Competition among middleman drug price negotiators under Senate spotlight

Senators on Tuesday pressed pharmaceutical benefit managers on whether a recent string of mergers with top insurance companies is impacting competition in an industry that pegs itself as a critical barrier to prevent rising drug costs.

Over the past few years, top PBMs Express Scripts and CVS Health merged with Cigna and Aetna respectively, raising concerns over the potential harm to patients due to the increasingly smaller pool of players in both sectors.

On top of the combinations between middleman benefit managers and insurers, many of the newly mammoth firms also own sprawling networks of pharmacies and health care providers.

CVS Health, for example, manages nearly 9,700 stores and 1,100 clinics across the U.S., while UnitedHealth and its in-house PBM Optum previously purchased DaVita Medical Group – a transaction that added nearly 300 clinics serving over 1.7 million patients on top of its already robust network.

The wave of consolidation spurred intense congressional attention, including a letter from Senate Finance Chairman Chuck Grassley to the Federal Trade Commission in 2018 asking the agency to assess the new marketplace. The Iowa Republican renewed his concerns at a hearing with representatives from top PBMs on Tuesday.

“It’s important to look to see whether such integration actually helps patients and consumers, or whether it just opens the door for anticompetitive activity,” he said in opening remarks.

Executives at Cigna, CVS Health and Optum argued the industry is competitive -- with over 60 entities across the U.S. vying for contracts from employers, government entities and unions -- and that consolidation helps to reduce costs for patients while improving care.

“This is a wildly competitive marketplace,” Steve Miller, chief clinical officer at Cigna, told the panel. “People buy based on their need. Some people want to use a regional player or a local player, some people want to use a national player. And there’s plenty of selection of all.”

One major transaction – the $69 billion merger between CVS Health and Aetna – is set to get a closer look by a federal judge, despite the two firms already closing the deal last year after receiving approval from the Department of Justice.

U.S. District Judge Richard Leon on Friday said he would allow opponents, including the American Medical Association, to publicly testify over their concerns, a decision that a lawyer for CVS called unprecedented.

On Tuesday, CVS Health President Derica Rice argued the industry remains very competitive.

“We’ve seen that play out in terms of each of us trying to get to, for our clients and their members…to the lowest possible cost we can to keep premiums low and out-of-pocket costs burden low,” he said.

Ticker Security Last Change Change %
CVS CVS HEALTH CORP. 77.20 +0.10 +0.13%
UNH UNITEDHEALTH GROUP INC. 527.24 +0.74 +0.14%
CI THE CIGNA GROUP 344.24 +2.08 +0.61%

The probe by the Senate Finance Committee comes as the Trump administration weighs a proposal to eliminate the opaque system where rebates flow from drug companies to PBMs. The White House on Friday said it would offer insurance plans a two-year phase-in of the rule, which has yet to be finalized.

The Pharmaceutical Care Management Association, the PBM industry’s main lobbying group, on Monday argued the proposal would significantly increase premiums “for all [Medicare] Part D beneficiaries, raising taxpayer costs for the program, and destabilizing Medicare Part D."

On top of concerns over potential antitrust issues, lawmakers on Tuesday also pressed the companies on whether they would support legislation to make the secretive process under which drug companies and PBMs negotiate treatment costs more transparent.

The firm’s argued such a measure could create “a floor, not a ceiling” on discussions with pharmaceutical firms, ultimately leading to higher drug prices.

“You would have shallower rebates. So the ability to negotiate is enhanced by the competitors not knowing each other’s” information, Miller said.


Optum CEO John Prince, who also opposed such a proposal, cited the existing ability of customers to request rebate contracts with drug companies.

“If you would disclose that to the external market, it would hurt our ability to get a good value for the people we negotiate for,” he told the panel.