Independent Pharmacy Cooperative Issues Public Comment on FTC Notice

WASHINGTON, Oct. 13 -- Paul Karch, executive vice president and general counsel at the Independent Pharmacy Cooperative, Sun Prairie, Wisconsin, has issued a public comment on the Federal Trade Commission notice entitled "Solicitation for Public Comment". The comment was written on Sept. 30, 2021, and posted on Oct. 4, 2021:

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This letter is in response to the August 3, 2021 U.S. Federal Trade Commission (FTC) Solicitation of Public Comments on Contract Terms that May Harm Competition (FTC-2021-0036-0022F).

The Independent Pharmacy Cooperative (IPC) represents the interests of pharmacist owners, managers, and employees of more than 2600 independent community pharmacies located in all 50 States and the District of Columbia. Our members are community based, small business owners who are among America's most accessible health care providers, often serving as the only pharmacy or the only medical provider of any kind, in many rural and urban medically underserved areas in addition to providing critically important long-term care pharmacy services. As a buying coop and trade organization, IPC is positioned to identify and explain the anticompetitive contract terms imposed on independent community pharmacies by vertically integrated Fortune 100 health care companies. The comments below by IPC on behalf of our stores aim to assist the FTC in its fact-finding mission of gathering comments from the public on "contract terms that may be harmful to fair competition."

IPC applauds the Commission's new policy direction to examine how current business contracting practices harm the public, consumers, the marketplace, and other business - especially small business. This is especially welcoming to see the FTC taking a fresh perspective to understand how in the prescription drug benefit marketplace, the business practices of Pharmacy Benefit Managers (PBM) have proven to be detrimental to the interests of consumers, including business consumers of prescription drug benefit coverage.

There are a number of items in PBM pharmacy network contracts with independent pharmacies that harm fair and efficient economic competition and exemplify what the FTC described in this Public Comment Solicitations request notice as practices that "create asymmetries that disadvantage small businesses, workers and/or consumers". The harmful nature of these PBM pharmacy network contracts stem most fundamentally from their "take it or leave" approach which exemplifies what the FTC describes in its Public Comment solicitation notices as "one-sided contract terms that may exacerbate or lock in power disparities". Essentially, since there is no federal regulation of PBMs' conduct in the commercial marketplace when contracting with: 1) network pharmacies; 2) health care insurance carriers; and 3) health care plan sponsors that offer prescription drug benefit plans to their employees, the PBMs set nonnegotiable contract terms that only serve their own financial interests while not providing any meaningful protections for these other marketplace stakeholders' interests.

Compounding this problem, IPC members and their patients have been directly harmed by the wave of consolidation that is transforming the U.S. health care system. The resulting vertical integration of PBMS with insurance plans has resulted in substantial actual harm to competition with retail and mail order pharmacies.

PBMs' handle pharmacy services for the insurance plans. For over 30 years, PBMs have managed prescription drug benefits but their roles have evolved beyond a management function in ways that have harmed competition. Originally intended to ease prescription claims processing, PBMs have evolved into mammoth entities controlling the flow of data and dollars between prescription drug channels - as prescription drug cost increases continue to outpace inflation./1

PBMs negotiate with pharmaceutical companies for rebates in exchange for preferred formulary placement. They also establish and manage pharmacy prescription reimbursement through contractual pharmacy network arrangements with pharmacies. The United States is the only developed country in the world that inserts an intermediary into the prescription drug coverage chain. This fact along with the PBMs operating without any national regulatory requirements allow the PBMs to act as exclusionary entities that monopolize the various retail and mail-order pharmacy markets to the detriment of consumers, employer and other medical and drug plan sponsors and small, community based, independent owned pharmacies. These vertically integrated major health plans with PBMs and their retail pharmacy operations (primarily mail order and specialty pharmacies) wield multi-market power in ways that allows PBMs and health insurance plans to set payment rates for themselves as providers. Each entity has the ability and the incentive to engage in anticompetitive, exclusionary contracting practices against competing pharmacies,/2 especially independently owned, community small business health care enterprises.

