conyers, Ranking Member
Johnson, and I announced a series of Committee hearings focused
on competition in the health care marketplace. Today's hearing
is the third in this series and will examine the competitive
dynamics within the pharmacy benefit manager or PBM and
pharmacy markets. PBMs oversee the administration and
management of prescription drug benefits. In that capacity PBMs
interact with nearly every step of the prescription drug supply
chain. Consequently, they have the ability to extract lower
prices for prescription drugs and have had some success in
doing so.
However, notwithstanding pressure from PBMs drug prices
continue to rise. A recent Wall Street Journal investigation
found that increases in drug prices routinely outpaced
inflation and often by a significant amount. These increases
were found despite reduced demand drug studied and even in the
face of new competing drugs.
If true, this represents a troubling trend as Americans
face a progressively aging population and an ever growing
amount of taxpayer money used to fund the purchase of
prescription drugs. Through today's examination of competition
within the PBM and pharmacy markets, we should explore whether
the proper economic incentives exist for PBMs and pharmacies to
place a genuine check on rising drug prices.
Another challenge facing the country and my constituents is
affordable and accessible health care in rural communities.
Independent pharmacies play a critical role in the delivery of
personal prescription drug care, especially in rural areas.
During my tenure in Congress, I've seen many community
pharmacies in my district shudder their doors. While we should
allow the free market to operate, we should also ensure that
there is a level playing field for both large and small
pharmacies. Today's discussion will help shed some light on the
nature of the competitive playing field in the pharmacy market.
Since the enactment of the Affordable Care Act, I
consistently have expressed concern that the law would compel
consolidation across a number of health care industries. My
fears appear to be coming true. Both the PBM and the pharmacy
markets have experienced consolidation in recent years. Indeed
Walgreens and Rite Aid recently announced their intent to merge
and CVS's purchase of Target's retail pharmacies is currently
under review at the Federal Trade Commission.
This Committee has held hearings on past PBM consolidation,
including the merger between Express Scripts and Medco. While
this hearing is not intended to review the details of any
particular transaction, we should examine how these trends have
impacted competition in both the PBM and pharmacy markets.
Specifically, it will be helpful to learn what affects these
transactions have had on prices paid by Americans for
prescription drugs. Most importantly, we should explore whether
market courses compel these transactions or the Affordable Care
Act and its regulatory progeny are prompting increased
consolidation.
We have an excellent panel of witnesses before us today who
can provide us with firsthand perspectives on the competitive
issues facing the PBMs and pharmacies and I look forward to
hearing their testimony.
Thank you, Mr. Chairman.
Mr. Marino. We are going to go into our 5 minutes of
questioning. And as is once in a while customary, I'm going to
wait and ask my questions last today because I really want to
hear what the panel has to say. And so I'm going to recognize
the Chairman of the full Committee, Mr. Goodlatte for his 5
minutes of questioning.
Mr. Goodlatte. Thank you, Mr. Chairman and I thank all the
witnesses for their testimony today.
I want to direct this question to both Ms. Bricker and Ms.
Pons. We've all heard about the dramatic spikes in the price of
certain prescription drugs, that were previously in the market
for a significant period of time at stable prices. In fact, I
was speaking about this particular issue just yesterday with
pharmacists in my district. On a number of these drugs
pharmacies end up taking a loss if they dispense them. I
understand that you're not the drug manufacturer. However, you
do have a role to play in negotiating the price and
reimbursement of these drugs. Can you comment on this current
situation?
I'm familiar with one Ritalin generic drug that has gone
from about $125 for a 30-day supply to about $600 for a 30-day
supply just this year. I'm familiar with a tube of a medical
cream that's gone from about $100 for the tube to $2,000 for
one small tube. This very much concerns me and I would like to
know what your perspective is on how this pricing is taking
place and what you as the insurer are doing to try to hold down
these prices and hold these companies accountable.
Ms. Bricker. Thank you, Congressman, for the question. High
drug prices are not a new phenomenon. We have seen this in, you
know, over decades of managing prescription benefits. At
Express Scripts, we encourage competition, we believe that
competition results in a decrease in drug pricing. Oftentimes
when drug prices increase, it's due to a shortage or it's due
to a number of manufacturers coming out of the market. And so
with competition you see a decrease in price.
We're advocates for biosimilars in technology and in
negotiating inflation protection from our brand manufacturers
to pass on to our clients, as well as their members. So with
that, I understand the need we hear from our plan sponsors
regularly about the concerns that they have around increased
drug prices and through our tools from a clinical perspective
it is our hope to continue to manage that drug benefit in
partnership with our plan sponsors.
Mr. Goodlatte. Ms. Pons----
Ms. Pons. Thank you----
Mr. Goodlatte. Do you put pressure on these manufacturers
to offer more reasonable prices since you're a large purchaser
or you are a large insurer of--and CVS in your case a large
purchaser of them as well.
Ms. Pons. Yes, yes. Every day our company gets up and what
we do is try to get the best prices on behalf of our clients to
help keep their premiums down for their members and help keep
costs affordable.
And, you know, we'll agree, there have been some very
egregious examples in the marketplace that I think we all find
shocking. Beyond that, as Ms. Bricker testified, we do think
that a combination of the clinical tools that we have available
as well as our ability to negotiate with pharmaceutical
manufacturers, together with some of the important policies
that she talked about in terms of getting more competitive
products into the marketplace, whether that's, more generics,
more biologics, lower cost of site of care, those things in
combination can go a long way to helping curb these issues.
Mr. Goodlatte. Let me ask Mr. Arthur if he'd like to
respond.
Mr. Arthur. Yes. Thank you, Mr. Chairman. I would like to
add that while prescription drug prices have historically gone
up at a rate greater than the normal cost of inflation,
throughout most of my career, the trend was just the opposite
on the generic side. As more generic manufacturers enter the
marketplace, the trend has been for the price to come down as
the market responds.
What's interesting to note is that these extremely large
business entities have the sophistication and the examples that
you alluded to mete this out, they have the sophistication to
respond to these market fluctuations very quickly. The
pharmacists that you heard from are expressing frustrations
because when the price of the drugs goes down, the PBMs have no
problem implementing those as the basis for reimbursement
sometimes overnight. But there is a significant lag that is
seriously to the detriment of the independent community
pharmacist, because they are often times saddled with
dispensing these much needed medications at a loss.
Mr. Goodlatte. Let me ask both Ms. Bricker and Ms. Pons,
another question as well. Both Express Scripts and CVS operate
PBMs as well as pharmacies. Some have raised concerns that PBMs
in your position have a conflict of interest due to the fact
that your PBMs negotiate contracts with pharmacies that
directly compete with pharmacies owned by your corporate
parent. What is the risk of your leveraging your role as a PBM
to gain a competitive advantage against of pharmacies that are
outside your corporate family?
