A pharmacist retrieves a a medication. (Joe Raedle/Getty Images.)

The owner of one of the three largest pharmacy middlemen in the United States last week filed suit to quash an attempt by the Federal Trade Commission to investigate industry practices. However, the suit relies on research that the health conglomerate helped pay for and was conducted by an economist who’s become wealthy arguing in support of huge mergers.

The FTC in July issued a scathing interim report saying that Cigna/Express Scripts, CVS Health and UnitedHealth Group appeared to be using their pharmacy benefit managers, or PBMs, to inflate the price of drugs and consequently make patients sicker. In response, Cigna/Express Scripts sued, declaring that the FTC’s findings were “false and defamatory.”

The company is demanding that the U.S. District Court for Eastern Missouri declare that the FTC’s interim report “is not in the public interest,” that the report be vacated, and it demands “FTC Chair Lina M. Khan’s recusal from all Commission actions pertaining to Express Scripts.”

Meanwhile, at the end of last week the FTC ?announced it is taking legal action against the three pharmacy benefit managers accusing them of inflating insulin prices and steering patients toward higher-cost insulin products to increase their profits. The complaint which is not yet public seeks to prohibit the PBMs from favoring medicines because they make them more money.

In its suit, Cigna/Express Scripts — the 16th-largest company by revenue in the United States — argued that it and the other big PBMs actually bring down drug costs. As evidence, it pointed to research by an economist who has been paid more than an estimated $100 million in a career of arguing in favor of mega-mergers.

Bill would save Kentucky consumers money, help independent pharmacies survive, says sponsor

The PBMs owned by the health care giants — CVS Caremark, Express Scripts and OptumRx — control about 80% of their marketplace. They represent insurers in pharmacy transactions by determining which drugs are covered. They create pharmacy networks. And they use a secretive system to determine how much to reimburse pharmacies for the drugs they dispense.

For years their critics have accused them of having an inherent conflict of interest.

Each PBM owns a mail-order pharmacy and CVS Caremark’s parent owns the largest brick-and-mortar retailer. So they’re using secret price lists to decide how much to reimburse their own pharmacies for drugs — and those of their competitors.

As an example of the apparent arbitrariness of the PBMs’ pricing, a recent analysis of Medicare data showed that plans owned by CVS paid 501 different prices for the same drug.

Also controversial are the big PBMs’ practices concerning brand-name drugs, which tend to be under patent and considerably more expensive than generics. Because the middlemen control access to so many patients, makers of such drugs have powerful incentives to pay big rebates to PBMs in exchange for getting their products of lists of covered drugs, or formularies, and for their drugs to have the lowest copayments.

Reprieve for Kentucky’s independent pharmacies is saving Medicaid millions

Academic research has concluded that increases in often-secretive rebates correlate with even bigger increases in the list prices of drugs. There are also concerns that because the conglomerates increasingly own middlemen, pharmacies, health insurers and providers such as doctors’ offices, they’re using such “vertical integration” to unfairly advantage their various business units at the expense of their competitors.

The FTC’s interim report that is the object of the Express Scripts lawsuit said it appears that the health conglomerates are using both their size and their breadth to harm consumers.

In its suit, Express Scripts claimed that it and the other large PBM’s were actually helping consumers by using their heft to squeeze discounts out of drugmakers. They have “saved plan sponsors and their members tens of billions of dollars in drug costs over the past decade alone,” the suit asserts.

As evidence, it points to a 17-page report titled “An Economic Analysis of Criticisms Levied against Pharmacy Benefit Managers.”

The report disputes that rebates and other PBM practices are raising drug costs as critics say. Tellingly, though, it says the research is funded by the very people the FTC is investigating — Cigna/Express Scripts, United Group/OptumRx, and CVS/Caremark.

And it was done by an outfit, Compass Lexecon, that pays huge dollars to academics who have repeatedly written papers in favor of mega-mergers, a ProPublica investigation concluded in 2016.

In arguing that such mergers create “efficiencies” that benefit consumers, the authors have a conflict of interest, the investigation shows. The academics “reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers,” the investigation said. “But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose.”

In the case of the study cited in the lawsuit filed against the FTC, the author was University of Chicago economist Dennis W. Carlton. The ProPublica investigation uncovered evidence that he charged at least $1,350 an hour for such work, and estimated that he’d earned more than $100 million in his career of supporting mergers. And that was as of eight years ago.