The result is that IPC's members and other independent pharmacies are forced out of the market, leaving patient populations without access to prescription medications except through PBM and health insurance company-owned mail order. Often, after predatorily thwarting independently owned pharmacies via low and below-cost reimbursement, the health plan-PBM-retail pharmacy conglomerate will offer to buy out and shutter the harmed pharmacy,/3 adding to their portfolio of corporate owned pharmacies, which further consolidates the health care marketplace at the expense of economic competition and consumer choice.

IPC offers the following examples of how PBM contracting practices with network pharmacy providers, especially independent pharmacies, harm efficient and fair economic competition and distort the marketplace to the advantage of only the PBM and its affiliated entities:

PBM Favored, One-Sided "Take It or Leave It" Contracts"

PBMs unilaterally impose one sided, "take-it-or-leave-it" contracts on pharmacies because pharmacies must accept contracts of adhesion to serve their patients. The three largest PBMs control 77 percent of the health plan pharmacy benefit market./4

A PBM, as part of a vertically integrated entity with a health plan and mail-order/specialty/retail pharmacies, has market power in the vast majority of markets in which community pharmacies serve patients./5

And unlike chain drug stores that sometimes have sufficient economic leverage to actually negotiate contracts for their many pharmacy locations, community based independent pharmacies are unable to negotiate contract terms and are forced to sign these "take-it or-leave-it" contracts in order to have access to their patients, who are usually health plan subscribers.

Without a contract to be "in-network," a pharmacy will be foreclosed from providing pharmacy services to that PBM's health plan's patients, which usually makes up a large percentage of the pharmacy's patients. That's because pharmacy benefit plans do not allow for "out of network" pharmacy providers since such prescription claims are not eligible for drug manufacturer rebates. In many markets, one health plan is dominant. In other markets, there are just two health plans. If an independent pharmacy rejects the terms offered by the market-dominant health plan/PBM, it will lose access to a significant percentage of its patient base because when an independent pharmacy rejects a PBM contract for one plan sponsor contract, the PBM will exclude that pharmacy from all its other prescription drug benefit plans for all of its other plan sponsors. Consequently, pharmacy patients lose their choice of where to fill their prescriptions along with the benefits of personal service from a small, independent pharmacy and the innovation that comes from competition.

The PBM contracts with network pharmacies contain overly broad confidentiality and audit language, non-disparagement clauses, data ownership conveyance, and vague requirements surrounding participation and information sharing related to certain drug pricing programs such as 340B. The binding terms are often embedded in lengthy provider manuals and ill-defined enforcement protocols and compliance criteria. The following are specific anti-competitive "take it or leave it" PBM pharmacy provider network contracts provisions that the FTC needs to address that harm competition in the prescription drug benefit market:

PBM Determined Pharmacy Reimbursement Rates

These adhesion contracts contain language that minimizes the ability of the pharmacy to advocate for cost-based reimbursement terms or to provide better service to patients. Pharmacies are often not provided details on the methodology for how they will be paid and have performance measures solely defined by the PBMs that can retroactively "claw back" payments from the pharmacy. Since PBMs set the prices paid to pharmacies and often control the reimbursements paid by plan sponsor, under many PBM contracts, the PBM reimburses a pharmacy at a price below the cost of goods and service for filling a prescription while the claims cost charged, and sometimes reported, by the PBM to the plan sponsor is higher than the reimbursement received by the pharmacy for the prescription (this practice is referred to as "spread pricing").

Unilateral Contract Changes by the PBM

PBMs unilaterally change substantial terms of their contracts with pharmacies, often through changes to their provider manuals. While pharmacies are held responsible for the changed terms, PBMs are not obligated to notify the pharmacies of the updates or even to provide clarification for compliance purposes. For example, one PBM included the following language in its contract:

Unilateral: It shall be the Provider's responsibility to check for any updates to the Provider Manual to ensure that Provider has the most recent version of such Provider Manual; . . . The Provider Manual may be revised from time to time by [PBM] in its sole discretion."

