The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.
Ohio Attorney General Dave Yost on Monday joined the vast majority of state attorneys general in demanding that Congress make a major change in the business of selling drugs.
They want to prohibit giant health conglomerates from owning both powerful middlemen and pharmacies that compete with the other pharmacies the middlemen serve. The attorneys general say it’s a setup that gives an unfair advantage to the conglomerates, some of which are among the largest companies in the United States.
In a letter to congressional leaders, they said rapid consolidation and “vertical integration” have raised prices, limited competition, and shut off pharmacy access — especially for the most underserved populations.
In Ohio, the once-obscure middlemen — known as pharmacy benefit managers, or PBMs — have been the subject of controversy for more than seven years. When he was still state auditor, Yost investigated their dealings with state agencies, and since he became AG in 2019, he has sued several.
PBMs represent insurers in drug transactions by creating pharmacy networks, reconciling claims, extracting rebates and fees from drugmakers, and monitoring drug utilization. They say they create savings for insurers and consumers, but the bipartisan attorneys general said that’s not the case.
“PBMs were supposed to help consumers access low-cost pharmaceutical care through negotiated volume-pricing discounts, generic substitution, manufacturer rebates, and other tools,” it says. “While the promise of PBMs was to lower healthcare costs, the reality has been the opposite: Healthcare costs in the United States have skyrocketed. PBMs are using manufacturer rebates to increase, rather than decrease, drug prices. Healthcare costs are higher in the United States than any other developed country in the world, but healthcare outcomes in the United States are not equally extraordinary.”
That last assertion is a big understatement. The Commonwealth Fund last year compared health outcomes in the United States to those in nine other developed countries. Our system is by far the most expensive, yet the outcomes it produced ranked dead last.
A spokesman for CVS Health, one of the conglomerates that owns a big-three PBM, said the attorneys general were just trying to help the big drugmakers with their letter.
“Earlier this week, 38 attorneys general intentionally chose Big Pharma over people by asking the government for more ways to help drug companies make more money,” the spokesman, Phillip Blando, said in an email.
Spokespeople for the other two conglomerates — UnitedHealth Group and Cigna-Express Scripts — didn’t immediately respond to questions for this story.
Blando said that “CVS Caremark does not set the price of drugs, and rebates do not increase the cost of drugs.” However, academic research and the Federal Trade Commission have both concluded that rising manufacturer rebates to PBMs has resulted in higher costs to consumers.
In their letter, nearly four-fifths of state attorneys general said all three companies are a part of why health care functions so poorly in the United States.
“Over the past few decades, horizontal consolidation and vertical integration have transformed PBMs from useful administrative service providers into market-dominating behemoths that control the industry,” it said. “The three largest PBMs process 80% of the nation’s prescriptions and bring in 70% of the (high-cost) specialty drug revenue. Furthermore, these same PBMs, along with the next-largest three, are vertically integrated both upstream and down.”
That means they own upstream companies such as major insurers that employ them, and doctors’ practices that write prescriptions. And they own downstream companies like the retail and mail-order pharmacies they reimburse for drugs.
The attorneys general said there are inherent conflicts in the arrangements.
“Each of the top six PBMs (which control 94% of the marketplace) operate their own affiliated pharmacies, while five of the top six are also a part of parent conglomerates that operate insurance companies and health care clinics,” the letter said. “Even now, PBMs continue to devour more of the pharmaceutical industry: three of the top PBMs have recently opened their own manufacturing subsidiaries or entered into ‘co-manufacturing’ agreements with existing manufacturers. This vertical integration allows PBMs and their parent companies to control every step of the prescription manufacturing, wholesale, retail, and dispensing process.”
Because the six biggest PBMs control access to almost all the insured patients in the United States, independent pharmacists and small chains say they have little choice but to accept whatever terms they’re offered to join their networks. Many of those opaque deals include low reimbursements, arbitrary rules and big clawbacks, many have said.
Because contract terms aren’t public — and because PBMs are allowed to own pharmacies — they’re unfairly squeezing their competitors, the attorneys general said.
“This creates the situation where the PBMs — through ownership of affiliated pharmacies — are contracting with and have power over their own pharmacies’ competition,” their letter said. “The PBMs then use their place as middlemen to exert this power in ways that harm independent pharmacies, forcing these small businesses to accept contractual terms that are ‘confusing, unfair, arbitrary, and harmful.'”
The arrangement creates incentives for PBMs to give their own pharmacies “more favorable contract terms, steer consumers away from independent pharmacies to their own affiliated pharmacies, and otherwise engage in tactics aimed at forcing their competition out of business,” the letter said. “Over the course of the last decade, approximately ten percent of rural independent pharmacies in the United States have closed.”
Blando of CVS said that his company’s PBM’s only goal is to lower costs.
“CVS Caremark represents the only part of the health care industry whose sole aim is to lower costs. Across the country, CVS Pharmacies are the main point of contact for people to get their medicines,” he said. “Together, we work to make medicine more affordable, improve patient care, and deliver better outcomes.”
It wasn’t immediately clear Tuesday how the AGs’ demand would be received by Congress. But several parts of the federal government have shown greater interest in regulating the PBM industry.
Late last year, then President-elect Donald Trump publicly criticized the middlemen. Sweeping reforms were built into a bipartisan deal to keep the government open.
The reforms were estimated to save the government $1 billion over 10 years. But then billionaires Elon Musk and Vivek Ramaswamy tanked the deal by claiming it spent too much. Despite their expected savings, the PBM reforms didn’t make their way into the massive spending plan that passed with Trump’s backing.
Yost is advocating for similar measures in the current Congress.
The Federal Trade Commission has also undertaken a major investigation of the PBM industry, and is suing it over its practices regarding insulin. But the federal antitrust watchdog now is in turmoil as Trump tries to remove the two Democratic-appointed commissioners in disregard of what the 1914 law creating the agency says.
For his part, CVS’s Blando said the if successful, the state AGs will only make American health care more expensive and less effective.
“Hindering our work would make health care more challenging and less affordable, exactly the opposite of what American consumers want,” he said.