Meanwhile, the poor and disabled are finding it more difficult to find a pharmacy to go to.

“Amidst increasing vertical integration and concentration, these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies,” an executive summary of the FTC report Express Scripts is suing to quash said.

Independent and small-chain pharmacies have been closing for years, with many citing the big PBMs’ practices as the reason. That created fears that pharmacy deserts could multiply, making it hard or impossible for people without transportation to see a medical professional and discuss their med and chronic conditions such as diabetes or high blood pressure.

Those fears were amplified with this year’s announcement that Rite Aid and Walgreens are planning to close thousands of pharmacies — including hundreds in Ohio and Michigan. Dave Burke, executive director of the Ohio Pharmacists Association, said the announcement of the Walgreens closures especially made him concerned that PBMs’ practices are making the business of pharmacy untenable.

This story is republished from the Ohio Capital Journal, a sister publication to the Kentucky Lantern and part of the nonprofit States Newsroom network.

Each of the three largest pharmacy benefits managers — CVS Caremark, Express Scripts and OptumRx — is part of a much-larger corporation that also owns a top-10 health insurer. They also own pharmacies, doctors offices and other links in the health chain, prompting the FTC to say they’re “vertically integrated.” (Photo by Lynne Terry, Oregon Capital Chronicle)

The federal trade watchdog has released an interim report Tuesday saying that sprawling health care conglomerates are driving out competition in the pharmacy sector and appear to be increasing prices in the process.

The interim report comes after the Federal Trade Commission in 2022 announced that it was undertaking a sweeping investigation of pharmacy middlemen known as pharmacy benefit managers or PBMs.

Bill would save Kentucky consumers money, help independent pharmacies survive, says sponsor

Each of the three largest PBMs — CVS Caremark, Express Scripts and OptumRx — is part of a much-larger corporation that also owns a top-10 health insurer. They also own pharmacies, doctors offices and other links in the health chain, prompting the FTC to say they’re “vertically integrated.”

The corporations’ pharmacy benefit managers act as insurers’ representatives in pharmacy transactions. They decide which drugs are covered, they create pharmacy networks, and through an opaque system, they decide how much to reimburse pharmacies for the drugs they dispense.

The three biggest PBMs together are handling nearly 80% of prescription-drug transactions on behalf of insured Americans, the FTC report said. The largest six PBMs manage nearly 95% of all such prescriptions in the United States, it said.

“Amidst increasing vertical integration and concentration, these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies,” an executive summary of the report said.

The summary adds that the big PBMs “wield enormous power and influence over patients’ access to drugs and the prices they pay. This can have dire consequences for Americans, with nearly three in ten surveyed Americans reporting rationing or even skipping doses of their prescribed medicines due to high costs.”

For its part, and industry group representing PBMs said the businesses “have a proven track record of reducing prescription drug costs” and that they “recognize the vital role pharmacies play in creating access to prescription drugs for patients.”

JC Scott, president of the industry group,?the Pharmaceutical Care Management Association, said the FTC had treated the PBM industry unfairly.

“Throughout this process, FTC leadership has shown that they have pre-determined conclusions that they want to advance irrespective of the facts or the data, and this report demonstrates an intention to follow through on their agenda regardless of the evidence,” Scott said in a statement.

But many independent and small-chain pharmacies dispute that PBMs have their interests at heart.

Because they control access to so many patients, most pharmacies — especially small operations — feel they have little choice about signing the contracts the big PBMs offer them. For years, they’ve been complaining of declining reimbursements and seemingly arbitrary clawbacks from the huge PBMs. Many have been fleeing the business, saying they’re unable to cover their expenses.

Late last month, for example, news broke that Rite Aid would close hundreds of stores in Ohio and Michigan, with many more likely to close in the other 14 states where the bankrupt chain operates. The company tends to operate in smaller communities and the FTC says pharmacy closures in such communities are particularly harmful to patients.

“PBMs also exert substantial influence over independent pharmacies, who struggle to navigate contractual terms imposed by PBMs that they find confusing, unfair, arbitrary, and harmful to their businesses,” the agency said in a statement accompanying the interim report. “Between 2013 and 2022, about ten percent of independent retail pharmacies in rural America closed. Closures of local pharmacies affect not only small business owners and their employees, but also their patients. In some rural and medically underserved areas, local community pharmacies are the main healthcare option for Americans, who depend on them to get a flu shot, an EpiPen, or other lifesaving medicine.”