And let me give you an example too as well. Pharmacist
yesterday showed me a drug, I can't remember what it was, but
the reimbursement rate from the PBM was 300 and some dollars
less than the prescription of the prescription drug. Now they
cannot because of their contract with the PBM, they can't turn
around and tell the purchaser, well, I'm sorry I can't sell you
that drug for that price. They can't turn around sell it to
you, but you'll have to make up the difference. If they want to
sell that prescription drug to that regular customer, they have
to eat that 300 and some dollar cost. How is it that the
insurance company can justify that, knowing the cost and
knowing that you're in a competitive environment, but with a
bigger company and therefore able to manage these costs in ways
that a small pharmacy can't?
How can that policy be justified of having to say, sorry,
this is all we're going to pay you and you can't do anything
but eat the rest of that cost. How can a small pharmacy stay in
business in that environment?
Ms. Pons. That's an excellent question. And a fair question
to ask. You know, we put together our MAC list so that we can
encourage pharmacies to try to buy generic products at the
lowest possible cost. Having said that----
Mr. Goodlatte. Some of these were generic products, as Mr.
Arthur noted. In fact, the Ritalin was a generic product that
had quadrupled in price over a very short period of time.
Ms. Pons. Yeah. And so we want them to buy at lowest
possible cost, but we also want them to get a fair margin. In
order for us as a PBM to meet our commitments to our clients,
we need to have our network have a very high dispensing of
generic rates within the network. If we are paying pharmacies
prices that are lower than their acquisition costs, pharmacies
aren't going to go do that. So we try very, very hard to make
sure that they get a fair margin.
Are there going to be times when a particular drug they
dispersed are under water? Absolutely. But what we do look at
the pharmacies overall reimbursement across all of their
generic claims to try to ensure that they are getting a fair
margin so that they are incented to dispense as many generic as
possible.
Mr. Goodlatte. They showed me their records for a
particular day. On that day they sold--their two stores in
their operation, they sold $15,000 worth of drugs and the total
across that entire was a net loss of a few hundred dollars.
Again, I understand some are going to be high and you can't
always get it right--but if the average is a net loss on a
daily basis, how do pharmacies stay in business?
Ms. Pons. Yeah. The other thing I would say and I think it
is typical for other companies in the industry, there is an
appeals process so if that's happening, you know, we're making
certain assumptions because we don't know what every pharmacy
in the network is buying their product at. We are trying to do
our best to estimate what their cost is.
And if there are situations where they are losing more than
they are winning on, there is an appeals process where we can
address that. Again, it is not in our interest to have
pharmacies not want to dispense generics because it is going to
cost our clients more money.
Mr. Goodlatte. Thank you, Mr. Chairman. My time is long
expired.
Mr. Marino. The Chair now recognizes the Ranking Member,
Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman. Mr. Balto, please
explain how a lack of transparency in the PBM marketplace may
be undermining competition and consumer choice, and limit your
answer to 1 minute, please.
Mr. Balto. Oh, it is very simple, I mean, when you look at
the problem of escalating drug prices one thing people would
want to know is what's happening to the rebates. And since the
merger of Express Scripts and Medco occurred it is even harder
for plans, plans I represented to get that kind of rebate
information. If they got the rebate information, they could
make sure the right decisions are being made and they could get
more of the rebates and that would result in lower costs to
consumers.
Mr. Johnson. Thank you. Mr. Arthur, some of your fellow
witnesses contend that PBMs benefit consumers because their
scale allows them to negotiate effectively with drug companies
to keep patient premiums and cost sharing manageable. What's
your response to that?
Mr. Arthur. Well, that's a noble go. I don't believe that
to be the case. I think the scale that is employed is often for
the betterment of the parent corporation. We see numerous
examples with the implementation of Medicare part D and the
doughnut hole. It wasn't uncommon for us to see patients due to
the pricing methodologies at the large PBMs to be thrown in the
doughnut hole prematurely.
So we have all discussed about the need to use scale to
drive down costs to consumers the reality in the marketplace.
We haven't necessarily seen that to be the case.
Mr. Johnson. All right. Thank you. Mr. Balto, why do you
believe the Federal Trade Commission has not been vigorous
enough in it's enforcement efforts with respect to PBMs, give
me this in 30 seconds?
Mr. Balto. I think they allowed economic theory to replace
marketplace realities and they are failing to see the real harm
to consumers and plans and the limitation of their choices.
Mr. Johnson. Thank you. Ms. Bricker. Mr. Balto suggestions
that rapidly rising profits in recent years suggest that PBMs
are not fully passing on savings from drug manufacturer rebates
and discounts on to health plans and consumers. What's your
response to that?
Ms. Bricker. Our clients demand transparency. I can't speak
to, you know, clients that Mr. Balto represents, but the
clients that Express Scripts represents, you know, demand
transparency. We feel that the additional transparency that is
being suggested could be harmful actually to competition,
resulting in price fixing and potentially collusion.
Mr. Johnson. Your response, Mr. Balto, in 30 seconds?
Mr. Balto. In a competitive market, profit per script would
not be increasing by 75 percent in 3 year period. That is a
clear sign that the Express Script, Medco merger has been anti
competitive and consumers are being harmed.
Mr. Johnson. Okay. Ms. Pons, CVS recently completed the
acquisition of Omnicare, a very large provider of long-term
pharmacy services. From a consumer and patients perspective
this could be concerning as now your company is both a retail
pharmacy, PBM and LTC provider with a sizable market share.
Although the acquisition is very new and you are still working
on the integration, what assurances can you provide today that
this will not negatively impact the level of service and care
to some of the Nation's most vulnerable and fragile patients
residing in nursing homes?
Ms. Pons. Thank you for that question, Ranking Member
Johnson. It is a new acquisition, we are I think already 4
months into this after, you know, spending an extensive process
with the FTC going through this. This is a completely new line
of business for CVS Health, but one that we thought was very
important to continue our various touch points that we have
with patients. And as you point out, a very vulnerable patient
set. And we think that with our other assets that we have, for
those patients that leave those facilities, that we can better
integrate them and coordinate their care better.
So we feel like it's a great addition to what we do best,
which is trying to coordinate care at the lowest possible cost
and improve outcomes and we are anxious to move forward with
it.
Mr. Johnson. All right. Thank you. Last, Mr. Arthur, some
of you fellow witnesses--Well I see I'm out of time so I will--
Okay. All right.
In response to concerns about unfair terms between
independent pharmacies and PBMs, some have argued that
pharmacies could simply refuse to accept the PBMs proposed
terms and conditions or come together to negotiate more
acceptable contract terms. Why is this not a sufficient answer
in your view?
Mr. Arthur. Sir to answer the first part of your question,
98 percent of my business' is revenue comes from third party
agreements, be they private from the private side, the
commercial side, or from the government payer side in the form
of Medicare--or Medicaid, excuse me. Turning away from that
business is not a realistic option that I have. I would have no
recourse but to close my doors. So we are in an extremely
anticompetitive position from that point of view.
The second part of your question we have turned to these
entities as an attempt to negotiate, but they have also faced
some of the same barriers that we have to truly negotiate
contracts. When given the opportunity I as a small independent
business have tried to strike certain terms from agreements
only to have them push back a take it or leave it answer. So we
haven't been successful in negotiating these either
independently. We certainly cannot get together as a bunch of
independents, that would be collusion. We have tried to
circumvent that--not circumvent it--we have tried to meet that
challenge by using the contracted entities, but they have also
shared with us that they are a have you small fish in a big
pond and successful at truly negotiating terms.
