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Asking the wrong questions

In attempts to mislead the public, lobbyists answer the wrong questions. People of good faith should respond not by disputing these answers, but by asking the right questions.

As many of you likely already know, I spoke to the FTC and DOJ’s “listening session” on the merger guideline review that the two agencies are currently doing. This session was specifically focused on healthcare. The invited speakers were primarily nurses, physicians, patients and pharmacists. I spoke during the public comment period which followed the invited speakers. So did a certain JC Scott, CEO and President of the Pharmaceutical Care Management Association, aka the primary lobbyist for the big PBM’s interests. After his comments, I felt similarly to one of the invited speakers - Bled Tanoe of #PizzaIsNotWorking.

Mr. Scott spoke from a position of “trying to set the record straight on PBMs” as many of the commenters and speakers discussed the market power issues of PBMs. In his comment, he claimed that the number of independent pharmacies has grown over the past 10 years, and the PBM market is plenty competitive because there are over 70 PBMs! Both of those things can be true and his argument that the FTC shouldn’t investigate the largest PBMs can still be wrong. Here’s why.

For the past 10 years or more, PCMA and the independent pharmacy lobby, NCPA, have been going back and forth over the methods to count how many pharmacies there are and how many are “independent.” These arguments are basically accusations that “my methodology is better than yours.” I think that getting involved in fights over whose method to count pharmacies is better is silly and pointless. There’s a much more reliable figure to demonstrate the market power of the PBMs and their vertically integrated pharmacies and insurers – market share of prescription transactions and market share of prescription revenues.

The largest 3 PBMs have increased their market share of prescription transactions adjudicated from ~30% in 1999 to ~60% 10 years ago to ~80% today. That fact means that no matter how many smaller PBMs cut up the other 20% of the market, there’s 1/3 less of the volume for them to slice and dice. Similarly, the share of prescription revenues captured by the largest pharmacy entities has grown dramatically over the past 10 years as they have imposed “specialty carveouts,” purchased other pharmacy entities and generally consolidated the pharmacy market. It appears that the FTC majority of a decade ago was simply wrong in their predictions.

It may be true that there are more independent pharmacy entities today than there were 10 years ago, but those entities are cutting up a progressively smaller piece of the pie as the specialty pharmacies and mail orders progressively carve all of the highest dollar transactions to be exclusively available through them. This bears out when we look at the NCPA digest’s prescription count per pharmacy and average sales per pharmacy, which have dropped over the past 10 years.

In other words, “how many legal entities are there in a market” is the wrong question. If it were the right question, a monopoly could maintain the fiction of competition by channeling a small portion of business to several dozen competitors who collectively held 1% market share (monopoly does not mean 100% market share). The right question is “what is the relative market share and power of the legal entities in a market?” When we ask the right question, Mr. Scott’s and PCMA’s disinformation campaign is revealed as being in bad faith. The market share and power of the largest PBMs and the largest pharmacies has grown dramatically. In my view, this has largely occurred by the choice of most mid-tier market participants to leave the pharmacy business, due to the efforts of the largest PBMs to increase their market shares at the expense of everyone else. This phenomenon is easily observed in the St. Louis metro area, where I went to pharmacy school. When I started pharmacy school in 2014, there were very few CVS pharmacies in St. Louis, and CVS had only entered the St. Louis market a few years prior (during the ESI-Walgreens contract dispute). There were multiple mid-tier chain pharmacies – Shop n’ Save, Schnucks, Dierbergs. Between them, they controlled ~200 pharmacies in the metro area. They were supportive of the state pharmacy association, they were friendly to the College of Pharmacy – hosting residency programs in collaboration with the college, co-employing my professors with the college, which provided good real-life learning opportunities for students and involvement (and real-world awareness) in the local market for the professors.

In the intervening 8 years, much has changed. Shop n’ Save sold their entire business (grocery and pharmacy) to Schnucks. Schnucks subsequently sold its pharmacy operations to CVS pharmacy (similar to Target, who had sold their pharmacy business to CVS shortly prior to me starting pharmacy school). Dierbergs Markets sold their pharmacy business to Mercy, the large Catholic health system which holds a relatively dominant hospital market position in St. Louis (alongside BJC and SSM). So today, the St. Louis pharmacy market has no middle ground – there are giant pharmacies like Express Scripts, CVS and Walgreens, a relatively small subsidiary of a mega-health system, and then a fringe of independent pharmacies, the largest group of which controls ~15 locations.

In short, JC Scott is asking the wrong questions, and therefore providing the wrong answers. The raw number of independent pharmacies in the country may be stable as he posits (which I doubt), but that does not account for shifts in which markets independent pharmacies are opening in and which markets they have closed in. It does not account for the decreasing revenues of the average independent pharmacy. It does not account for the shift from owner-operator pharmacies to small chains (the average independent pharmacy owner today owns 2 locations) which is a consolidation of the market into fewer hands as well. It does not account for the simple fact that the brand name drug market today is literally upside down, further destabilizing the market position of smaller pharmacies and foreclosing timely pharmacy services (NADAC for brands is AWP minus 20%, wholesalers aren’t budging from that point, reimbursement contracts from PBMs today are regularly well below that point).

