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Antitrust regulator takes aim at drug middlemen

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The newest member of the Federal Trade Commission last week said that for decades his agency hasn’t served the historical mission of the agency — fairness. And in decrying the rise of megacorporations that dominate vast ranges of services in some economic sectors, he cited pharmacy middlemen as exhibit A.

FTC Commissioner Alvaro Bedoya (Source: Federal Trade Commission)

Alvaro Bedoya in May was sworn in as the fifth member of the commission — which is tasked with policing anticompetitive practices in the marketplace. Almost immediately, he voted to break an earlier tie over whether to investigate pharmacy benefit managers, middlemen who work on behalf of insurers to buy drugs from manufacturers, negotiate rebates from them and then determine how much to reimburse the pharmacies that dispense those drugs.

Combined, the three biggest pharmacy benefit managers control more than 70% of that marketplace and each is part of corporations that are among the 13 largest in the United States. With Bedoya’s vote, the FTC will now investigate years of allegations that the companies have used their dominance and integration with related businesses to force up the cost of prescription drugs and possibly other things.

For example, CVS Health, the nation’s fourth-largest corporation, owns the largest PBM, CVS Caremark, as well as the largest retail pharmacy chain. In its role as a PBM, CVS Caremark determines reimbursements both for CVS retail pharmacies and those of its competitors.

Leaked documents obtained in 2019 by The Columbus Dispatch showed that in 2017, CVS reimbursed some of its big-box competitors in Ohio at far lower rates than it did its own stores. In addition, Ohio community pharmacists accused CVS of slashing reimbursements in 2016 and 2017, and then sending them letters offering to buy them out.

In his Sept. 22 speech to the Midwest Forum on Fair Markets, Bedoya said that for the past several decades, federal antitrust authorities have approved mergers and market dominance on the rationale that they served the public interest because they were efficient.

But Bedoya said he used the seven months between his presidential nomination and his Senate confirmation “to read a lot of history, which told a very different story,” a written version of his remarks said.

“I learned that small farmers pressed Iowa to pass the nation’s first antitrust law in 1888,” Bedoya said. “I learned that when Congress convened in 1890 to debate the Sherman (Antitrust) Act, they did not talk about efficiency. No, the most common complaint in the Sherman Act debates was that a cartel of meatpackers was cheating cattlemen out of a fair price for their livestock.”

He added, “In 1936, Congress spent months debating a bill to protect small-town grocers being driven out of business by powerful chain stores who got secret payoffs from their suppliers. ‘What are we trying to get away from these chains?’ asked one of the bill’s supporters. ‘What we are trying to take away from them is secret discounts, secret rebates, and secret advertising allowances. We are trying to take away from them those practices that are unfair.’”

Bedoya said that five times in six decades Congress passed antitrust laws requiring that small, often rural, businesses be treated fairly.

“Yet today, it is axiomatic that antitrust does not protect small business. And that the lodestar of antitrust is not fairness, but efficiency,” he said.

While having huge, national chains offering a vast array of goods and services under one roof might sound “efficient,” Bedoya gave an example showing how it can be decidedly inefficient.

“In many parts of rural America, independent pharmacies are the one place where you can fill your prescriptions, get your shots, and get answers to medical questions, he said, before relating a story he found on the West Virginia insurance commissioner’s website.

“A family walks into a pharmacy,” Bedoya said. “Their child has cancer. The pharmacist has the child’s medicine behind the counter, ready to dispense. But when that pharmacist calls the pharmacy benefit manager, or PBM, for the family’s insurance company, they are denied authorization to give the family that medicine. Instead, they are told that the medicine can only be dispensed by the PBM’s own mail order specialty pharmacy. The family was to go home and wait up to two weeks to receive the medicine for their child in the mail.”

It wasn’t an isolated incident. The three big PBMs — CVS, OptumRx and Express Scripts — all own mail-order pharmacies that dispense “specialty” drugs, such as those for cancer. Such drugs can cost upward of $30,000 a month and despite the obvious self-interest, the PBMs often require that patients get them from their own mail-order pharmacies — even though oncologists complain that inefficiencies inherent in the practice have been harmful to their patients.

In its investigation of PBMs, The Dispatch found two such patients who faced weeks-long delays in getting their cancer medications through the mail. Both are now deceased.

Bedoya said that the three corporations that now own the big PBMs are the products of mergers of what used to be 39 companies.

Indeed, each owns a top-10 insurance company and now CVS and Optum owner UnitedHealth are buying up thousands of physicians’ practices. So increasingly, Americans are getting a prescription from a doctor, filling it at a pharmacy, and having the transaction administered by a PBM, all the while working with the same corporation.

Perhaps making such “vertical integration” more troubling is that list prices of drugs are being driven up by the ever-bigger discounts the PBMs are demanding from manufacturers. And because the discounts aren’t transparent, it’s unclear how much the PBMs are pocketing and how much they’re passing on to the people who ultimately pay for everything.

Not only are vertically integrated PBMs accused of raising  list prices of drugs, Bedoya pointed to another consequence that hardly serves the interests of small, rural businesses that he says antitrust law was designed to protect in the first place.

“Today, rural independent pharmacies are closing one after another after another,” he said. “Right here in Minnesota, from 2003 to 2018, thirty rural zip codes lost their only pharmacy.”

The FTC commissioner went on to describe how he’s spoken to ranchers who, through corporate mergers, have ever fewer companies competing for their business to buy feed, seeds, fertilizer and farm equipment. Meanwhile, having fewer places to sell their products has meant that where they made 40 cents for every dollar spent on them at the grocery, they now make only 16, he said.

In some places, cattle producers have only one meatpacker to “choose” from, Bedoya said, adding that one farmer told him, “‘We have a noose around our necks and we’re standing on an ice cube.’”

The newest FTC commissioner said it’s time for his agency to start enforcing what the antitrust laws actually say.

“If efficiency is so important in antitrust, then why doesn’t that word, ‘efficiency,’ appear anywhere in the antitrust statutes that Congress actually wrote and passed?” he asked.

Meanwhile, those who passed the laws expressly said they wanted to stop practices that were unfair, Bedoya said, adding that fairness is a concept everybody can understand.

“People may not know what is efficient — but they know what’s fair,” he said. “It may be efficient to send a child home to wait two weeks for their cancer medicine. We all know it isn’t fair. It may be efficient to force cattlemen to sell their livestock to just one meatpacker. It may be efficient for Pine Ridge to go without baby formula. We all know that that’s not what fair markets look like.”


This story was republished from the Ohio Capital Journal under a Creative Commons license.

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