Mr. Johnson. All right. Thank you Mr. Arthur. And thank
you, Mr. Chairman.
Mr. Marino. The Chair recognizes Mr. Ratcliffe from Texas.
Mr. Ratcliffe. Thank you Chairman Marino. Of all the issues
that we examine here in Congress perhaps none is more personal
than that of health care. Americans literally trust our health
care professionals with our lives. And pharmacists are an
essential part of that health care, particularly in the
communities in northern and east Texas that I represent.
Because in many of those towns there are big chain drugstores,
but most of the towns in the district that I represent depend
on local community pharmacies that have been there for decades.
And as the health care landscape evolves and becomes frankly
increasingly complicated I want to make sure that we protect
the pillars of the community in those types of towns in my
district.
So Ms. Bricker, let me ask you a question. It is my
understanding that your company may not update their
reimbursement rate often enough to keep up with fluctuations in
the marketplace. That concerns me because if a certain generic
drug price drops rapidly and if that drop isn't updated quickly
it would seem to me that Medicare could be paying more for a
generic drug than it should. Is that a legitimate concern?
Ms. Bricker. Thank you for the question, Mr. Congressman,
in Express Scripts we have teams of people dedicated to this
very subject ensuring that we are responsive to the
marketplace, surveying the marketplace to ensure that our
pricing is appropriate for our community and all retail
pharmacies. We are updating no less frequently than every 7
days. There are laws on the books and over 20 States across the
country that also enforce this very thing. And so Express
Scripts is compliant and takes seriously those laws.
Mr. Ratcliffe. Well, I get that it is compliant. And every
7 days is good but is it a legitimate concern in the 7 day
period that that type of price fluctuation can occur so that
Medicare is paying more for a drug than it should?
Ms. Bricker. So the least frequently that it would occur is
every 7 days. We're reviewing it daily. And if there is a
dramatic price change that occurs within, you know, prior to
that 7 day change, we'll make the change earlier as well.
Mr. Ratcliffe. Okay. So I understand the cost of generic
drugs has really skyrocketed in the last couple of years now.
How often do you update your MAC list, those reimbursement
lists?
Ms. Bricker. No less frequently than every 7 days----
Mr. Ratcliffe. Seven days okay.
Ms. Bricker. But we are looking at it every single day. And
so if there is change that needs to be made the following day
we will do that.
Mr. Ratcliffe. Okay. So, are pharmacists able to see in
real-time what they are disbursing on a generic drug is, or are
there fees being charged to pharmacies after the point of sale?
Ms. Bricker. Directly at the point of sale? As you're
standing at the counter the pharmacist is processing the
prescription, submitting vital information to the PBM and in
exchange roughly 3, 5, seconds they are receiving a response on
what copay to collect if any, and what reimbursement they will
receive.
Mr. Ratcliffe. Okay thank you. Ms. Pons, the same question
about the MAC list, how often are you updating them?
Ms. Pons. We have a team of people that are constantly
monitoring various market sources, to see what's happening with
drug acquisition costs and are compliant with State laws that
if there are market forces that suggest we need to make updates
sooner than that, we do.
Mr. Ratcliffe. Okay. Thank you. So Mr. Arthur, we are
frequently told that PBM contracting terms are unfavorable to
many of the independent pharmacy owners out there, however the
PBM industry claims that those issues really shouldn't be
resolved by legislative bodies, but instead should be left to
the contracting parties. I guess my question to you is if the
terms contained in PBM contracts are egregious, why don't
pharmacies simply refuse to accept the proposed terms and
conditions or come together to negotiate more acceptable
contract terms?
Mr. Arthur. I don't think it is really practical for us as
small business owners to just refuse those contracts because as
we learned earlier today, it impacts a significant portion of
our business, that to walk away from those contracts would be a
death note to our businesses. And I think it is very telling to
your question that the reason that there is timely update to
MAC in 20 States is because the independent community
marketplace push for that. That didn't come voluntarily. So we
had to push for that timely--in 20 States, and we continued to
push for that across the entire country.
So that has been our approach to try to create fairness
some in the marketplace. We continue to try everyday to
negotiate some of the egregious terms so that we can be more
competitive. But the fact remains today that we're at such a
disadvantage because a significant portion of our customer
base, our patient base is impacted.
Mr. Ratcliffe. Thank you.
I see my time has expired. I yield back.
Mr. Marino. Thank you. The Chair now recognizes the
Congressman from Rhode Island, Mr. Cicilline.
Mr. Cicilline. Thank you, Mr. Chairman. And thank you to
our witnesses. I want to welcome you, and certainly thank you
for your testimony and I particularly want to acknowledge the
extraordinary corporate citizenship of CVS, a company that I
have admired for a long time, particularly when it made its
very courageous and impactful decision to forego selling
tobacco products at the loss of $2 billion in revenue. But I
think you have really set an example for health care companies
and I just want to publicly applaud you for that.
I want to go first in response to you, Mr. Balto has said
in his testimony, well it was in his written testimony here
today that plan sponsors need more transparency in order to
make sure they are receiving the full benefits of PBM
bargaining power and to make sure that PBMs effectively rein in
drug costs. It sounds like a reasonable proposition would you
respond to that claim?
Ms. Pons. Yeah, no. We are fully supportive of transparency
with our clients. What we are not supportive of is transparency
of our proprietary information with our competitors and in fact
I think the FTC has said on a number of occasions that that
transparency can actually have the opposite affect in terms of
reducing cost.
And so our clients have very extensive audit rights which
they exercise regularly, and to ensure they are getting the
benefit of the bargain that they struck with us, so we are
completely supportive of transparency with our clients. And if
we did not make that available to them, they would look for
another vendor that did.
Mr. Cicilline. And so is it fair to conclude that your
assessment is that the transparency related to your
relationship with the pharmaceutical company, that it could
produce higher costs for the consumer?
Ms. Pons. We believe that if our competitive pricing that
we have with our clients was made more publicly available and
our competitors were aware of that, whether that's rebates or
network rates or other proprietary terms, we believe that, that
could actually result in higher prices, because there isn't an
incentive to make your prices lower. Because then everybody's
cannibalizing the market.
Mr. Cicilline. And Mr. Balto also argued that PBMs
exclusivity arrangements with some drug manufacturers can keep
drug prices artificially high by keeping lower-price drugs off
the market and by incentivizing PBMs through manufacturer
rebates to switch patients from prescribed drugs to more
expensive alternatives. Would you respond to that argument.
Ms. Pons. Yeah. I guess I would just say that's a little
foreign to my experience in working with the PBM day in, day
out. We make formularies available to clients. Typically
generics are on the first tier, preferred brands, and then
nonpreferred brands, and the client can either elect to have
that formulary or choose one for themselves--or make one up for
themselves, and that's what is the foundation of their plan
benefit.
You know, my experience is clients are very smart. They're
very demanding. They're sophisticated. If they don't have that
sophistication themselves, they'll higher consultants that do.
