Harms to competition, and to consumer choice, cost, and privacy cited.

Community Catalyst joined Consumer Union, US Pirg, the National Consumer Federation, and NLARx to ask the FTC to order CVS-Caremark to undo the four year old merger between the CVS pharmacy chain and Caremark, one of the nations largest pharmacy benefits managers.

The letter, covered in today’s New York Times, describes how CVS has used their role as a pharmacy benefit manager (which simply tells a pharmacy whether your health plan covers your prescription or not) to gain customers over other pharmacies.  The letter notes how recent investigations by the FTC and 24 Attorneys General highlight a number of unfair practices designed to switch consumers to CVS pharmacies.

For instance, CVS-Caremark has allegedly charged consumers higher co-payments at  non-CVS pharmacies.  Also, by listing the  organization’s full name “CVS Caremark” on the benefits card provided to beneficiaries of the health plans Caremark serves, some consumers have been deceived into thinking that they can only fill their  prescriptions at  CVS pharmacies. Perhaps the most shocking conduct is the alleged practice of the pbm Caremark providing confidential consumer information to their CVS pharmacy operations, which allows the pharmacists “to solicit non-CVS customers by phone and mail in order to direct them to fill their prescriptions at CVS stores.”

The FTC has been investigating the anti-competitive practices of CVS-Caremark since 2009, and may decide soon how to address these alleged violations of anti-trust and consumer protection laws. The letter urged FTC to order the merger to be undone, and force CVS to sell its pbm business.  If the FTC decides against ordering the break-up of the CVS – Caremark entity, the letter asks FTC to require strong “nondiscrimination” protections for “consumers and pharmacies from programs … which force consumers to use either Caremark-owned mail order or CVS-owned retail pharmacies and ultimately lead to higher prices for consumers.”  The letter also asks FTC to appoint an “independent trustee” to monitor a “stringent firewall between CVS and Caremark” to “protect the confidential information of patients….”

For more info on some lawsuits by pharmacies and consumers concerning these unfair or anti-competitive practices, see Pharmalot’s blog here.

And to learn more about CVS-Caremarks practices that drive up their health plan customer’s costs, visit Change-to-Win’s Alarmed About CVS Caremark website.

The White House, in its efforts to line up industry support for health reform, announced an agreement this spring with the Pharmaceutical Researchers and Manufacturers of America (PhRMA) to discount senior drug costs and save $80 billion over the next decade.  PhRMA has announced that it will finance new ads in support of health reform—it has helped advocates like Families USA with previous ad campaigns.  However, with House leaders now proposing to go further in reining in excessive drug costs, there is speculation that PhRMA might pull its support if the House drives too hard a bargain.  But PhRMA should be supporting health reform—it’s not only good for the country, but good for the industry when more patients are insured and become new customers for their products. 

While details are scant, a recently leaked memo describes the deal as including: $25 billion in savings through a half-price discount for seniors buying brand name drugs in the ‘donut hole’ under Medicare Part-D; $34 billion in increased rebates under Medicaid; $12 billion through an industry fee or tax, and some $9 billion in savings on biologics.  Any mechanisms to ensure oversight and reliable pre-discount drug pricing are not clear.  

Controversy has now erupted, however, over drug pricing issues that affect the cost of health reform.  House Speaker Nancy Pelosi has said that “the House was not bound by any industry deals with the Senate or the White House.”   House Energy and Commerce Committee Chairman Henry Waxman (D-CA) also said that the House would not be obligated to abide by the agreement.  On July 31^st House democrats added new drug provisions in the House Committee on Energy and Commerce mark-up of its bill,  America’s Affordable Health Choices Act of 2009, H.R. 3200.  

H.R. 3200 includes an amendment introduced by Representative Schakowsky (D-IL) which allows the federal government to negotiate lower drug prices on behalf of senior citizens and persons with disabilities covered under Medicare Part D.  PhRMA quickly cried ‘foul’ and claimed that part of their deal was the administration’s promise to not pursue any other cost-cutting proposals.  They claimed that Schakowsky’s amendment would be a ‘deal breaker.’  But proponents are quick to point out that the potential savings for consumers and government payors are significant, and could easily exceed the PhRMA deal’s $80 billion over-ten-years.  

In the days following the release of H.R. 3200, the White House seems to have pulled back on its previous description of the agreement with PhaRMA. Huffington Post   $8 million in annual savings on a yearly drug tab in excess of over $200 billion nationwide seems to leave a lot on the table that we hope will be up for negotiation over the course of hammering out a final health care agreement.  

