Healthcare giant sues to stop antitrust investigation into pharmaceutical middlemen

The owner of one of the three largest pharmaceutical distributors in the United States filed suit last week to block the Federal Trade Commission's attempt to investigate the industry's practices, but the suit relies on research the health care giant helped fund and conducted by an economist who became rich by making arguments in favor of big mergers.

In July, the FTC released a scathing interim report saying that Cigna/Express Scripts, CVS Health and UnitedHealth Group appeared to be using their pharmacy benefit managers (PBMs) to drive up drug prices and make patients sicker. Cigna/Express Scripts then filed suit, saying the FTC's findings were “false and defamatory.”

In the past two years, three independent pharmacies in Northern Kentucky have had to close unexpectedly: Fort Thomas Drug Center, Ludlow Drugs and Alexandria Drugs. LINK nky previously spoke with two former owners, and both cited pharmacy benefit managers as the primary reason for closing their stores.

Cigna/Express Scripts is demanding that the U.S. District Court for Eastern Missouri find that the FTC's interim report “is not in the public interest,” that the report be invalidated, and that “FTC Chair Lina M. Khan recuse herself from all Commission actions related to Express Scripts.”

Meanwhile, late last week, the FTC announced it would take legal action against the three pharmacy benefit managers, accusing them of driving up insulin prices and recommending more expensive insulin products to patients in order to increase their profits. The complaint, which has not yet been made public, seeks to prohibit PBMs from favoring certain drugs because they make more money doing so.

Cigna/Express Scripts, the nation's largest company by revenue, argued in its lawsuit that it and the other major PBMs actually lower drug costs, citing research by an economist who has earned more than an estimated $100 million in his career as a mega-merger advocate.

The PBMs of healthcare giants CVS Caremark, Express Scripts and OptumRx control about 80 percent of their market. They represent insurers in pharmacy transactions by determining which drugs are covered. They create pharmacy networks. And they use a secret system to determine how much pharmacies are reimbursed for the drugs they dispense.

Their critics have been accusing them of an inherent conflict of interest for years.

Each PBM owns a mail-order pharmacy, and CVS Caremark's parent company owns the largest brick-and-mortar retailer, so they use secret price lists to decide how much to reimburse their own pharmacies — and those of their competitors — for drugs.

As an example of the apparent arbitrariness of PBMs' pricing, a recent analysis of Medicare data showed that CVS-affiliated plans paid 501 different prices for the same drug.

Also controversial are the practices of large PBMs with regard to brand-name drugs, which are usually patented and significantly more expensive than generics. Because the middlemen control access to so many patients, the manufacturers of such drugs have strong incentives to pay large rebates to PBMs so that their products appear on covered drug lists or drug schedules and their drugs have the lowest copayments.

Academic research has found that increases in often secret rebates are accompanied by even greater increases in drug list prices. There are also concerns that as conglomerates increasingly own middlemen, pharmacies, health insurers and providers such as doctor's offices, they are using this “vertical integration” to give their various business units unfair advantages at the expense of their competitors.

The FTC's interim report, which is the subject of Express Scripts' lawsuit, says it appears that the healthcare companies are exploiting their size and reach to harm consumers.

In its lawsuit, Express Scripts claimed that it and the other major PBMs actually helped consumers by using their power to wring discounts from drug manufacturers, saving “plan sponsors and their members tens of billions of dollars in drug costs over the past decade alone,” the lawsuit said.

As evidence, reference is made to a 17-page report entitled “An Economic Analysis of the Criticisms Raised Against Pharmacy Benefit Managers”.

The report denies that rebates and other PBM practices increase drug costs, as critics claim. But tellingly, the research is funded by the very people the FTC is investigating – Cigna/Express Scripts, United Group/OptumRx and CVS/Caremark.

And that was the responsibility of a company called Compass Lexecon, which pays enormous sums to scientists who have repeatedly written scientific articles advocating mega-mergers, a 2016 ProPublica investigation found.

By arguing that such mergers create “efficiencies” that benefit consumers, the authors find themselves in a conflict of interest, the study shows. The scientists “have reshaped their field through academic work showing that mergers create economies of scale that benefit consumers,” the study says. “But they reap their most lucrative gains by using their academic authority to support mergers proposed by their corporate clients.”

In the case of the study cited in the complaint against the FTC, the author was Dennis W. Carlton, an economist at the University of Chicago. ProPublica's investigation found that he charged at least $1,350 an hour for such work and estimated that he had earned more than $100 million in his career as a merger broker. And that was eight years ago.

At the same time, it is becoming increasingly difficult for poor and disabled people to find a pharmacy.

“With increasing vertical integration and concentration, these powerful middlemen could benefit by driving up drug prices and squeezing high-street pharmacies,” says a summary of the FTC report, which Express Scripts is suing to overturn.

Independent and small pharmacy chains have been closing for years, with many citing the practices of major PBMs as the reason. This raised fears that pharmacy deserts could proliferate, making it difficult or impossible for people without transportation to see a doctor and talk to them about their medications and chronic conditions such as diabetes or high blood pressure.

Those fears were heightened by this year's announcement that Rite Aid and Walgreens plan to close thousands of pharmacies – including hundreds in Ohio and Michigan. Dave Burke, executive director of the Ohio Pharmacists Association, said the announcement of the Walgreens closures made him particularly concerned that the PBMs' practices were making the pharmacy business unsustainable.

This story originally appeared on ohiocapitaljournal.com.

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