And they're going to look for the best possible deal for
themselves as well as offering an attractive benefit to their
plan members.
Mr. Cicilline. So some consumer groups have argued that
PBMs keep the proceeds of rebates and discounts and keep a
disproportionate share of that for themselves, and so that one
could conclude from the rise in profits of PBMs that they're
not fully passing on savings to health and to consumers.
But despite that, there is a report from the FTC, August
2005, that shows that PBM-administered prescription drug
coverage pay between 15 and 50 percent less for drugs than non-
insured consumers by an exact same drug. And so I first ask
unanimous consent, Mr. Chairman, that this be made part of the
record.**
---------------------------------------------------------------------------
**Note: The material submitted by Mr. Cicilline is not printed in
this hearing record but is on file with the Committee. See also ``For
the Record Submission--Rep. Cicilline'' at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104193.
Mr. Cicilline. And I'd ask Ms. Pons if you could respond to
that claim and the findings, because my interest is what will
get my constituents the lowest cost. And we talk a lot about
another effort to permit the Federal Government to negotiate
discounted prices directly with pharmaceutical companies to the
Medicare program, which they're prohibited from doing. It seems
like PBMs are at least achieving that through their scale. It
seems as if that's what the report concludes, and I would just
like you to respond to that.
Ms. Pons. Yeah, and I think there have been a couple of
different reports. The one I think you're referring to is the
one in 2005 where they investigated whether there was, in fact,
a conflict of interest between PBMs and owning mail service
pharmacies. And the findings of that report was that they did
not believe there was; and that, they saw that there were more
savings with the PBM-owned mail versus a non-PBM-owned mail
pharmacy as well as over retail pharmacies; and that mail
service pharmacies were very good at generic dispensing and
were very closely aligned with client incentives.
Mr. Cicilline. And, Mr. Chairman, if I may just ask one
final question. Mr. Balto argues in his written testimony that
there is an ``increasing disregard of the antitrust laws in the
pharmaceutical area'' and argues as a result that ``consumers
suffer from a lack of choice in the marketplace.''
And in 2009, your company was actually investigated by the
FTC based on allegations of anticompetitive behavior. I'd
wonder if you would just briefly state what the conclusions of
that were, and I would ask unanimous consent that a letter from
the Federal Trade Commission dated January 3, 2012, be
introduced into the record.
Mr. Marino. Without objection, so ordered.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Ms. Pons. Yes, we did go through an investigation after the
CVS Caremark merger that started in 2009 and I believe ended in
2012 that looked at a number of activities but primarily trying
to assess whether or not there was anything that was
anticompetitive. And they looked at our firewall and a number
of our programs.
And at the end of the review, they determined that there
were no anticompetitive findings, and that's in the closing
letter. There was, however, a legacy issue around one of--a
company that we had acquired and some information that they had
inaccurately placed on Plan Finder, and so we had a consent
order around that. But there was nothing related to any
anticompetitive activity.
Mr. Cicilline. And finally, Ms. Pons, are you familiar with
a 2011 Visante study that found PBMs will save plan sponsors
and consumers almost $2 trillion or nearly 35 percent between
2012 and 2021 when compared with the prescription drug
expenditures made without pharmacy benefit management? Can you
speak a little bit about that.
Ms. Pons. Yeah. And I've seen that study as well, and, you
know, I would even say more practically day in, day out, you
know, with the thousands of clients that we negotiate with,
they've got very specific targets for us in terms of what we're
going to do for savings for them in terms of, you know,
generics and preferred brands. And so we have to live up to
those commitments every day.
Mr. Cicilline. Thank you.
And I Thank you, Mr. Chairman, for the indulgence.
I would just finally say that, you know, one issue, which
is obviously not before this Committee, is the power and, you
know, ability of pharmaceutical companies to really skew the
marketplace with very little controls on their ability to
increase drug prices. And, you know, that's an issue which I
think is very much part of this conversation and hard to
disaggregate, but it seems to me that the ability to at least
have some bargaining power against these pharmaceutical
companies in the marketplace is something that we should
attempt to preserve as much as we can.
And with that, I yield back.
Mr. Marino. Agreed.
Chair recognizes Mr. Collins from Georgia.
Mr. Collins. Thank you, Mr. Chairman.
You know, sometimes I think when I fly in here--I fly--and
I've made this statement to my district before that we fly into
a wonderland of where reality doesn't matter anymore. Case in
point, many of the things that I've heard this afternoon give
me cause to believe, yes, we're there again. And this is an
issue with community and independent pharmacists that, you
know, play a critical role in my district, in rural northeast
Georgia.
Mr. Chairman, with the unanimous consent to enter into the
record a report from the association representing senior care
pharmacies on MAC pricing data, a letter from BlueCross
BlueShield on compounding pharmacies, and several statements
and examples of PBM interactions from community pharmacies.
Mr. Marino. Without objection, so ordered.
Mr. Collins. Look, I appreciate our witnesses being here. I
appreciate the chance to have a discussion, but to be truthful,
I'm very discouraged about what I see in the pharmacy
landscape.
Ms. Bricker, you state in your testimony PBM marketplace is
extremely competitive. That's an interesting statement since
three companies Express Scripts, CVS Health, and OptumRx
control about 80 percent of the PBM market, which translates
into 180 million lives. Not a great deal of competitiveness
there.
Mr. Arthur knows too well community pharmacies routinely
incur losses of approximately $100 or more on many
prescriptions, because PBMs or insurance middlemen reimburse
pharmacies well below their cost to acquire and dispense,
generic prescription drugs that have skyrocketed in price. This
is one of the most pressing areas that I believe demands
congressional action.
PBMs can wait weeks and months to update reimbursement
benchmarks they use to compensate pharmacies while drug prices
increase virtually overnight. That's why I introduced H.R. 244
dealing with this issue of transparency and would encourage
folks to be a part of that.
Now, one of the things that has been interesting to me
today is discussing mail order. Since PBMs own their own mail
order pharmacies, I've seen information leading me to believe
that a real incentive exists for them to steer patients toward
mail order delivery.
In fact, I've seen firsthand that a fax received by a
community pharmacist from OptumRx indicating that he could not
mail patients their prescriptions. Less than a month later, a
patient gave that pharmacist a letter mailed to them from
OptumRx touting savings they could see if they got their
prescriptions mailed from the PBM mail order pharmacy.
While the letter states the patient is free to continue
using a retail pharmacy house elite, it requires notification
to an insurance company, and it is likely that many patients
won't have time or knowledge to know that the mail order is not
mandatory. This is extremely concerning from an anticompetitive
standpoint and a patient care perspective.
Mr. Chairman, I ask unanimous consent that both of these
documents be made part of the record. Mr. Chairman, unanimous
consent to make these part of the record.***
---------------------------------------------------------------------------
***Note: The material submitted by Mr. Collins is not printed in
this hearing record but is on file with the Committee. See also ``For
the Record Submission--Rep. Collins'' at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104193.
Mr. Marino. They're admitted.
Mr. Collins. All right. And given that CMS has also
recently finalized Medicare Pard D requirement that allows PBMs
to automatically auto ship new prescriptions without express
beneficiary consent, this is of particular concern, and
especially to one certain gentleman that happens to be very
close to me, and that is my father.
