The Federal Trade Commission today issued a report entitled “Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies.” The report, developed in response to a Congressional request in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), examines whether private-sector entities that offer prescription drug coverage pay more for such drugs when using a mail-order pharmacy owned by a Pharmacy Benefit Manager (PBM), as opposed to using a mail-order or retail pharmacy that the PBM does not own. The report concludes that, in 2002 and 2003, prescription drug plan sponsors generally paid lower prices for drugs purchased through PBM-owned mail-order pharmacies than for drugs purchased through mail-order or retail pharmacies not owned by PBMs.
“Health insurers manage their drug costs by choosing among a variety of PBM services and service providers,” said FTC Chairman Deborah Platt Majoras. “Data in the report demonstrate that PBMs’ use of owned mail-order pharmacies generally is cost-effective for plan sponsors.”
Main Study Findings
The main findings of the FTC’s study are provided below:
Assessment of Price Differences Between Owned Mail-Order Pharmacies and Not-Owned Mail-Order Pharmacies
Pharmaceutical manufacturers make payments to PBMs that affect the prices that plan sponsors and members pay for drugs dispensed under the plans administered by the PBMs. Pharmaceutical manufacturers calculate these payments as a percentage of the price of the prescription dispensed.
Generic Substitution and Dispensing
The data did not suggest any significant differences, by therapeutic class, in generic dispensing rates between PBM-owned mail-order pharmacies and mail-order pharmacies not owned by PBMs. However, for large PBMs and retailer-owned PBMs, the generic dispensing rate by therapeutic class was slightly higher at retail pharmacies not owned by PBMs than at mail-order pharmacies owned by PBMs. Formulary status decisions and other aspects of plan designs may explain the differences in these rates.
Generic substitution rates at PBM-owned mail-order pharmacies were generally equal to those at retail or mail-order pharmacies not owned by PBMs. For large PBMs and small or insurer-owned PBMs, generic drugs were more profitable at their owned mail-order pharmacies than were brand drugs – even when payments to the PBM from pharmaceutical manufacturers for brand drugs were included. Given these profit incentives for the PBM and lower prices to the plan sponsor and member, the PBM-owned mail-order pharmacies’ incentives, on average, were consistent with those of their clients in 2002 and 2003.
PBM Switching of Brand Drug Prescriptions
PBMs rarely switched patients through a therapeutic interchange (TI) from one brand drug to another brand drug or to a chemically distinct generic drug. In the 10 therapeutic categories the FTC examined, study participants’ data showed that use of TI could reduce plan sponsors’ costs in the majority of cases. The data showed that the financial impact on plan and member spending was generally the same across dispensing channels. With the exception of one PBM, the range of brand drugs in the study participants’ TI programs was the same at the PBMs’ owned mail-order pharmacies as through their retail pharmacy network. If a generic version of a brand drug was available, only in rare cases did a PBM have a TI program that sought to interchange that brand drug with another brand drug.
PBM Repacking of Prescription Drugs
PBMs rarely dispensed repackaged drugs through their owned mail-order pharmacies. Repackaged drugs accounted for less than one percent of the prescriptions for the top 10 drug products. Only one of the large PBMs has an FDA-regulated repackaging facility. This PBM billed its plan sponsor clients for repackaged drugs based on the manufacturers’ Average Wholesale Price (AWP) for the drug dispensed, not on a new, inflated AWP. The clients of the PBM with the repackaging license paid less, on average, for the repackaged drugs through mail-order pharmacies than they paid for the same drugs at retail pharmacies.
Background on PBMs
Private-sector entities that offer prescription drug insurance coverage, such as employers, labor unions, and managed care companies, often hire pharmacy benefit managers (PBMs) to manage these insurance benefits. PBMs engage in many activities to manage their clients’ prescription drug insurance coverage. PBMs assemble networks of retail pharmacies so that a plan sponsor’s members can fill prescriptions easily and in multiple locations by just paying a co-payment amount. PBMs consult with plan sponsors to decide for which drugs a plan sponsor will provide insurance coverage to treat each medical condition (e.g., hypertension, high cholesterol, etc.). The PBM manages this list of preferred drug products (the “formulary”) for each of its plan sponsor clients. Consumers with insurance coverage are then provided incentives, such as low co-payments, to use formulary drugs. Because formulary listing will affect a drug’s sales, pharmaceutical manufacturers compete to ensure that their products are included on these formularies.
PBMs use mail-order pharmacies to manage prescription drug costs. Many plan sponsors have encouraged patients with chronic conditions who require repeated refills to seek the discounts that 90-day prescriptions and high-volume mail-order pharmacies can offer. Many PBMs own their own mail-order pharmacies.
Congress requested in the MMA that the FTC undertake a “Conflict of Interest Study” to examine “differences in payment amounts for pharmacy services provided to enrollees in group health plans that utilize pharmacy benefit managers.” The Commission collected aggregate and claims-level data that responded to Congress’ request. Because the data in the FTC’s report are aggregated, however, they do not answer whether each plan sponsor has negotiated the best deal possible or whether each PBM has fulfilled its contractual obligations due to each of its plan sponsor clients. The data also do not indicate whether, in individual instances, a PBM might have favored its mail-order pharmacy in ways contrary to a plan sponsor’s interests. Nonetheless, these data suggest that competition in this industry can afford plan sponsors with sufficient tools to safeguard their interests.
The Commission vote to issue the report was 4-0.
Copies of the Commission’s report are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
Office of General Counsel
(FTC File No. P042111)