CVS operates the largest retail chain, so when its PBM decides how much to reimburse pharmacies for drugs, it’s using what the FTC called an “extraordinarily opaque” system to pay its own pharmacies and its competitors for the drugs they dispense.

Similarly, all three of the biggest PBMs operate mail-order pharmacies for expensive “specialty” drugs such as cancer medication. And they often encourage — if not require — patients to get their medicine from them. That has resulted in PBM-affiliated specialty pharmacies controlling 70% of sales in that class of drugs, the FTC report said.

Using mail-order for complex, quickly changing cancer drug regimens has led to horror stories among patients forced to get their drugs that way. Meanwhile, the FTC report uncovered evidence that in at least some instances, PBMs are paying their own companies’ pharmacies more for drugs in those transactions than they do their competitors.

“Our analyses also highlight examples of affiliated pharmacies receiving significantly higher reimbursement rates than those paid to unaffiliated pharmacies for two case study drugs,” it said. “These practices have allowed pharmacies affiliated with the three largest PBMs to retain levels of dispensing revenue well above estimated drug acquisition costs, resulting in nearly $1.6 billion of additional revenue on just two cancer drugs in under three years.”

Such practices have already prompted Ohio Attorney General Dave Yost to sue Express Scripts under the state’s antitrust law, the Valentine Act.

PCMA, the industry group, accused the FTC of using an unrepresentative sample in its analysis.

“Today’s interim FTC report falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market,” Scott, the group’s president said. “Members of the commission themselves disagree with the content of the report and the decision to release it. This report is based on anecdotes and comments from anonymous sources and self-interested parties, and supported only by two cherry-picked case studies that are implied to be representative of the entire market. The report completely overlooks the volumes of data that demonstrate the value that PBMs provide to America’s health care system by reducing prescription drug costs and increasing access to medications.”

The FTC report also slammed arrangements under which the big PBM’s negotiate huge rebates and other discounts from drugmakers.

Because PBMs control access to so many patients, they have great leverage when they negotiate rebates and other discounts from makers of patented or “branded” drugs. The middlemen control the “formulary,” or list of covered drugs, and manufacturers have to cough up big if they want their products to be on it.

The system of granting huge, non-transparent discounts has already been shown to increase the “list” price of drugs. That’s the amount you would pay if you didn’t have insurance — and often the price on which your copayment or deductible is based.

The FTC said it came across another way the rebate system appears to be costing patients — by locking them out of cheaper generics that would work just as well.

“While this interim report principally focuses on the relationship between PBMs and pharmacies, we share evidence that PBMs and brand pharmaceutical manufacturers sometimes enter into agreements to exclude generic drugs and biosimilars from certain formularies in exchange for higher rebates from the manufacturer,” the report said. “These exclusionary rebates may cut off patient access to lower-cost medicines and warrant further scrutiny by the Commission, policymakers and industry stakeholders.”

FTC Chairwoman Lina Khan in March said that some of the PBMs weren’t cooperating with the investigation. Those problems apparently persist.

“The report notes that several of the PBMs that were issued orders have not been forthcoming and timely in their responses, and they still have not completed their required submissions, which has hindered the Commission’s ability to perform its statutory mission,” the agency said in a statement. “FTC staff have demanded that the companies finalize their productions required by the 6(b) orders promptly. If, however, any of the companies fail to fully comply with the 6(b) orders or engage in further delay tactics, the FTC can take them to district court to compel compliance.”

This story is republished from the Ohio Capital Journal, a sister publication to the Kentucky Lantern and part of the nonprofit States Newsroom network.

The Kroger Co. corporate headquarters is seen in downtown Cincinnati. (Photo by Scott Olson/Getty Images)

Looking for someone to blame for increased costs in the grocery aisle? You might not need to look any further than three retail giants, the Federal Trade Commission said in a recent report.

The agency looked at supply chain disruptions caused by the coronavirus pandemic and determined that the three largest food retailers — Kroger, Walmart and Amazon — “accelerated and distorted the negative effects associated with supply chain disruption,” the agency said in a statement. It added that “consumers felt the negative effects of supply chain disruptions in the form of skyrocketing prices for groceries and product shortages for essentials, like toilet paper.”