His claim that the number of PBMs has increased to ~70 is also answering the wrong question – the number of PBMs doesn’t matter if CVS, Optum and ESI practically always win the request for proposal, and the number of PBMs matters even less if they all use the rebate aggregators owned by those same 3 PBMs, so that the only entities with any rebate negotiation power are the big 3 PBM-GPOs (Zinc/CVS, Ascent/ESI and Emisar/Optum).

Mr. Scott claims that PBMs are the only entity in the health care system “dedicated to lowering patient prescription costs.” Quite the claim to make when community pharmacists across the country work every day to identify cost-saving opportunities for their patients – if you can find me a community pharmacist anywhere in the country that hasn’t made a single intervention in the past week that reduced a patient’s prescription costs, I’ll eat my spatula. It really bugs me how PCMA basically just rebrands everything that pharmacists do as something that PBMs do, including stealing the name of one of the more noble philosophical underpinnings of the practice of pharmacy – the concept of pharmaceutical care.

Mr. Scott states further, “PBMs play a critical and unique role in the health care system: holding down the cost of prescription drugs, increasing patient access to timely, quality pharmacy care, and increasing medication adherence.” This is quite the bold statement to make in light of Nellie T’s experience with Express Scripts, “The worst company. They do nothing but ** you and do nothing helpful. They definitely don't fill life-sustaining medications. They only waste your time when you call and run you around in circles. If you ask to escalate and speak to someone else they just ignore you and say the same stuff over & over. Won't cover my husband's asthma inhaler, but send me a letter saying it's covered but I can save money filling it through their mail order pharmacy, so I place the **** order... weeks go by and nothing has moved with the order.”

Or Chris T’s experience, “It's all about the money. We tried to set up a prescription drop off through our local pharmacy and since Express Scripts manages prescription payments for our insurance plan, they block any other kind of delivery. I contacted Express Scripts and after being transferred to three different departments, they said I need to mail in a formal letter declining delivery through express scripts that *** or *** not be approved after 14 days. Ironically Express scripts does not even offer the medication for which they are blocking delivery.”

Or in light of Jess B’s experience at OptumRx, “OptumRx is horrible. Like most of the other reviews 1 star is to much credit. I've been trying to fill my son's monthly medication for the last 4 months and they keep giving us the run around and prior authorization when the doctors have called it in and sent in the forms. They are a nightmare. I work full time and i spend hours a month dealing with them i don't have. They should be ashamed of how they treat their customers/clients. All they care about is money. Their customer service representatives show no emotion it's like they don't care if your scripts get filled or not. They don't even make an attempt to make it sound like they care or try to help you. I really wish our insurance company would drop them for the pharmacy part of the insurance.”

Or James D’s experience at CVS, “CVS is a public danger to health. There is no chance of speaking to someone on the phone. Prescriptions are almost never filled when promised you may need 3 trips to accomplish each refill. Overworked pharmacists and technicians and absolutely the barest level of customer service. The only reason anyone goes there is because their insurance locks them into this. I'm not sure there is a worse customer experience in ******”

This, apparently, we are to believe is “increasing patient access to timely, quality pharmacy care and increasing medication adherence.” I don’t buy it. And I’m not cherry picking those reviews, I literally just picked the first couple of reviews available for each pharmacy/PBM from BBB’s website, all of which date within 10 days of the time I am writing this article. This isn’t some review from 10 years ago and they’ve cleaned up their act and now everything is sunshine and rainbows and “timely, quality pharmacy care.” This is happening RIGHT NOW.

Lina Khan’s interest in investigating the PBM market via a section 6b study is absolutely needed and justified. I think that such a 6b study would be the appropriate (and late) follow up to the Medco-ESI merger that Commissioner Brill asked for in his dissent– I believe all of his concerns will be validated. Further, as I stated in my comment to Chair Khan and to Assistant Attorney General Kanter, “I believe that a good remedy to our current plight is structural separation – no PBM should own any pharmacy (mail, specialty or retail), no health insurance carrier should own care delivery assets (hospitals, physician practices). In other words, price setters should not be allowed to be price takers in their own controlled markets. I believe this doctrine applies across industries – slaughterhouses should not own hog farms. Amazon Marketplace should not be owned by Amazon retail.

Similarly, Most Favored Nation policies should be prohibited. Their effect is to raise prices for anyone outside of the MFN – for example, the MFN-esque “Usual and Customary” price rules of PBMs are the cause of the price dysfunction that empowers GoodRx. Similarly, Amazon’s “best price” rule imposes a minimum price and a tax on nearly all internet retail sales to the benefit of Amazon.

I ask that you reimpose these doctrines that served our country well for decades following the New Deal. Please – save my profession from the power of these tyrants.”

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