http://access-rx.org/2015/11/19/congress-holds-hearing-on-pbms/
Below we go into detail about these issues, followed by the complete remarks and questions of Congressman Doug Collins (R-GA).
Several components of CVS and ESI’s testimonies do not align with their actual practices
The testimony offered by Ms. Bricker and Ms. Pons of ESI and CVS, respectively, did not offer an accurate portrayal of how the PBMs interact with independent pharmacies and customers in the real-world. While there were some minor errors — such as the claim by Ms. Bricker that “only 5% of independent pharmacies service rural areas” — we are going to focus on the big issues we saw.
Communications to pharmacists directly contradict CVS’s testimony
In the closing minutes of the hearing Chairman Marino posed the following question to the panel:
Marino: What is the downside of independents coming together and buying prescription drugs in bulk? If there is an exemption to the antitrust law for pharmaceuticals, what is the downside of independents getting together and purchasing drugs?
While Ms. Pons does not specifically answer the question, the she explains:
Pons: 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 are 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.
AccessRx America has personally reviewed copies of communications between an independent pharmacy and CVS that betray Ms. Pons’ answer. In the communications, which took place less than a month ago, the independent pharmacy inquires about becoming a preferred pharmacy in CVS’s Part D plans. The response offered to the pharmacy owner is that “Caremark does not offer the Medicare Part D preferred network to independent pharmacies.”
If we are to accept that preferred networks reduce costs, and given independent pharmacy’s ability to improve access and health outcomes, Caremark’s flat out refusal to even discuss the matter with the pharmacy is incompatible with Ms. Pons’ assertions. CVS would likely respond that independents can join preferred networks through a PSAO, but given the difficulties PSAOs experience negotiating access to these preferred networks we find that to be an unsatisfactory response, shifting blame.
Recent ESI communications are evidence of coercive PBM practices
In a recent newsletter to pharmacies titled “
Retail Providers Expected to Fill Prescriptions at Point of Sale,” ESI demonstrates an abusive tactic employed to suppress public criticism.
The letter explains:
Providers contracted with Express Scripts as “Retail” pharmacies are expected to serve members of their communities at their “brick and mortar” locations. They are expected to dispense medications in person at their pharmacy counters, whether they are independent, supermarket, chain drug store, etc. As a result, retail providers contracted with Express Scripts are prohibited from acting as mail order pharmacies.
Providers found to be engaged in mail order activities are subject to termination from our networks.
At first glance, ESI appears to be banning all network retail pharmacies from mailing a prescription to their own customer under any circumstances. But are they? ESI begins by saying retail pharmacies are “expected” to dispense prescriptions at “their pharmacy counters.” Is an expectation a requirement? They go on to “prohibit” retail pharmacies from “acting as [a] mail order pharmacy.” But if a retail pharmacy mails a prescription to a local customer, is that “acting” like a mail order pharmacy?
We don’t yet know the answer to these questions, and we’re not alone in our confusion; we’ve heard the same questions from several independent pharmacy owners, including small chains, single stores, specialty pharmacies, and more.
If ESI is in fact banning independent pharmacies from mailing prescriptions to local retail customers, this is unquestionably anticompetitive. The end result would be an increase in revenue for ESI’s mail order pharmacies at the expense of the consumer.
The fact that these questions exist is demonstrative of the problem. The letter ends by threatening termination to any pharmacy that does not adhere to the rules they are stating. If they are banning the act of mailing a prescription, that is one thing. But if they are not, the lack of clarity in ESI’s statements is intentional. Some pharmacists will likely interpret the statements to mean they can’t mail prescriptions. Others will question it, but under the threat of termination they will exercise caution and not mail prescriptions. The rest will need to invest their own time into clarifying what is being said. These options either directly benefit ESI or disadvantage independent pharmacy owners and are therefore abusive.
When, as was the case in the letter discussed above from CVS, a one page communication is sent to an independent pharmacy and more than half of the page consists of confidentiality notices and disclosure warnings, it’s little surprise that independent pharmacists are conflicted about making their concerns public. Congressman Collins commented in the hearing that “what is even more appalling to me is when local pharmacies across this country try to speak out about this they receive letters from PBMs saying that if you make too much noise about this your contract could be in jeopardy.”
We agree wholeheartedly.
ESI’s description of what pharmacies know at point of sale neglects DIRs
During Congressman John Ratcliffe’s (R-TX) testimony he asked Ms. Bricker and Ms. Pons about what information a pharmacy can see when they fill a prescription:
Ratcliffe: Are pharmacists able to see in real time what their reimbursement for dispensing a generic drug is? Or are there fees being charged to pharmacies after the point of sale?
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 roughly 3 to 5 seconds they are receiving a response on what co-pay to collect if any and what reimbursement they will receive. In 3-5 seconds they get what co-pay to pay and what reimbursement will be.
What Ms. Bricker says is accurate, but she is only responding to the first question asked by Congressman Ratcliffe. The answer to the second question is yes, and by not responding to it her answer is incomplete. She is neglecting to include direct and indirect remuneration (DIRs), which cannot be accounted for at the time of sale. In some cases it is possible to estimate this amount and in other cases it is not, but these are fees that are charged to pharmacies after the fact in the form of a reduction in reimbursement. It is important to keep in mind that how DIRs are handled can vary depending per prescription and per PBM, some of which do not even report what prescription the DIRs are being charged against. In any case, it can routinely take several weeks to account for DIRs, if at all.