Those prices, the report said, remain high well after most supply-chain disruptions have been resolved.

“As the pandemic illustrated, a major shock to the supply chain can have cascading effects on consumers, including the prices they pay for groceries,” said FTC Chair Lina M. Khan said in a statement. “The FTC’s report examining U.S. grocery supply chains finds that dominant firms used this moment to come out ahead at the expense of their competitors and the communities they serve.”

When the worst pandemic in a century hit in 2020, commerce suffered huge disruptions as policymakers around the world tried to slow the spread of the coronavirus by keeping people at home — and apart from each other. It stands to reason that the price of groceries went up as transportation became more difficult and some items much harder to get.

But the FTC report says the big-three retailers and suppliers made things worse in several ways:

Large retailers used the threat of fines and fees to pressure upstream suppliers to allocate scarce items to them instead of smaller competitors.As retailers realized that having a small supplier base made them vulnerable, they worked to diversify. However, some of the biggest — such as Walmart and Kroger — are buying up some suppliers. That also could disadvantage smaller retailers that don’t have the resources to follow suit, the FTC report said.Manufacturers of scarce items reduced promotional spending, thus reducing smaller retailers’ ability to offer items at temporary discounts — a method they use to compete with the “everyday low price” strategy used by retailers big enough to negotiate low wholesale prices with manufacturers. The latter prices were less affected by pandemic-related disruptions than promotional spending was, the FTC report said.

Thankfully, the worst of the pandemic is past, but grocery prices remain stubbornly high, having jumped by 25% in four years. Retailers have contended that the higher prices merely reflect their greater costs, but the FTC found data that indicate otherwise.

Food and beverage retailers saw their revenue rise to 6% over total costs in 2021 — higher than the previous peak of 5.6% in 2015. Then in the first three quarters of 2023, they went even higher — to 7%, the report said.

“Notably, consumers are still facing the negative impact of the pandemic’s price hikes, as the Commission’s report finds that some in the grocery retail industry seem to have used rising costs as an opportunity to further raise prices to increase their profits, which remain elevated today,” it said.

A spokeswoman for Cincinnati-based Kroger didn’t immediately respond to a request for comment. With 2,800 stores and $148 billion in annual sales, it’s the nation’s largest grocery retailer.

Kroger is trying to increase its dominance by buying Boise, Idaho-based Albertsons for $25 billion. The FTC, however, is suing to block the deal, saying it “will eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans.”

The antitrust watchdog might have bolstered its case with last week’s report about supply disruptions caused by the pandemic.

“The pandemic made clear that supply chain bottlenecks, which can be created or exacerbated by limited competition, can leave markets exposed to major supply chain shocks—and that those shocks, in turn, can allow major firms to entrench their dominance and further harm competition,” the report said. “Achieving more diversified supply chains, including through promoting competition, can both limit the severity of supply chain shocks and, in turn, reduce the opportunity for that entrenchment.”

This story is republished from the Ohio Capital Journal, a sister publication of the Kentucky Lantern and part of the nonprofit States Newsroom network.

Customers shop for fresh fruits and vegetables at Campbell’s Market, April 24, 2023, in McArthur, Ohio. (Ohio Capital Journal photo by Graham Stokes)

“Efficiency” is a frequent justification for allowing corporations to consolidate vast swathes of the marketplace. But when it comes to food, huge grocery chains and ubiquitous dollar stores are limiting some rural and urban communities’ access to healthy food at the same time they bankrupt the farmers who produce it, members of a virtual panel said late last month.

Walmart, Amazon, and Kroger already control a huge amount of the nation’s grocery business. And if Cincinnati-based Kroger completes its acquisition of Albertson’s, the consolidation will be greater still.

“We’ve seen extreme concentration in the grocery sector,” Stacy Mitchell of the Institute for Self Reliance said. The institute advocates for local power in the face of increasing corporate dominance. “Just five giant retail chains now capture about half of all grocery sales and one company, Walmart, captures one out of every four dollars that Americans spend on groceries.”

The institute hosted the panel, in which Alvaro Bedoya, the newest member of the Federal Trade Commission participated. In an interview with the Capital Journal last year, Bedoya said that when Congress passed antitrust laws in the first half of the 20th century, the record shows that its main concern was fairness — particularly for rural communities — and not efficiency as some later claimed in successfully arguing to weaken enforcement of those laws.

