Understanding Competition in U.S. Prescription Drug Markets: Entry and Supply Chain Dynamics #00416

Submission Number:
00416
Commenter:
Neeraj Sood
State:
California
Initiative Name:
Understanding Competition in U.S. Prescription Drug Markets: Entry and Supply Chain Dynamics
Thank you for inviting me to present at the FTC workshop. My USC Schaeffer Center colleagues and I would be happy to collaborate with the FTC to further explore key issues surrounding the degree of competition in the pharmaceutical supply chain and its effects on consumers. In particular, these issues can only be addressed by the FTC as they can use their powers under section 6(b) of the FTC Act to get information on drug prices and rebates that is unavailable to the academic and scientific community and the general public. These data can be used to answer the following key questions: 1. My research using publicly available information from the Securities Exchange Commission estimates rents in the pharmaceutical supply chain. However, I can only do this for the industry as a whole. The FTC could do a similar study with more granular data at the drug level. For example, they can answer the extent to which the recent increases in insulin prices reflect higher rents for manufacturers versus PBMs. Understanding who is earning rents is the first step in reducing drug costs for consumers. We cannot devise policy solutions or plan enforcement without a detailed understanding of rents in the pharmaceutical supply chain. 2. Both popular media and policymakers have highlighted rising prescription drug prices. There are two competing narratives for this increase in price that were discussed at the FTC workshop. The first is that this reflects market power of pharmaceutical firms and the higher prices mean higher revenues and profits for pharmaceutical firms. The second is that the higher prices reflect higher rebates to PBMs. This means that higher prices mean higher profits for PBMs but not higher net prices for manufacturers. As I highlighted in my presentation, higher prices likely hurt consumers also. The only way to figure out which narrative is right is to get data on rebates from PBMs and data on net prices from manufacturers. These data are not available to the research community, but the FDA can request these data under section 6 and collaborate with the research community to answer this question. 3. It is well known that the PBM market is concentrated, with three PBMs controlling the vast majority of the market. What is not known is whether this lack of competition in the PBM market hurts or helps consumers. The FDA could again use their powers under section 6 to collect data on rebates to answer the following questions: a) Do health plans that contract with the big three PBMs pay lower net prices for drugs compared to health plans that contract with smaller PBMs? b) Do health plans pass on reduced drug acquisition costs to consumers as lower premiums?