Another important provision in the House health care reform bill was a successful amendment by Rep. Rush (D-IL) would prohibit the ‘pay-for-delay’ settlements that drug manufacturers have used to keep generic competitors off the market.  (See more info here). Thees anti-competitive agreements, also called reverse payment settlements, have kept generic versions of several drugs off the market since 2005. The FTC conservatively estimates that banning such ‘pay-for-delay’ or ‘reverse-payment’ settlements would save $35 billion dollars over the next decade.

In addition Rep. Baldwin (D-WI) successfully introduced an amendment that wouldrequire the disclosure of financial relationships between pharmacy benefit managers (PBMs) and drug manufacturers.  PBMs manage insurers’ prescription drug benefits, including creating formularies of preferred medicines, negotiating discounts with drug manufacturers, and negotiating reimbursement rates with retail pharmacies that fill prescriptions.  Under Rep. Baldwin’s amendment, all PBMs must provide, to both their client health plans and to the federal government, a confidential annual accounting of all payments and rebates they receive from drug manufacturers in relation to the prescriptions filled.  In addition, the PBM must report, in aggregate, how much they paid pharmacists to fill all prescriptions. 

These two classes of information are essential for health plans to ensure that their formularies are designed to lower costs and not to maximize rebates often alleged to be retained by the PBM.  It would help ensure that the conflict of interest that PBMs face is not working against the fundamental purpose of PBMs to manage formularies that reduce costs.  Similar disclosure provisions have been enacted under state law in Maine and the District of Columbia even withstanding legal challenges.  Maryland, Iowa, South Dakota, and Vermont have also enacted state PBM reform measures.  In South Dakota, the state saved more than $800,000 on health insurance costs in one year after enacting its law.  Kansas, Mississippi, North Dakota, Rhode Island, Tennessee, Connecticut, Georgia, Louisiana, and Arkansas have also taken steps towards PBM transparency.  For example, through an audit of the PBM which manages the state employee health program, Arkansas discovered that in a three-month period, the state was overcharged by nearly $500,000.  The experience of these states demonstrates that increased PBM transparency has the potential to yield significant savings for public and private insurers.  

Pharmacy Benefit Managers (PBMs) are companies that contract with health plans and insurance companies to administer their prescription drug benefits, negotiate with drug companies, manage their lists of covered drugs (formularies), and the like. Unfortunately, PBMs have been accused of failing to protect the interests of their clients, and of instead protecting their own bottom lines. For instance, PBMs negotiate with drug companies for rebates based on the volume of drugs that the PBM’s client health plans purchase, but often fail to pass on these rebates to the health plans. PBMs have also been accused of switching patients’ prescriptions when the PBM has a financial incentive to do so (such as higher rebates from a drug company) but without the patient’s or physician’s permission.

In 2004, the District of Columbia City Council passed “AccessRx,” a law to provide low-income seniors and uninsured people in DC access to affordable prescription drugs through a discount program. The law also contained a provision that required Pharmacy Benefit Managers (PBMs) to be more transparent. PBMs are companies that contract with health plans and insurance companies to administer their prescription drug benefits, negotiate with drug companies, manage their lists of covered drugs (formularies), and the like.

The law said that PBMs owe a “fiduciary duty” to their health plan customers, and required them to disclose their contracts with pharmacies, and to pass on rebates they receive from drug companies to their health plan customers.

The PBM industry trade group, the Pharmaceutical Care Management Association (PCMA), sued DC in Federal Court to block the law. The PCMA initially succeeded in getting the Court to issue preliminary injunction preventing the law from going into effect. The Court of Appeals for the DC Circuit ordered the District Court to reconsider its ruling after the First Circuit Court of Appeals upheld a similar law passed by the state of Maine that the PCMA had also sued to block.

The District Court held that, since PCMA had lost its challenge to a very similar law in Maine, it was precluded from challenging the DC law, under the legal doctrine of “collateral estoppel.” Collateral estoppel basically blocks a party from re-litigating an issue that it has already argued – and lost – in another case. Since the PCMA had argued the same issues on a nearly identical law in the Maine case, the DC District Court held that it could not relitigate those issues on the DC law.

The PCMA, predictably, appealed, and on April 18, 2008 the Court of Appeals for the DC Circuit held that collateral estoppel does not apply. (We here at Prescription Access Litigation had joined an amicus curiae (friend of the Court) brief written by AARP, supporting DC’s law). This means that the PCMA gets a second bite at the apple to challenge laws that states pass to regulate the activities of PBMs.

To learn more about PBMs and what states can do to regulate their activities, visit the National Legislative Association on Prescription Drug Prices’s (NLARx) page on PBMs

To read the DC Circuit Court of Appeals Decision, go here.