Mr. Arthur, can you share your experiences regarding PBMs
urging mail order delivery of medications over filling them in
the store. Has this affected your pharmacies and other
pharmacies? And regardless of your views about PBM and their
prices, why should we be concerned? And if you could narrow
that down.
Mr. Arthur. I'll take your last question first, if I may.
And I think Chairman Conyers mentioned it was back in the early
2000's, Campbell-Conyers, which attempted to provide limited
antitrust exemption for independent community pharmacy. I can
assure you that circumstances in the marketplace have
deteriorated dramatically since that time.
So this is a very pressing issue, and I think, you know,
it's interesting we spend a lot of time this morning--this
afternoon talking about one of the primary goals being to drive
generic utilization. It's interesting to note that the generic
utilization rate and independent community pharmacy far exceeds
that in mail order or any other sector.
Mr. Collins. Thank you, Mr. Arthur. I appreciate that.
Mr. Arthur. Thank you, sir.
Mr. Collins. I want to turn to Ms. Bricker. And you have
talked about--and Ms. Pons as well, you have talked about teams
of people that looked a your MAC list, your transparency list,
teams of people that do this. I want to give you a couple of
examples of how you actually look at this and you said within
your 7 days.
This is a recent example released from Avera. It says, if a
pharmacy filled a prescription of a Omeprazole, a common
antipsychotic, on April 16, 2014, Express Scripts reimbursed
that pharmacy $1.20. If the pharmacy filled the same
prescription the next day, the 17th, it reimbursed only $0.20.
On the 18th, you paid another amount, this time $0.80. Another
one was potassium chloride, $0.45 on the 22nd of April; 26th of
April, $0.33; and on April 28, $0.52.
One, I just have a direct question. Ms. Bricker, do you all
have two sets of MAC lists? Is there two sets of lists out
there? Do you have two lists for MAC pricing?
Ms. Bricker. We have multiple MAC lists, yes.
Mr. Collins. Okay. What about you, Ms. Pons?
Ms. Pons. Yes.
Mr. Collins. Okay. Is that just to keep the ball from being
hidden from community pharmacies?
Ms. Pons. No, we have multiple clients. We have thousands
of clients, so----
Mr. Collins. You have multiple clients. So you prefer one's
over the others?
Ms. Pons. We make----
Mr. Collins. Never mind.
Ms. Pons [continuing]. Our client list match what our----
Mr. Collins. The issue that I have--and I appreciate that.
And the question is answered.
I hear from pharmacies in my community that reimbursement
or MAC appears to be arbitrary and has little connection to
actual price. These examples seem to indicate that. Can you
please explain the disparities in MAC pricing you pay to these
long-term care pharmacies? Ms. Bricker.
Ms. Bricker. So I don't actually know the acquisition cost
of any given pharmacy. Our policy is to survey the market based
on a number of price points that are available, both
confidentially to Express Scripts as well as publicly, and in
an attempt to respond in kind to the market. And so it is--we
make every effort to ensure that we are reimbursing a fair
amount for prescription drugs from a generic perspective.
We have an appeals process, that if we get it wrong a,
pharmacy can file an appeal and provide us additional evidence.
Mr. Collins. Ms. Bricker, have you ever told a pharmacy
that if they appeal any more that they would be cut off from
their plan?
Ms. Bricker. No, I have not.
Mr. Collins. Not you personally, your company.
Ms. Bricker. I am not aware of ever making that statement,
no.
Mr. Collins. Ms. Pons.
Ms. Pons. I'm not aware either.
Mr. Collins. Will you answer the question long term, that I
asked Ms. Bricker as well on MAC pricing disparities?
Ms. Pons. Yeah. I actually have a very similar answer to
hers in the sense that we do our best to try to estimate what
we think people are buying at and put a reasonable margin on
that because we want them to dispense generics.
Mr. Collins. Okay. So if I told you that I know pharmacies
who have been told if you appeal and--if you appeal, we will
deal with it in your contract, you cannot appeal this, would
you all both find that egregiously appalling?
Ms. Bricker. I am not aware of Express Scripts ever making
a statement like that.
Mr. Collins. That's not what I asked. I said, but if they
were told that a pharmacy was told that, would you find that
appalling that your companies would say that?
Ms. Bricker. Yes, I actually would agree with you. You
know, the appeals process is there to ensure that we are
responsive to the market.
Mr. Collins. Well, I think there's a concern because
there's a disconnect because this is what's being told.
I think the concern that I have here is all in all, in this
playing field, there needs to be a level playing field. There
needs to be a playing field for community pharmacies and
independent pharmacies as well asker companies involved in this
market. Right now there's not.
And you can talk about it all you want. We can go into
different pricing. We've already talked about multiple lists,
and we talked about the appeals process. And we also know from
pharmacists who have been told, if you appeal more, we will cut
you off.
What is even more appalling to me is when my local
pharmacists across this country try to speak out about this,
they received letters and discussions from PBM saying, if you
make too much noise about this, your contract could be in
jeopardy. That is not right. I will continue to fight this, and
if you don't believe that it's true, it is true.
And when we understand this--here's my concern. That in the
coming future, because I hear from my pharmacists all across
this country and in northeast Georgia, if it continues the way
it is, they will be closing. And all those wonderful savings
that are being donated from PBMs are going to be lost and close
businesses and close lives.
And I just have a question, who will my folks in the Ninth
District of Georgia call when they need someone at night and
their local pharmacist is the one they trust? Ms. Bricker,
they're not going to call you. They're not going to find you in
St. Louis. They're not going to find you, Ms. Pons. They're
going to try and find their local pharmacist who is being
closed because of the anticompetitive nature of this field.
This needs to be addressed.
With that, Mr. Chairman, I yield back.
Mr. Marino. The Chair recognizes the gentleman from
California, Mr. Issa.
Mr. Issa. Okay. Well, I'm going to start off, Mr. Balto, in
your statement, it's already been read a couple times, but I'll
grab a couple of the key words you used. This is the PBMs are
the least regulated sector of healthcare. I guess without the
FDA they might be. Essential elements of competition are not
there. The following are transparency, choice, and lack of
conflict of interest. Right?
Mr. Balto. Correct.
Mr. Issa. And by the way, I'm not trying to make anybody a
good guy or a bad guy. I just like to put this portion of the
market in perspective. And I think, sort of as the witness
against the PBM sitting between these two fine women from the
industry, you're the one to ask.
If I told you that from the 2010 case published, for the
two public companies on each side of you, that, for example,
Express--and of course they've got mergers. There's other
factors. But they're annual reports. Express Scripts went from
about $42 billion in 2010 to $100 billion in gross revenues.
Their profit, gross profit went from $2 billion to $3 billion
during that period. After tax revenue went from $1.2 billion to
$2 billion during that period of time.
On the other side, CVS, a bigger company, getting bigger,
and in the retail space, so it's a little more complex to
follow them, went from $97 billion to $139 billion. They went
from $6 billion in profit to $9 billion in profit. And they
both went up slightly in their per share.