ESI’s claimed profit margin of 2-3% is “accurate,” but entirely misleading
Congressman Darrell Issa (D-CA) raised a valid question with Mr. Balto about the profit margins of PBMs, with a focus on ESI. Congressman Issa, citing data from the 10-K annual SEC reports filed by ESI, was looking for insight into what appears to be extremely thin profit margins for the PBMs. He asked, “if someone sells $100 billion of product and makes $2 billion after expenses and taxes, where do you think those excess profits are?”
At face value, ESI’s profit margin in 2014 was 1.99% with $100.887 billion in revenue and $2.008 billion in “net income from continuing operations attributable to Express Scripts.” However, answering Mr. Issa’s question about where the excess profits are is complicated by ESI’s accounting practices.
For example, in a footnote on their 2014 10-K ESI points out that their annual revenue includes retail pharmacy co-payments of $10.272 billion. But co-pays are not revenue to the PBM. This is further complicated by the fact that ESI includes revenues from their mail order and specialty pharmacies under the banner of PBM revenues. To the best of our knowledge, it is not possible to completely separate out true PBM revenues and related profits into distinct segments from the data in ESI’s 10-K reports.
In short, we don’t know ESI’s profit margin from exclusively PBM operations, but we can presume it is higher than the 2-3% Congressman Issa (understandably) cited given the inflated revenue from more than $10 billion in co-pays, among other things. We can’t begin to understand “where the excess profits are” without understanding where the actual profits are in the first place. At the very least, considering this question in the context of “gross profit” rather than “net income” may offer a more accurate picture.
Finally, when talking about ESI and CVS’s revenues and income it can be difficult to put such large numbers in context. According to data from NCPA’s digest (which we agree has several limitations, as discussed in
analysis by Drug Channels), independent pharmacies generated $81.4 billion of revenues in 2014. There are 22,478 independent pharmacies reported by NCPA. Put another way, CVS and ESI generate roughly 295% more revenue than 22,478 independent pharmacies.
What do independent pharmacies offer that the big chains don’t?
Towards the end of the hearing Chairman Marino raised the question asked Mr. Arthur “Mr. Arthur, I live in a rural area. We have independents and we have CVS and other 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’s replied that there are “a whole host of services,” such as immunizations, consultation, medication reconciliation, and so on. He added that the reason he believes independents are successful is due to the relationships they’ve established with members of their community over very long periods of time.
We agree with Mr. Arthur on all of these points and there are few people better qualified to discuss the value of independents than him. That being said we would like to expand on this without the time constraints Mr. Arthur was required to adhere to. In particular, we want to mention something that independents offer to the U.S. pharmacy industry at large that the big chains do not: the ability to quickly innovate (or adopt innovations), rapidly respond to changing market conditions and consumer demands, and adjust to meet the needs of their community. What’s more, independents are the last line of defense against the PBMs and big chains, serving as a system of checks and balances.
We applaud Congressman Doug Collins’s continued leadership in support of independent pharmacy
Congressman Doug Collins (R-GA) offered the most vocal and aggressive line of questioning. Below is a transcript of his comments and questions, which we believe are worth a read.
Collins: To be truthful, I’m very discouraged by what I see in the pharmacy landscape. Ms. Bricker, you state in your testimony that the PBM marketplace is extremely competitive. That’s an interesting statement because three companies — Express Scripts, CVS Health, and OptumRx — control about 80% of the market which translates to about 180 million lives. Not a great deal of competitiveness there.
Community pharmacists 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 are skyrocketing 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 (the MAC Transparency Act) dealing with this issue of transparency and would encourage folks to be a part of that.
One of the things that has been interesting to me today has been 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 towards mail order delivery. In fact, I’ve seen first hand in a fax received from 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 — how sweet — it requires notification to an insurance company and it is likely that many patients will not have the time or knowledge to know that the mail order is not mandatory. This is extremely concerning from an anticompetitive standpoint and a patient care standpoint.
Given that CMS has also recently finalized Medicare Part D requirements that allows PBMs to automatically autoship new prescriptions without express beneficiary consent, this is of particular concern, and especially to one certain gentlemen that happens to be very close to me and that is my father.
I want to turn to Ms. Bricker. You have talked about teams of people that look at your MAC lists [at Express Scripts]. Teams of people that do this. I just have a direct question Ms. Bricker, do you have two sets of MAC lists? Do you have two lists for MAC pricing?
Pons & Bricker: We have multiple MAC lists, yes. We have multiple clients.
Collins: I hear from pharmacies in my community that reimbursement or MAC appears to be arbitrary and has little connection to actual price. Can you explain the disparity in MAC prices you pay to long term care pharmacies?
Bricker: I don’t actually know the acquisition cost of any single 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 in an attempt to respond in kind to the market. 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.
Collins: Ms. Bricker, have you ever told a pharmacy that if they appeal any more they will be cut off from a plan. If I told you that I know of pharmacies that have been told that if you appeal I know have been told this would you find it egregiously appalling?
Bricker: Yes, I actually would agree with you. The appeals process is there to ensure that we are responsive to the market.
Collins: Well I think there is a concern because there is a disconnect because this is what’s being told. I think the concern that I have here is that there needs to be a level playing field. There needs to be a level playing field for community and independent pharmacies as well as the other companies involved in this market. Right now it’s not. We know from pharmacists who have been told that if you appeal more we will cut you off.
What is even more appalling to me is when local pharmacies across this country try to speak out about this they receive letters from PBMs saying that 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. 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 in closed businesses and closed lives. And I just have a question: who will my folks in my district in 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 has been closed because of the anticompetitive nature of this field. This needs to be addressed.