Unilateral Formulary Changes

PBMs will often make changes to covered drugs under their plans (formularies) that are based on which drug manufacturers provide them with the largest rebates, which rebate are often not passed along to plan sponsors and are seldom passed through to the purchasing patient. These rebate driven formulary decisions often are not either the most effective for care for patients or the most cost-effective drug therapies. These profit driven decisions by PBMs have led to unnecessary disruption in a pharmacy patients' continuity of care on long term maintenance therapy medications and higher net cost (after rebates) drug charges to plan sponsors. And while these changes may be conveyed to the plan sponsor, a patient or prescriber, that information is not conveyed to network pharmacies prior to its effective date so that the pharmacy can work with the patient and prescriber to find another formulary covered drug.

Recoupment Provisions

The PBM contract terms subject independent pharmacies to "audits" of their business practices. While the pretext for these post prescription dispensing audits is to detect and address "waste, fraud and abuse", in reality the practice is used by a PBM (that likely owns or is affiliated with a competing mail or retail pharmacy) to punish direct competitors with time-consuming and costly fishing expeditions. In these cases, the PBM is rarely claiming that a pharmacy submitted a fraudulent prescription claim or even submitting a prescription claim that was properly prescribed. These audits target non-therapeutic, technical, and clerical issues that are contract "paperwork" violations.

For example, one particular provider manual provides for "random basis" audits where "advance notice may not be provided at [PBM's] discretion." This allows a PBM to tie up a competitor with burdensome document and information requests under the threat of termination of the pharmacy's agreement, and keep it from effectively servicing its customers, potentially causing access problems for patients. In addition to the cost of complying with these audits, independent pharmacies are often saddled with unfounded allegations of substantially underpaying certain fees to PBMs, necessitating a lengthy and costly appeals process. And the independent pharmacy ends up incurring significant legal costs to challenge these audits. Even if the pharmacy survives the assault of overreaching audits, it finds itself economically exhausted from exonerating itself and constantly having to dig itself out of the PBM-created hole, or worse, it is the recipient of a buyout letter from the same PBM that put it in that hole./6

And when there is an agreed claim audit recoupment, the PBM recoups not just the pharmacy professional fee, but also the drug ingredient cost for a prescription previously dispensed to a patient. Furthermore, PBM contracts do not provide the network pharmacy with any guarantees that the recouped payment for a dispensed medication to a patient, including the co-pay or deductible, is remitted back to the plan sponsor and/or patient. Basically, the pharmacy loses money on the dispensed prescription that was subject to the audit recoupment and the contracting process provides no consumer protection to plan sponsors or patients that the recovered funds are used to defray the cost of a prescription drug benefit plan, including patient cost-sharing.

"Gag Clauses" on Network Pharmacies Participation in Policy Arena

While federal law now bans PBM's pharmacy network contract from placing a "gag clause" on a pharmacy's ability to inform a patient of their cheapest prescription drug options, PBM pharmacy network contracts have many provisions that do have the chilling effect of "gagging" pharmacy owners and their pharmacists from participating in the federal and state legislative, regulatory and policy making process as it relates to health care coverage.

What creates this pharmacy "gag clause" from participating in the policy making process is broad confidentiality language in PBM contracts that prohibits pharmacists from discussing their own drug costs, services, business practices, or the undefined term "other information" contained in the contract or provider manuals with third parties, including government entities. Many PBM contracts require network pharmacies to obtain prior approval from the PBM before the pharmacy communicates with any government entity on prescription benefit issues. Consider this drug pricing example in some of the largest PBM's pharmacy network contracts and provider manuals:

"Confidentiality: Any information or data obtained from, or provided by, [PBM] or any Benefit Sponsor to the Participating Pharmacy is confidential. This includes, but is not limited to, products, programs, services, business practices, procedures, MAC lists or other information acquired from the contents of the Pharmacy Participation Agreement, Provider Manual and related Exhibits or other [PBM] documents."

While this provision, on its face, does not appear particularly outrageous, the limitation on maximum allowable cost lists allows PBMs to use a lower MAC price to reimburse pharmacies while charging plan sponsors higher MAC prices, thereby increasing the "spread" retained by the PBMs to the detriment of plan sponsors and consumers. Ohio and Kentucky, for example, found spread pricing cost $225 million/7 and $123.5 million,/8 respectively, to their Medicaid managed care drug plans in a one-year period. Pharmacies providing claims information to government entities investigating these "spread" practices could be viewed as violating this confidentiality term.

