Congress shouldn’t rely on incomplete FTC PBM study

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Lawmakers are making a last-minute push to regulate the practices of pharmacy benefit managers (PBMs) during the lame duck session. However, it would be a mistake for Congress to rely on the Federal Trade Commission's recent "interim" staff report on PBMs when considering these proposals, according to a new paper published by the Competitive Enterprise Institute.

Several members of Congress held a press conference last week urging their colleagues to take action on PBMs before the end of the 118^th Congress. Senate Finance Chair Ron Wyden (D-OR) said he was prioritizing the inclusion of PBM reform in the year-end funding package. And Sens. Elizabeth Warren (D-MA) and Josh Hawley (R-MO) told the Wall Street Journal this week that they plan to introduce legislation that would force companies that own an insurer or PBM to sell off their pharmacy business.

In case you haven't heard, America's healthcare system is complicated. It includes payers, providers, vendors, manufacturers, and, most importantly, patients. It also includes PBMs, who negotiate drug prices and create formularies of covered drugs to help employers, unions, and insurers manage prescription drug benefits and obtain cost-effective medications. The Federal Trade Commission (FTC) set out to study the role of PBMs in 2022, using its authority under 6(b) of the FTC Act.

Then-Commissioners Noah Phillips and Christine Wilson insisted that the study should be patient focused, one that would look at the effects PBMs have on consumers' out-of-pocket costs for prescription drugs. Unfortunately, as we explain in our paper,

The most glaring omission from the FTC's interim PBM study is an evaluation of how PBMs affect consumer prices. This is concerning, since the inclusion of consumer price effects was essential to garner approval from Commissioners Phillips and Wilson in ultimately authorizing the 6(b) study.

The FTC reviewed millions of documents over the last 2 to 3 years, submitted by the largest PBMs. Armed with a plethora of data, the FTC instead focused on structural descriptions of PBMs and made conclusory statements on the effects PBMs have on independent pharmacies. We explain that

[T]he report focuses on general statements that may or may not be problematic, like market share of the three largest PBMs and their role as "middlemen" in the healthcare system. The report's lack of broadbased empirical data and economic analysis leaves the reader without well-established conclusions concerning PBMs' larger effect on consumers.

In many ways, PBMs' growing prominence in the US healthcare system is a symptom of overregulation, perpetuated by the Affordable Care Act. It's hard to imagine that more regulation will lower costs. The Wall Street Journal reported that Peter Orszag, a former Obama official and ObamaCare architect said "the stand of the antitrust authorities is directly and problematically opposed to the thrust of other policies."

Even so, the FTC did conduct a comprehensive study of PBMs in 2005 and found that PBM owned mail-order pharmacies provided cost savings. The new "interim" report made no effort to engage with the 2005 report or update its findings. Further, Professor Dennis Carlton of the University Chicago conducted a comprehensive study using the same data submitted to the FTC to find that "PBMs were not responsible for the high cost of drugs, nearly all rebates are passed along to plan sponsors, the PBMs studied do not favor brand name drugs over generics, and that PBMs are not driving independent pharmacies to extinction."

Congress is right to be focused on Americans' healthcare costs. But more study is needed. And the FTC's "interim" report on PBMs provides little direction in terms of legislative priorities.