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Public Statements

Statements on Introduced Bills and Joint Resolutions - S 1300

Location: Washington, DC



    S. 1300. A bill to prohibit a health plan from contracting with a pharmacy benefit manager (PBM) unless the PBM satisfies certain requirements, and for other purposes; to the Committee on Health, Education, Labor, and Pensions.

    Ms. CANTWELL. Mr. President, I rise today to offer the Prescription Drug Consumer Information Act. I believe this legislation will dramatically improve the way in which prescription drug benefits are provided to our Nation's 40 million senior citizens through the Medicare program.

    The Prescription Drug Consumer Information Act is intended to provide some assurances that the billions of dollars being spent on this new prescription drug benefit for Medicare is going as far as possible. The Act is focused primarily on the practices of pharmacy benefit managers, the private companies that would most likely administer the new prescription drug benefit called for under the Prescription Drug Benefits Bill.

    PBMs have come to dominate the prescription drug benefit market and subsequently, have been the target of criticism by the employers and health plans that contract with them. The source of the controversy has been the cost cutting practices of PBMs, which have allowed them to make prescription drug coverage more affordable. However, the fact that drug prices continue to rise in the face of these cost-cutting efforts, has led some to question PBM practices in the private sector. As we move forward in providing prescription drug coverage within a government-operated program as large as Medicare it is critical that there be adequate safeguards in place. My bill would provide greater scrutiny and auditing of PBMs contracting with the government and also provide some consumer protections for all Americans who purchase prescription drugs.

    The market share of prescription drug benefits managed by PBMs has grown enormously in recent years. Currently, 90 percent of Americans with prescription drug coverage have their benefits administered by a PMB. Of that 90 percent, nearly 70 percent of those people are served by one of the four major PBM companies. PBMs provide benefits to nearly 200 million Americans, including 65 percent of the Nation's senior population. PBMs have become as powerful in the delivery of prescription drug services as the manufacturers which produce medications.

    As PBMs have come to dominate the market, they are increasingly drawing the attention of State lawmakers struggling with skyrocketing prescription drug costs for state workers and large programs like Medicaid. As States focus on reducing pharmaceutical costs, suspicions are growing among state lawmakers and health department officials that the "behind-closed-doors" practices of PBMs are responsible for some of the escalating costs of prescription drugs. In 2002, Georgia become the first State to regulate PBMs by requiring they be licensed as pharmacies. This year, 19 States have introduced legislation to regulate or license PBMs.

    At issue are the rebates, discounts and other savings that PBMs negotiate with drug manufacturers in exchange for giving their medications "preferred" status on the PBMs list of available drugs. Those contracts are a primary source of revenue for the PBMs and for the drug manufacturers who see use of their products increase as the PBM steers its massive consumer base toward the preferred drug. However, because PBMs are so secretive about their arrangements with manufacturers, it is difficult for PBM clients to know if a significant portion of the rebates are being passed back to them as the PBM promises.

    PBMs also negotiate lower prices with pharmacies but fail to share those savings with consumers, particularly on generic drugs. A recent Wall Street Journal investigation found that for one drug fluoxetine, a generic of Prozac, PBMs were buying the drug from the pharmacy for about 30 cents a pill. However, most of the PBMs clients were paying $1.06 a pill based on the average markup formula. The PBM was pocketing the difference, which was 76 cents per pill. Multiply that by the number of fluoxetine pills dispensed by the PBMs and it is clear that these private companies are getting rich while consumers continue to pay unnecessarily high drug prices. This may be in the best interests of the PBMs shareholders, but it is a disservice to its customers, which turn to PBMs in an attempt to save money and lower drug costs.

    Efforts to better understand the PBM industry have reinforced this attitude of secrecy and backroom deals. Last year, Senator DORGAN requested a General Accounting Office study of whether PBMs were sharing the savings achieved through rebates and discounts with the members of the Federal Employees Health Benefits Plan. Unfortunately, the study provided us with little understanding of how the PBM industry operates because GAO was denied access to the financial documents of the PBM companies. GAO had no way of fulfilling its obligation of reporting to Congress because the PBMs refused to disclose any information about rebates, discounts and other savings generated by FEHBP.

    Yet, these same companies want the federal government to hand them billions of dollars for a new Medicare drug benefit without providing any accounting of how that money was spent. Allowing the PBMs to operate a government program in such secrecy is outrageous and would set a terrible policy precedent.

    The Prescription Drug Consumer Information Act would improve this system with a five-part approach. First, the Act would eliminate potential conflicts of interest by prohibiting cross ownership of pharmaceutical manufacturing companies and PBMs. Second, it would contain costs by requiring that any PBM contracting with Medicare provide any cost savings negotiated with a pharmacy back to the PBM client, be that client an employer, a health plan or the government.

    Third, it would require all pharmacies to disclose the retail cost of a prescription drug upon request by a consumer. Several States, including Washington State, Montana, New York, Oregon and Rhode Island, along with the Virgin Islands, currently require pharmacies to make retail prices available to consumers. This provision is desperately needed across the country. A 2002 survey conducted by the Washington State Attorney General's Office found that retail prices on prescriptions could vary as much as $25 within a city and within a pharmacy chain. All consumers should be able to comparison shop for the best price amongst pharmacies in their area but they cannot do that if they do not know the retail price of various drugs.

    Fourth, the amendment would require PBMs on an annual basis to make public the percent of rebate received from the manufacturer that is passed back to the client, such as an employer, health plan or the government. The amendment does not require full public disclosure of the PBMs' negotiations with manufacturers because I realize that such a requirement could damage their ability to get good deals from the manufacturer. This disclosure does not have to take an all or nothing approach. The Act allows the PBM to keep private the specifics of their contracts, but at the same time provides senior citizens some assurance that they are benefiting from the savings achieved in those contracts.

    Finally, my bill would strengthen the audit requirements for PBMs administering the Medicare drug benefit to ensure that PBMs are passing those rebates and other savings along to consumers. One of the problems for employers and health plans using PBMs now is that it is difficult for them to confirm that the PBM is meeting its contractual obligations to pass on a portion of its savings. Auditing provisions in my bill include complete disclosure of the amounts and types of rebates. The results of the audit would not become public, to ensure the PBMs ability to continue to negotiate discounted prices. This approach strikes a fair balance between the PBMs rights as private companies and the duty the PBMs have to share any savings generated by the new benefit with Medicare recipients.

    Together, these provisions will ensure that senior citizens and the government are getting the most out of every dollar spent on a Medicare prescription drug benefit and that other consumers who purchase prescription drugs are armed with information before spending their hard-earned money. Consumers should have some assurance that the private companies providing prescription drug insurance are not running up costs and cutting down coverage in an attempt to boost their own bottom lines. The Prescription Drug Consumer Information Act provides those assurances and protections.

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