And if a pharmacy were to try to educate plan sponsors or the public on how PBM contracting practices harm effective competition in prescription benefits, PBMs put the following "gag clauses" on a pharmacy providing information to the media:

"Contacting Sponsors or Media: Provider hereby agrees (and shall cause its affiliates, employees, independent contractors, shareholders, members, officers, directors and agents to agree) that it shall not engage in any conduct or communications, including, but not limited to, contacting any media or any Sponsor and/or Sponsor's Members or other party without the prior consent of [PBM]."

These broad provisions assist PBMs in maintaining opaque and unfair practices and effectively stifle any ability of individual pharmacies to advocate for fair and equitable pricing and reimbursement. Violation of any of these provisions may lead the PBM to terminate the contract with the pharmacy and remove the pharmacy from the PBM's networks, which it can do at its own discretion and with only minimal notice to pharmacy providers within the plan. This "pharmacy gag clause" leads to many pharmacies to neither provide public officials with needed PBM contract information to make informed public policy, nor to submit such information, as in this proceeding, anonymously.

The FTC needs to take action to eliminate or more narrowly limit these type of "confidentiality" terms and conditions in PBM pharmacy network contracts in order to allow pharmacies to fully participate in the public policy making process without fear of retaliation or penalty from the PBM in the form of increased audits, payment claw backs, reimbursement rate reductions or network contract suspension and/or termination.

PBMs Leverage Market Position to force Anti-Competitive Contract Provisions

With the largest PBMs now being a part of vertically integrated health care insurance companies, they have financial incentives to foreclose pharmacy competitors and steer patients to their affiliated retail or mail-order pharmacies. "PBM-affiliated pharmacies" are both "brick and mortar" and mail-order pharmacies that the PBM owns outright or has an economic interest in steering patients toward. Below are examples of how PBM's affiliate relationships create anti-competitive practices to steer prescription benefit plan covered patients to their own entities for prescriptions:

Conflicts of Interest in PBM Network Contracting

PBMs often limit which types of prescriptions non-affiliated pharmacies in their network can fill. The PBMs regularly design plans that require, coerce, or incentivize patients to use a PBM-affiliated pharmacy option.

Here are some of the PBM pharmacy network contractual tactics that PBMs use to steer patients to their own pharmacy entities that are conflicts of interest for them as pharmacy benefit managers and that harm competition to the detriment of patients, plan sponsors and other pharmacy providers:

Non-Disclosure of Affiliated Owned Mail Order Pharmacies

PBMs often promote the use of "mail order" and "specialty" pharmacies to plan sponsors and patients by promising lower drug claim costs and low or no patient out of pocket costs. What the PBM contracts never disclose is the PBM's ownership interest in the mail order or specialty pharmacy that is either "preferred" or subject to mandatory use for long term maintenance drug prescriptions. This ownership conflict of interest has not proven to reduce prescription drug costs and has led to mail order prescription drug waste, diversion, and higher drug coverage costs. That is because there are no existing regulatory rules which governs these instances of self-dealing contract provisions relating to PBM-affiliated pharmacies. Specifically, while independent pharmacies in a PBM network are required to comply with complex and vague compliance requirements, PBM-affiliated pharmacies are excluded from those same compliance costs. For example, PBM contracts contain provisions that prohibit, under threat of expulsion from the network, any in-network pharmacy from employing or affiliating with any person that was affiliated with a pharmacy that was audited. Notably, PBMs do not enforce this "guilt by association" provision on PBM-affiliated pharmacies. It's already been established that PBMs offer and pay higher reimbursement rates to their own pharmacies./9

Data Mining Abuses

PBM contracts often require the pharmacy, or the member pharmacies, in the case of a Pharmacy Services Administration Organization,/10 to relinquish ownership to all data and information sent from the pharmacy to the PBM. The data and information transmitted represent essentially the entire record of the dispensing event and claim(s) for coverage and reimbursement. Pharmacies that are members of PSAOs may be completely unaware that such a provision exists in the contract with the PBMs because PBMs often restrict the PSAO from allowing the member pharmacies to have copies of such contracts. Furthermore, health plans and PBMs place restrictions on use of data by network pharmacies through pharmacy network agreements and manuals provisions which are subject to unilateral revision at any time by the health plan or PBM.