Let me ask you a question. If somebody sells, for example,
$100 billion worth of product and makes $2 billion after
expenses and taxes, just one question: Where do you think those
excess profits are that you say are there?
Mr. Balto. Well, first of all, Congressman, what we're
looking at are entities that are moving information and are
moving----
Mr. Issa. No, no. But I'm asking a question to you that is
narrow, and I want to make sure that I don't get a--I don't
know. You had an opening statement, so please stick to the
question because I'm going to ask the others questions.
Mr. Balto. I wanted to explain it----
Mr. Issa. If a company makes--if you're qualified to answer
on the financial part, if you sell $100 billion and you make $2
billion--and I checked, and they have had this same chairman
for a long time and he gets decent compensation, but it's in
the millions not the billions. So from a material standpoint,
they don't have but 2 percent of gross sales in profit.
Now, unless there's money hidden under a mattress, my
question for you--and I'll use Express Scripts. I could use
either but Express Scripts is a much simpler company--they're
basically a wholesaler middleman. They drive down their cost of
distribution, particularly their mail order process; they
negotiate the lowest prices they can; they squeeze, if you
will, the retailer on one end as much as they can, Pfizer and
the other pharmaceuticals on the other, and they end up with,
you know, a buck and-a-half a share for their stockholders or
about $2 billion, and it hasn't gone up or down in a major
percentage.
So my question to you is, is it the lack of, as you said,
the lack of transparency in competition, is that really at any
of these pharmaceutical companies--and I realize there's a
difference in, if Ms. Bricker's company makes $2 billion, it
might drive Mr. Arthur's company out of business because of
their ability to buy and so on.
There's no question--we could have a discussion between
retail and wholesale and their tactics, and of course, with
CVS, an integrated company that has both. And I'd like to give
you a chance to answer that if you'd like to throughout the
hearing.
But the real question is, where are these excess profits
that you're alleging? If I go to Pfizer or any other number of
large successful pharmaceutical companies, I will find after-
tax revenues in as much as double digit of their gross sales.
So my question to you is, where is the evidence of that?
Quickly. And then I'd like to others to answer. Because I'd
like to understand that part, which I think for this Committee,
looking at competition, and whether they need to be regulated,
this is a big question.
Mr. Balto. Sure. And I'd like to respond to you in writing
because it's a complicated question.
Mr. Issa. Okay.
Mr. Balto. But in my testimony, looking at just their
margins, their margins have increased substantially. But let me
answer you more carefully in writing about what the answer is.
Mr. Issa. Okay. And for the two wholesale pharmacies, and
I'd like to also include the retail quickly, if there were more
transparency and a more level pricing for what a particular
pill or two cost, and instead of a complex set of rebates and
negotiations, if we look to these monopolies, particularly,
people who have an exclusive and said, look, we don't care what
you sell it for and how much, but you can't be all over the
place on prices such that these MACs are so different. Would
that really affect your business model in an adverse way?
I know, quickly, for Mr. Arthur, he would love to see a
price where the price is the price to a certain extent, and
only discounts are truly based on volume, you know, the truck
delivery versus the UPS delivery. Because that certainly would
change these disparities that are driving retail out.
Quickly, I apologize, Mr. Chairman, if they could answer.
Ms. Bricker. So scale matters. And, you know, in a free
market where you're able to buy in a larger quantity, we've
seen this not just in pharmacy but in other aspects in other
industries. And, so yes, it would be absolutely detrimental to
our plan sponsors to have fixed pricing, if you will. But with
that said----
Mr. Issa. Actually, it was cost bases from a monopoly, more
like a public utility. You can buy your electricity cheaper
from an exclusive source that has to sell it to you if you're a
volume user, but the difference is based on actual earned
discounts. But go ahead, please.
Ms. Bricker. But our MAC is responsive to that very thing.
I understand, you know, when I'm establishing MAC that I'm not
going to establish MAC for an independent pharmacy the same as
that of a large retailer that can purchase the product at, you
know, a much more deeply discounted rate. And so it's our
attempt to do that.
Our plan sponsors, you know, count on us to keep costs
down, and we have guarantees in our contracts. We are obligated
to ensure that we're lowering costs year over year for our plan
sponsors.
Mr. Issa. Right. In your case, your MAC price is always
higher than your cost, I assume?
Ms. Bricker. I'm sorry?
Mr. Issa. The pricing you're willing to pay the retailer is
always higher than your actual cost?
Ms. Bricker. Well, I couldn't say that with 100 percent
certainty. That's definitely my intent. My intent is to----
Mr. Issa. Well, you know your cost, don't you?
Ms. Bricker. You're saying my cost at mail?
Mr. Issa. Well, you buy. You're a large buyer. He's a small
buyer.
Ms. Bricker. Yes, sir.
Mr. Issa. You set his price based on an assumption of what
he paid for the product. I just want to understand, can you say
here today under oath, both of you, that you always provide the
retailer a ``price'' that is at least above what the two
largest people in the pond pay?
Ms. Bricker. Absolutely, 100 percent.
Mr. Issa. Okay. So you can certify that. You can too?
Ms. Pons. Yes, that we make every effort to do that, yes.
Mr. Issa. Well, every effort. You've got great computers.
Ms. Pons. No----
Mr. Issa. Would you say with the certainty of somebody gets
fired, if that's not the case, if you actually expect the small
retailer to take less than, in fact, you're already paying?
Ms. Pons. Yeah. What I can tell you is that our independent
pharmacy community gets paid a higher rate of reimbursement on
generic products than our own pharmacies do.
And the other thing I would just add to the mix as well,
because we haven't talked about this, is the fact that there
are a number of very large what are called PSAOs, pharmacy
service administrative organizations, that independents belong
to. I believe over 80 percent of the independent pharmacies
joined one of these big, three Fortune 50 companies, and
there's some large independent PSAOs as well. Those are the
actual entities that we're negotiating with.
We're not negotiating with, you know, typically, you know,
a small, single, independent pharmacy. And so there is a lot of
back and forth. And to the extent that we can't make changes
sometimes, it's because we've got a contract that's 100 pages
long with our client that says everything under the sun that
they want in their network. So we're not truly trying to make
people's lives difficult for the sake of----
Mr. Issa. No, I know you're not.
Mr. Chairman, I know that I'm actually stealing from your
time every minute that this goes on, but I would ask that Mr.
Arthur give his opinion on this. Because I do think that--and I
said this to two of the witnesses when I met with them in
advance. You know, the hotel industry and the airplane industry
used to suffer from the fact that two people on an airplane
sitting next to each other, one could pay four times more than
the one next to them, and it was always very hard to
understand.
At least now, if you go to an online Web site, you can at
least get some transparency on what the best deal is. And I
think for the retail industry, this is part of what's not
existing in healthcare. And I'd just like Mr. Arthur to give
his insight on not knowing what something gets bought for by
anybody except what you get told on reimbursement.
Mr. Marino. Go ahead, Mr. Arthur----
Mr. Issa. I will owe you, Mr. Chairman.
Mr. Arthur. Very briefly, Mr. Congressman. One important
distinction. You mentioned the role of the PBMs as a wholesale.
