Merritt: FTC-DoJ’s Findings ‘Add to Growing Body of Evidence’ That PBMs Are Lowering Prescription Drug Costs for Consumers & Employers

Washington, DC; 07.23.04 — A new analysis released today by the US Federal Trade Commission and the Antitrust Division of the US Department of Justice concludes that the pharmacy benefit management industry is a competitive and diverse marketplace that is driving cost savings and quality improvements for health care consumers and purchasers and suggests that competition â?? not further government regulation â?? is the better avenue to ensuring appropriate PBM disclosure and transparency, the Pharmaceutical Care Management Association (PCMA) said today. PCMA is the national association representing America’s pharmacy benefit managers (PBMs).

“Today’s findings from the Federal Trade Commission and Department of Justice add to the growing body of evidence that the PBM marketplace is competitive and part of the solution to lowering prescription drug costs for health care consumers and purchasers.” said PCMA President Mark Merritt. “For policymakers in Washington and the states, these findings strongly suggest that a competitive marketplace achieves the right kind of PBM ‘transparency’ and is preferable to further government regulation in this area.”

The US Federal Trade Commission’s (FTC) and the Antitrust Division of the US Department of Justice’s (DoJ) findings were released today at the conclusion of an exhaustive two-year long analysis of competition throughout the entire health care industry. The FTC and DoJ examined a number of players in the health care industry, including physicians, hospitals, health insurers, pharmaceutical manufacturers, PBMs, and other industries.

Among the key findings from the FTC/DoJ report:

Cost Savings. The FTC/DoJ report finds that “empirical evidence suggests that consumers with prescription drug insurance administered by a PBM save substantially on their drug costs as compared to cash-paying customers.” Further, the report adds that “to date, empirical evidence suggests that PBMs have saved costs for payers.”
Cost vs. Benefit of ‘Transparency.’ The FTC/DOJ report recommends that “states should consider the potential costs and benefits of regulating pharmacy benefit manager transparency.” The report goes further stating:
“in general, vigorous competition in the marketplace for PBMs is more likely to arrive at an optimal level of transparency than regulation of those terms.”

Competitive PBM Marketplace. The FTC/DoJ also highlights the competitive PBM marketplace, noting that there are an estimated 60 PBMs operating in the US today. The report finds that PBMs operate under a variety of arrangements, including national stand-alone PBMs; health plan PBM subsidiaries; retail pharmacy PBMs; and smaller and regional PBMs.
Higher Costs Associated with Any-Willing-Provider and ‘Freedom of Choice’ Proposals. The FTC/DoJ finds that “empirical evaluations of any willing provider and ‘freedom of choice’ provisions indicate that these policies result in higher health care expenditures.” The report notes that several scholars have suggested these proposals “are actually intended to preempt competition among providers [provider protection], instead of protecting the interest of patients.”
The FTC/DoJ’s conclusions add to the growing body evidence about how the competitive PBM marketplace is driving down the cost of prescription drugs and improving quality for consumers, employers, unions, health plans, state and federal health care programs, including Medicare and Medicaid. Over the past several years, numerous independent government findings and industry-sponsored research have yielded similar results:

US General Accounting Office (GAO). In January 2003, the General Accounting Office examined the value provided by PBMs participating in the federal employees’ health plan. For prescription drugs dispensed through mail-order pharmacies, the average mail-order price was about 27 percent below the average cash-price paid by consumers for a brand name at a retail pharmacy and 53 percent below the average cash-price paid for generic drugs. For drugs dispensed at the retail pharmacy counter, PBMs negotiated discounts of 18 percent below what consumers would pay in cash at the retail pharmacy counter for 14 brand name drugs and 47 percent below what consumers would pay for 4 select generic drugs. *
Congressional Budget Office (CBO). In October 2002, the non-partisan Congressional Budget Office (CBO) estimated that PBMs have the potential to save as much as 30 percent in total drug spending relative to unmanaged purchases of prescription drugs where PBMs can use their full range of price discounts and rebates, utilization control tools, and other tools for encouraging appropriate utilization. **
US Federal Trade Commission (FTC). In February 2004, when examining a proposed merger between two PBMs, the FTC unanimously approved the merger, noting that national, independent PBMs see “significant” and “vigorous” competition from both health plans and retail pharmacy chains offering PBM services. ***
US Supreme Court. In the recent Davila decision, the unanimous US Supreme Court ruling that preserves employer flexibility in employee health-benefit design, the Court’s ruling also validated the tools and techniques PBMs rely upon to keep prescription drugs affordable and accessible for working families and retirees. One key tool validated by the Court lies with a plan’s use of “step therapy,” whereby a physician moves progressively from less costly drug regimens to more expensive therapies. Drug plans’ use of step therapy is a well-established principle throughout the entire medical field and is a common-sense approach that uses scarce health care resources most effectively. ****
PricewaterhouseCoopers (PwC). A July 2004 report conducted by PricewaterhouseCoopers and commissioned by PCMA finds that PBMs save consumers and plan sponsors, on average, 25 percent on the cost of prescription drugs. The PwC report estimates that PBMs will lower the cost of prescription drugs by $1.3 trillion dollars between 2005-2014. For Medicare beneficiaries enrolling in private plans, PwC estimates that PBMs will save beneficiaries $693 billion on the cost of their prescription drugs from 2005-2014. In 2005, these PBM savings translate to $937 per Medicare beneficiary in private plans and $198 for under-65 individuals with private plan coverage. *****
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* US General Accounting Office, “Effects of Using Pharmacy Benefit Managers on Health Plans, Enrollees and Pharmacies,” GAO-03-196, January 2003
** Congressional Budget Office, “Issues in Designing a Prescription Drug Benefit for Medicare.” October 2002.
***Statement of the Federal Trade Commission, File No. 031 0239. February 11, 2004.
**** US Supreme Court, June 21, 2004. Aetna Health v. Davila .
***** PricewaterhouseCoopers, “The Value of Pharmacy Benefit Management and National Cost Impact of Proposed PBM Legislation,” Prepared for the Pharmaceutical Care Management Association. July 2004.

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The Pharmaceutical Care Management Association (PCMA) is the national trade association representing America’s pharmaceutical benefit managers (PBMs). PCMA member companies provide pharmaceutical care management services to more than 200 million Americans.

Contact Information:
Phil Blando
202-207-3614