The conveyance of data ownership is important because it not only allows access to a pharmacy's competitively sensitive information, it all but guarantees the PBM will utilize the information to manipulate reimbursements and fees and steer patients to PBM-affiliated pharmacies. The use of this data, without the patient's consent or knowledge, by the PBM to solicit patients to move their prescription to, or mandate certain prescriptions be filled at, pharmacies they own does not benefit the patient. And the PBMs are under no requirement to disclose these ownership interests to patients or plan sponsors. While this type of "data mining" has not yet been determined to violate Health Insurance Portability and Accountability Act (HIPAA) privacy rules, the FTC should look to create PBM contract requirements that should only allow such solicitations with the express written consent of the patient.

Restricted/Preferred and "Specialty" Pharmacy Networks

A pharmacy agrees to receive lower patient copays in exchange for being in a PBM's "Preferred Pharmacy Network". PBMs, however, can and do remove pharmacies from preferred networks without cause or prior notice - despite the existence of a contractual relationship. These changes detrimentally impact patients who are forced to seek out a different preferred pharmacy - often the PBM's affiliated pharmacy - or pay higher copays for their prescriptions at their current pharmacy. PBMs leverage their "gatekeeper" position in favor of their affiliated downstream pharmacies. Necessarily, this action adversely affects competition - it reduces patient choice, stifles innovation, and may lead to increased prices charged to plan sponsors.

These plans force community pharmacists when presented with a prescription for a PBM-defined "specialty"/11 drug to direct the patient to a competing PBM-affiliated pharmacy - endangering the prospect of that patient returning to the community pharmacy in the future for any other prescriptions. So for the patient to use the patient's prescription drug benefit, the patient must use the pharmacy dictated to the patient by the PBM. Furthermore, if the original pharmacy does not redirect the patient to its competitor, it risks breaching its contract terms, and among other penalties, expulsion, without recourse, from the plan's network.

Another conflict of interest tactic that PBMs use to deter or limit non-affiliated pharmacies from these Preferred Network and/or Specialty Pharmacy contracts is requiring that they obtain special "Credentialling" that is a separate process beyond state licensure of their pharmacy location. This "Credentialling" requirement is costly, time consuming and is controlled by the PBM industry but does not offer any measurable patient benefit beyond the practice regulations on pharmacists and pharmacies by the 50 state, DC, Puerto Rico, and territories Boards of Pharmacy.

Lack of PBM Contract Accountability to Plan Sponsors

While our comments focus on the anti-competitive impact of PBM contract terms on network pharmacy providers and their patients, there are many other aspects of PBM contracting with plan sponsors that the FTC must investigate that have harmed consumers of prescription drugs under benefit plans. IPC would direct the FTC to thoroughly review the record of the U.S. Labor Department's ERISA Advisory Council/12 when it last examined the need for greater regulatory accountability of PBMs to contracted prescription benefit plan sponsors as it relates to conflicts of interests, disclosure, rebate accounting and plan audit rights. The ERISA Advisory Panel did recommend that regulations be developed to hold PBM's accountable to plan sponsors who contract for their services. IPC recommends that the FTC look to implement these recommendations as a part of this investigation.

Conclusion

IPC greatly appreciates the FTC's diligent work in examining PBM contracting practices and we hope our comments, along with other comments submitted from the retail pharmacy community, will spur the Commission to use its subpoena power to investigate anticompetitive PBM contracting, related patient steering and other conflicts of interest practices, undertake rulemaking to address these activities, and initiate enforcement actions where appropriate.

IPC concurs with the following recommendation of the National Community Pharmacists Association (NCPA) in its written comments for the FTC to adopt rules to prevent PBM anticompetitive contracting practices:

"It shall be an unfair method of competition for any PBM to:

* require a pharmacy not otherwise affiliated with the PBM to fill a prescription under terms not equivalent to the terms under which a PBM-affiliated pharmacy fills a prescription.

* engage in any act or practice that a reasonable person would view as favoring an affiliated pharmacy over a non-affiliated pharmacy, whether an actual effect can be shown."