The PBM stocks no product in inventory. It doesn't handle any
product in inventory----
Mr. Issa. I apologize. I called him a middleman, but you're
right, except for their own mail order, they're working with
you based on your inventory.
Mr. Arthur. Yes, sir. And the reason I mention that is when
you give the numbers, the genesis of the PBM industry was due
to their technical expertise in moving from a paper environment
to an electronic environment for the processing of claims. We
could have a discussion today, a very vibrant discussion about
the other services that they do provide in that space. But
essentially, they are negotiating those prices for purely an
administrative function, in my view.
Mr. Issa. Thank you very much, Mr. Chairman. And I will owe
you that large poker chip.
Mr. Marino. Thank you. I have about 30, 40 minutes of
questions, but I know I'm limited to several minutes.
Mr. Balto, aren't we talking about--and I liked Mr. Issa's
line of questioning concerning excess profits, but I'm a
capitalist--are we really talking about excess profits or
market shares?
Mr. Balto. Well, look, I think the PBMs--there is a service
that the PBMs perform, and the question is, is the market
acting competitively? Is their ability to lower prices being
fully translated in lower prices to consumers?
And we see these trends which the Ranking Member
identified, which the Consumers Union statement identified that
shows that with higher drug prices that their profits seem--
their profits are going up.
Mr. Marino. Okay. Let's set aside antitrust issues for a
moment though. But isn't it just customary usually those that
have a larger share in the market generate more profits?
Mr. Balto. If the market is behaving competitively, you
would expect price to be competed down to marginal costs. You
wouldn't expect to see their profits per script increasing in
this fashion or their profits increasing overall in this
fashion.
Mr. Marino. Okay. Let's move to--and I know what Mr.
Arthur's answer is going to be on this. So I would like Mr.
Athur to answer it, and then I ask Ms. Bricker and Ms. Pons to
give me their opinion of this.
What is the downside of independents coming together and
buying prescription drugs in bulk? What's the downside of that?
You know, if there is an exemption to the antitrust law for
pharmaceuticals, what is the downside of independents getting
together and purchasing drugs?
Mr. Balto. There's no downside. And somehow, in 19 pages of
testimony, I did not deal with the collective negotiation
point. I apologize.
Mr. Marino. Well, no, let's not talk about the antitrust
part of it. That's another hurdle.
Mr. Balto. There is clearly a significant advantage to
pharmacies coming together. There is antitrust uncertainty, and
antitrust exemption would be appropriate. My colleagues on the
panel tell you about PSAOs. Those PSAOs are ineffective. In
fact, PSAOs are often prohibited by the PBMs of even turning
over the contracts to individual pharmacies.
There needs to be greater ability of people like Mr. Arthur
to collectively negotiate to protect their interests.
Mr. Marino. Ms. Bricker.
Ms. Bricker. A couple of things come to mind. So pharmacies
absolutely can join group purchasing organizations and
collectively buy drugs, or they can also join PSAOs to have
them represent them in negotiations with PBMs. In our contracts
at Express Scripts, it's explicitly written, you know, to Mr.
Balto's statement, that we prohibit member pharmacy from seeing
contract. It's required that the PSAO pass the contract that
they have executed on behalf of a member pharmacy to that
pharmacy.
So it's important to us to have independent pharmacies in
network. We have 25,000 independent pharmacies in network. Just
to give context, less than 5 percent of independent pharmacies
service a rural area in the United States. These are still very
vital. It's very important that those pharmacies stay in
business, but they command a premium, as they should, because
they're serving a population that no one else is.
Mr. Marino. Ms. Pons, would you care----
Ms. Pons. Yeah. My comments will be similar to Amy's in the
sense that we welcome pharmacies to join PSAOs. It helps us,
obviously, to negotiate with, you know, five PSAOs as opposed
to 20,000 individual pharmacies, and those PSAOs are able to
negotiate very effectively on behalf of their clients. And
similarly, we require that the PSAOs share that contract back
with the pharmacy, and the pharmacy actually has to tell us in
writing that they've designated a PSAO to be their agent for
the negotiations.
Mr. Marino. Why the disparity then in pricing? Because of
volume? Is there a disparity in pricing with independents with
some entity representing them, negotiating prices with
pharmaceuticals compared to your companies?
Ms. Pons. We don't know, you know, the price that others
pay. I would just say that----
Mr. Marino. Well, we do know that independents pay
significantly more across the board than examples of your
companies. Why?
Ms. Pons. I was going to say, they're, you know, taking
their volume through their PSAO to try to get the best deal
that they can that is not going to be the same as a Walgreens
who has a much greater footprint.
But, you know, as stated earlier in the testimony, we do
factor that into the reimbursement that we provide to our
independents, and, you know, again, they receive a richer
reimbursement for their generics to take that into account.
Mr. Marino. Mr. Arthur, I live in a rural area. We have
independents and we have CVS and other pharmaceuticals--excuse
me, pharmacies. What do you offer to your customers that you do
not see the big chains offering, particularly if it's through
the mail?
Mr. Arthur. Well, there's a whole host of services that
we're offering on a very personalized way, you know, from
comprehensive pharmacists, clinical services, immunizations,
consultations, medication reconciliation. There's a whole host
of services that are being provided. And the reason why the
independents, in my view, are more successful is based on the
relationships that we've developed in our communities over a
great period of time.
Mr. Marino. Again, this is for Ms. Pons and--excuse me, no,
this is for Mr. Balto.
Mr. Balto, where do you see the transparency line
concerning what companies, larger companies or any company for
that matter, have to divulge? Who draws that line? Where is
that line?
Mr. Balto. By the way, just to supplement Mr. Arthur's
comment about the services, one critical issue----
Mr. Marino. You aren't dodging my question though, are you?
Mr. Balto. I was trying not to.
Mr. Marino. Okay. I was a prosecutor so that's not going to
work.
Mr. Balto. It didn't work.
In terms of the transparency line, I think we should listen
to what, you know, what's going on in the market. The
Department of Labor proceeding that the Ranking Member
mentioned before the ERISA subcommittee, unions and major
employers and consumer groups all talked about the kind of
transparency was necessary for a plan sponsor to fulfill his
fiduciary duty, to make sure he was receiving--that the plan
was receiving the benefit of the bargain.
And that requires very robust disclosure of the rebates
that the PBMs are receiving from the pharmaceutical
manufacturers. And then the plan sponsor armed with that
information can make sure that they're receiving the best deal
in their arrangement with PBM.
Mr. Marino. Okay. If I'm buying something from--somebody's
selling antique cars and I buy antique cars. Why would I
divulge? Why would I think of divulging what the person selling
the antique car is going to sell it to me for compared to
someone else who wants that same car?
Mr. Balto. So for me as a plan, an employer or union, what
I'm purchasing in part is their ability to negotiate rebates.
And so I want to know how they're doing at that specifically,
for those, you know, for the manufacturers. And then look drug
by drug, over time and see how effective they're being at that.
And then that way, I can figure out whether or not I'm getting
the benefit of the bargain, whether those rebates are helping
to lower my pharmaceutical costs.