To see for himself the effect of consolidation in the food sector, Bedoya in December traveled to Pine Ridge, South Dakota, to meet with a fourth-generation grocer. Bedoya expected the meeting to be in a drab office, but he was mistaken.

“We spent maybe two hours meeting with the incoming Oglala Lakota Tribal Council in the dairy aisle,” he said. “What they talked about was a crisis. Members of their community could not afford healthy groceries. They talked about 13-year-olds showing up at the emergency room with ulcers because at the end of the month all they could afford was the kind of stuff you find at a convenience store. They talked about how 50% of residents over 40 suffered from diabetes. This is the part of the country that has the lowest life expectancy in the Western Hemisphere outside of Haiti.”

Most Pine Ridge residents don’t have cars, making the hour-long drive to the nearest big-chain grocery impossible. Meanwhile, the local independent store can’t offer the same prices because it doesn’t have access to the same deals as the big chains do, Bedoya said.

“What the folks in that grocery aisle said is, ‘We love this store. We love shopping here, but we can’t afford it,” he said.

That lack of access also harms people in Ohio, said another participant, the Rev. Donald Perryman of the Center of Hope Community Baptist Church in Toledo. It leads to what he called “false narratives” about members of struggling communities — that if they only ate better, they’d be in better health.

“To me, that did violence to a certain group of people,” he said. “It does nothing to address the source of their ill health.”

As grocery stores consolidated, they departed disadvantaged Toledo neighborhoods and dollar stores moved in, Perryman said. Harm followed.

“The Toledo Police Department provided crime statistics that indicated that dollar stores elevated crime in the neighborhoods we were serving,” he said, adding that the stores are understaffed and don’t have much in the way of healthy food.

Even so, the two big dollar store chains are able to leverage suppliers into providing special packaging at special prices, Mitchell said.

Michael Gay, owner and manager of Food Fresh in Claxton, Ga., said that’s in addition to being unable to get the same prices for non-perishable foods that the big-box chains get.

“Where we get hammered is in the middle of the store,” he said.

Gay said he buys produce and other perishables from small farmers, while Angela Huffman of Farm Action said that the big chains often do what they can to cut out small farmers.

“When grocery stores consolidate, everybody along the supply chain down to the farmer is really feeling the sting of that,” said Huffman, who is herself a Northwest Ohio farmer. “When dollar stores come in and displace independent grocers, farmers lose a local purchaser. They usually don’t buy produce and when they do, it isn’t from a local farmer.”

Huffman added that the big grocery chains are also wreaking havoc with family farms.

“When Albertsons acquired Safeway in 2015, Albertsons only kept contracts with its largest produce suppliers and it dropped contracts with most of the small Safeway suppliers,” she said. “In the case of Walmart, they didn’t want to go to a supplier for their dairy products at all. They wanted to control their dairy supply. So they dropped their dairy supplier, which was Dean Foods, and caused Dean Foods to have to cancel more than 100 contracts with dairy farmers across eight states. Within two years, Dean Foods was bankrupt.”

While jurist Robert Bork might have argued that easing antitrust regulation promotes efficiency, when it comes to food, there’s evidence to the contrary. A 2012 working paper by the FTC’s Bureau of Economics examined what happened to food prices after retailers merged. It found “that mergers in highly concentrated markets are most frequently associated with price increases, while mergers in less concentrated markets are most often associated with price decreases.”

In other words, it’s all good until too few players control too much of the marketplace.

Bedoya said there are provisions in existing antitrust law to keep some of that from happening. He explained that in the 1970s and 80s, some parts of the law were largely forgotten.

For example, under the 1936 Robinson-Patman Antidiscrimination Act, a food producer can’t simply package things differently and charge different prices for it — particularly if the effect is to drive smaller competitors from the field.

But another, largely forgotten part of the law also prohibits big chains from forcing big, special discounts or fees for itself. The provision arose from then-mega chain A&P forcing suppliers to pay kickbacks in the form of brokerage fees, the FTC commissioner said.

That part of the law was “a mainstay of FTC enforcement, but now it’s largely been forgotten,” Bedoya said. “I’m not in Congress. I can’t choose what the law is, it’s my job just to enforce it. But for me, I’m more focused on reviving all aspects of the law and not just focusing on the ones that have gotten the most attention.”