In addition to asking the FTC to adopt recommendations of the U.S Department of Labor ERISA Advisory Council on PBM contract accountability requirements to plan sponsors, IPC would request that the FTC investigate the anticompetitive impact of CVS Health's ownership of the PBMs Caremark and Health Insurance carrier Aetna. Since the time of these merger approvals, in light of this FTC-initiated fact finding process, the Commission needs to determine if this vertically integrated company now poses anti-competitive threats given its history of steering patients to its own facilities and setting their reimbursement rates at higher amounts than their competitor unaffiliated pharmacies. The FTC would be warranted to take antitrust action to force CVS to divest its ownership of a PBM and a health insurance plan that drives patients to company-owned mail order and brick and mortar pharmacies at the expense of patient choice and higher health care costs.

IPC greatly appreciates the opportunity to share our views with the FTC and is prepared to work with the FTC and other stakeholders to resolve these issues in a manner which promotes more efficient and effective competition in the prescription drug benefit marketplace for all consumers and providers.

If you have any questions or need any additional information, please feel free to contact me by either email ([email protected]) or by phone (608-628-7311).

Respectfully submitted,

Paul Karch, Esq.

Executive Vice President and General Counsel

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Footnotes:

1/ - https://www.aarp.org/politics-society/advocacy/info-2021/prescription-price-increase-report.html

2/ - There are only four national health insurers. Their affiliated PBMs are the four largest PBMs.

3/ - https://ncpa.org/sites/default/files/2021-05/cvs-purchase-offer-letter.pdf, (Letter from CVS to redacted community pharmacist owner)

4/ - Fein, Adam. "The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation." Drug Channels. April 6, 2021. https://www.drugchannels.net/2021/04/the-top-pharmacy-benefit-managers-pbms.html

5/ - https://www.ama-assn.org/system/files/2020-10/competition-health-insurance-us-markets.pdf , see e.g., Table 1 (in 92% of markets, at least one insurer with PBM has 30% market share; in 50% of the MSAs, one insurer has at least 50% market share).

6/ - https://www.dispatch.com/news/20180415/three-cvs-actions-raise-concerns-for-some-pharmacies-consumers

7/ - https://ohioauditor.gov/news/pressreleases/Details/5042

8/ - https://kentucky.gov/Pages/Activity-stream.aspx?n=AttorneyGeneral&prId=739 (9 other states that have prescription benefits carved into their Medicaid Managed Care programs have found similar results in their studies).

9/ - Arkansas Department of Insurance Limited Scope Examination of Pharmacy Benefit Manager (July 27.2020), https://ncpa.org/sites/default/files/2020-10/ark-doi-pbm-mmc-examination.pdf

10/ - PSAOs manage health plan and PBM relationships on behalf of pharmacies that choose to engage their services. Among other things, PSAOs contract on behalf of the pharmacies with the PBMs and field questions about claims, reimbursement, and audits. Although PBM political statements sometimes claim that PSAOs are very large organizations with more market power than PBMs, PSAOs, in fact, have very little contracting leverage.

11/ - There is no formal FDA definition of a "specialty" drug. Rather the FDA may as a part of a drug approval (ANDA) limit distribution of certain drugs that require special handling based on FDA approved Risk Evaluation and Mitigation Strategies (REMS). And in their 2019 Medicare Program Contract Year regulations, CMS declined to adopt a definition of "specialty pharmacy" in the Medicare Part D regulations because of Part D regulations, CMS declined to develop a definition of "specialty pharmacy" stating that trying to develop such a definitions would "prematurely and inappropriately interfere with the marketplace." In the same notice, CMS did state that "Part D plan sponsors must offer specialty pharmacies standard terms and conditions that are reasonable and relevant to the specialty pharmacy's pharmacy practice business or service delivery model." 83 FR 16596 (2019) Only other references CMS has ever made in documents to identify "specialty drug", has solely been on price charged to the Medicare Part D program.

12/ https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2014-pbm-compensationand-fee-disclosure.pdf

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The notice can be viewed at: https://www.regulations.gov/document/FTC-2021-0036-0022

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