Mr. Marino. Ms. Pons and Ms. Bricker, I don't think I gave
you the opportunity, although you probably thought I passed you
on it, on the issue of the downside of independents,
collectively purchasing. Now, there was some discussion about
they're able to join groups to do that. But the numbers don't
seem to be indicating that there is fairness or a level playing
field there.
Could you expand on your answers there a little bit, Ms.
Pons. Do you know--do you get my question?
Ms. Pons. I guess, what I would say is that we welcome
anybody that's part of this value chain in helping reduce
costs, provide access, and improve health outcomes. To the
extent that they can be more efficient, just like we're trying
to be more efficient in our PBM and in our pharmacies, we would
welcome them to be able to do that because that's going to
ultimately help our clients and help our patients that we're
all trying to serve.
Mr. Marino. Ms. Bricker, I'm assuming you would agree with
that, or do you want to add something to it?
Ms. Bricker. At Express Scripts, our mission is to make
drugs safer and more affordable. And we welcome in working with
you to have a robust dialogue about the entire supply chain
from manufacturer to patient. And today, we're focused on, you
know, a couple of areas of the supply chain, but we think
there's actually an opportunity for us to work with
wholesalers, with manufacturers, with PSAOs, with all of the
constituents within the supply chain to continue to lower costs
for plan sponsors and patients.
Mr. Marino. Well, do you see--and I'll get back to you on
that. Do you see independents eventually going out of business
because of the volume that your companies are able to sell and
able to keep the price lower than what a pharmacy can? Give me
your opinion on what you see 5 years from now or 10 years from
now for independent pharmacies.
Ms. Bricker. We believe that independent pharmacy is
viable. We believe that--and we're seeing it in the data. If
history is, you know, any indicator of the future, then, no,
this industry is quite robust. There are 68,000 pharmacies.
That's up from the prior year. NCPA's own data suggest that
independent pharmacies are remaining steady and constant.
And so, no, I believe that it's a viable business and one
that students coming out of pharmacy schools are entering the
business of opening retail pharmacies today because it actually
will pay the bills and it's a wonderful career.
Mr. Marino. Ms. Pons.
Ms. Pons. Yeah, no, I agree with that. And independents are
a cornerstone of our networks. We don't have any networks that
don't include independents. They're important to our clients to
have that access. And as Ms. Bricker pointed out, the number
that held steady. There were well over 20,000 in the country.
Mr. Marino. You know, I have a dog in this hunt, and I've
experienced this several times. My daughter has cystic fibrosis
so there are dozens of drugs that she takes. Sometimes the
prices go up; sometimes the prices go down. But what I find
very, very important is the one-to-one, face-to-face
communication with a pharmacist.
And believe me, on more than one occasion, our pharmacist
here and even when we were traveling in England where we ran
into a problem, they were able to communicate. What can you
offer that the--can you offer that same thing that--that same
service that the independents offer?
Ms. Pons. I would say we certainly do our best within our
own pharmacy channels, whether it's our retail pharmacies or
our specialty pharmacies, and particularly our specialty
pharmacies that work with patients that have chronic, serious
conditions, where they have expertise in particular disease
states that a lot of normal pharmacists don't. And they do
develop very close relationships with those patients and their
caregivers.
Mr. Marino. I'm going to wrap up here quickly, but I just
want to give each of you 15, 20 seconds to make--give a closing
statement. So Mr. Balto, you had your hand up, please.
Mr. Balto. Sure. First of all, these firms own their own
mail order and specialty pharmacies. It's in their incentive to
drive consumers away from these community pharmacies that they
want into their own pharmacies where they can maximize their
profits. And especially for people who need specialty drugs
like your daughter, that's a real critical concern, especially
when specialty drug spend is increasing so dramatically. And
that's why this Committee needs to look at the restricted
networks these PBMs use.
Mr. Marino. Ms. Bricker.
Ms. Bricker. At Express Scripts we're committed to making
prescriptions safer and more affordable. We stand ready to
assist our plan sponsors and their patients in looking into the
future to understand where drug pricing is going and attempt to
partner with them in innovative ways to make prescription drugs
safe, affordable, and accessible. Thank you for the
opportunity.
Mr. Marino. Ms. Pons.
Ms. Pons. Yes. And I would just, you know, continue to
reiterate the importance of independent pharmacies to our
company, and would note that in our preferred Medicare pharmacy
networks, over 40 percent of the participants are independent
pharmacies. They're just--they're critical to helping us
deliver a service to our Medicare population. Thank you for
having us.
Mr. Marino. You're welcome.
Mr. Arthur.
Mr. Arthur. Mr. Chairman. Thank you.
As I sit here, if memory serves me correctly, I look up at
the wall and I think that's former Congressman Jack Brooks on
the left there. And going back for over 25 years, we have been
fighting for equality in the marketplace using the antitrust
law to examine the antitrust law to seek fairness. We have
survived by evolving. My independent pharmacy is half the size;
I employee half the people I did 20 years ago.
I think it's really telling that in this environment, and
the reason I mention that, as you asked the question, what's
the harm in allowing the pharmacies to do that, pharmacy has
attempted to meet every challenge. We have attempted to get
together to be able to purchase effectively.
But when we are successful in doing that, if we run into
challenges with the MAC, with the timely updates of MAC, it's
interesting to note that, you know, we've heard today about
compliance with timely updates, and I'm sure there are very
robust departments within these large corporations. Why is it
that in two States they have fought vigorously to repeal
efforts to timely implement MAC updates?
We in pharmacy will continue--and independent community
pharmacy--continue to find ways to survive and be able to
provide the types of services that you alluded to, to the
people that depend on us in our communities.
Mr. Marino. Thank you.
Mr. Johnson and I were having a discussion really before
the hearing began. And the two of us, most of the time we see
eye to eye because we are looking for information. Right, Hank?
Mr. Johnson. That's right.
Mr. Marino. We're looking to be educated. And we in
Congress, we don't have all the answers. You know, when we get
elected we think we're taller, smarter, and better looking
right away. But we look to you people, experts in your area,
how to improve the quality of life for all Americans. And I
think each of you have a role to plan that.
So my friend, Mr. Johnson and I, we're looking forward to
hearing from you on how we can improve the quality of life for
all Americans. So that is my request--our request of you. So
please participate in this with us, send us information, give
us your ideas so we can accomplish that.
And I want to thank everyone. This concludes today's
hearing. Thanks to all the witnesses for attending.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
Mr. Marino. The hearing is adjourned.
[Whereupon, at 5:24 p.m. The Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Material submitted by the Honorable Tom Marino, a Representative in
Congress from the State of Pennsylvania, and Chairman, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Material submitted by the Honorable Doug Collins, a Representative in
Congress from the State of Georgia, and Member, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Amy Bricker, R.Ph., Vice
President, Retail Contracting and Strategy, Express Scripts
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Natalie Pons, Senior Vice
President, Assistant General Counsel, Health Care Services, CVS
Caremark Corportation
Response to Questions for the Record from Bradley J. Arthur, R.Ph.,
Owner, Black Rock Pharmacy
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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