Deep inside the gun bill: A break for prescription drug middlemen

The three biggest drug middlemen, or pharmacy benefit managers, in the United States are CVS Caremark, Express Scripts and OptumRx

By: - June 23, 2022 8:38 am

The St. Louis County office of Express Scripts, one of the nation’s largest pharmacy benefit managers (screenshot).

Many Americans across the political spectrum are clamoring for federal action on guns in the wake of a mass shooting at an Uvalde, Texas, elementary schoola Buffalo, N.Y., grocery store and hundreds of other places.

But buried in a bipartisan compromise hashed out by the U.S. Senate on Tuesday is an unrelated provision they might not be so happy about.

The gun bill would enhance the exemption drug middlemen working with Medicare have from the federal “Anti-Kickback Statute.”

That means, in this era of soaring costs, Senate negotiators decided to further insulate the nation’s largest health care companies from a federal law against accepting “any kickback, bribe or rebate.”

The offices of the two lead negotiators, Sens. John Cornyn, R-Texas, and Chris Murphy, D-Conn., didn’t immediately respond to requests for comment.

Drug costs have become an increasingly pressing issue in the United States, with Gallup last year estimating that 18 million Americans couldn’t pay for at least one of their prescription medications. Meanwhile, a poll by the Pew Research Center last month indicated that the cost of health care was the No. 2 issue for Americans, ranking only behind inflation.

Yet the gun bill negotiated in the Senate would protect some of the biggest players in prescription drugs and in health care more generally.

The three biggest drug middlemen, or pharmacy benefit managers, in the United States control more than 70% of the marketplace and they have great leverage over how that business is transacted. They work on behalf of insurers (and they’re increasingly owned by the same companies) to create networks of pharmacies, determine reimbursements and facilitate transactions.

But it’s in their dealings with big drugmakers where the kickback statute comes in.

The big three PBMs — CVS Caremark, Express Scripts and OptumRx — create formularies: Lists of drugs that are covered and with what copayment. And because those PBMs represent more than seven-tenths of all insured Americans, drugmakers have a big motivation to get their products on their formularies.

“To gain more favorable formulary placement, drug manufacturers will offer discounts to PBMs in the form of ‘rebates’ that the manufacturer pays to the PBM, who then pays the insurance company,” the American Liberties Project, an anti-monopoly organization, wrote in a report that was released Wednesday. “Yet because PBMs are exempt from an anti-kickback statute under Medicare, they are allowed to take a cut of the rebate. The larger a rebate for a drug is, the more the PBM can profit. If not for the exemption, kickbacks like this are normally a felony offense.”

How did it get in the gun bill? 

That exemption is addressed on page 55 of the gun bill. It would extend it from Jan. 1, 2026 to Jan. 1, 2027.

It’s unclear how an extension got slipped into unrelated legislation. A spokesman for a PBM industry group couldn’t immediately be reached for comment.

Matthew Lloyd, a spokesman for another senator who supports the gun bill, Rob Portman, R-Ohio, didn’t answer directly when asked how the kickback protections made it into the gun bill. But he pointed out that the Biden administration had already extended them for a year and last year’s bipartisan infrastructure bill extended them for another three.

In the latter case, Portman advocated the delay because the federal government collects a portion of rebates under the Medicare program. The Congressional Budget Office estimated that keeping the rebate rule will net the government about $180 billion over a decade — thus freeing up money to spend on things like infrastructure.

Lloyd also noted that the U.S. Department of Health and Human Services estimates that Medicare premiums would increase by 25% if PBMs are no longer allowed to take kickbacks. That ignores, however, other expenses faced by Medicare recipients and the public in general.

Rebates linked to rising prescription drug costs

Drug rebates are thought to be a major culprit when it comes to the rising cost of prescription medication. A 2020 study by the University of Southern California’s Schaeffer Center found that every $1 increase in rebates correlated to a $1.17 increase in list prices for drugs.

Medicaid recipients would feel those increases when their co-payments are based on them — and when their costs are based on list prices when they enter the infamous “donut hole.”

“Because (Medicare) Part D sponsors generally base enrollee prescription cost sharing on list prices, higher prices can increase beneficiary out-of-pocket costs,” said a report last month by the Congressional Research Service.

Then, earlier this month, the Federal Trade Commission announced that it would investigate the system of manufacturers providing rebates and other fees in exchange for favorable treatment on PMBs’ formularies.

Community pharmacists have been complaining for years that unfair practices by the PBMs — which own pharmacies of their own — are driving them out of business. A spokeswoman for the National Community Pharmacists Association on Wednesday said extending kickback protections in the gun bill is shady.

”This is objectionable on two levels: First, giving the PBMs an extension on one of their biggest scams harms patients and prevents real transparency in drug prices,” she said. “Second, hiding it in an unrelated gun bill is slippery and prevents real debate.”

This story was originally published by the Ohio Capital Journal, a States Newsroom affiliate. 

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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.