Ranking Member Statement:

Each year Americans spend over $300 billion dollars on prescription drugs and that number is only growing.  At a time when businesses are strapped for cash, many employers spend as much as 12 percent of their entire budgets on employee health benefits, including coverage for prescription drugs. 

This hearing addresses an important issue relative to the cost of prescription drugs in the United States.  Pharmacy benefit managers or “PBMs,” although relatively unknown to the general public, play a prominent and integral role in our health care system. Many consumers may never have heard of PBMs, but most indirectly interact with a PBM each time they visit a pharmacy.  The consumer gives a co-payment and receives a medication, while the pharmacist seeks reimbursement from a PBM for the remaining balance.  The PBM, in turn, submits a claim for payment of the drug to the health plan sponsor, in most cases the consumer’s employer.  In this manner, over 215 million Americans receive prescription drug coverage—from their employer, union, or the government—through a PBM, with consumers receiving medications at a local pharmacy or through the mail.

Employers or other health plan sponsors pay PBMs a fee for their work administering the details of a prescription drug plan.  In addition, PBMs make money by keeping a portion of the difference in price between what the employer pays the PBM for a drug and what the PBM pays the pharmacy for dispensing that drug.  PBMs also keep a portion of the drug rebates they receive from drug manufacturers and generate profits through their in-house mail-order and specialty pharmacies.   

There are over 40 PBMs in this country, but only a few large ones.  Two of the largest PBMs, Express Scripts and Medco, have announced their intention to merge.  This is a transaction of sufficient size to merit the review of antitrust enforcement agencies.  It has also attracted the attention of this Subcommittee. 

I note at the outset that the very nature and value of PBMs is contentious,.  Critics argue that PBMs are massive corporate middle-men who care only about profits.  PBMs, under this view, seek to dominate the prescription drug market, run retail pharmacies out of business, and automate the world of prescription drugs until consumers have only a 1-800 number to consult for advice about their medications.

Those favorable to PBMs, by contrast, suggest that they provide a valuable administrative service without which the delivery of prescription drug services would be substantially less efficient and would cost employer-sponsored health plans up to 30 percent more per year.  PBMs claim that they are intensely interested in providing more than just medication—that their innovative clinical programs reduce overall health care costs by increasing patient adherence to drug regimens and improving the overall health approach of their clients’ employees.

Whatever one’s general view of PBMs, I hope that our discussion today can focus on the merits of this proposed merger from the perspective of antitrust.  To do so, we must focus our attention on ensuring that the market in which PBMs operate is competitive.  And in that regard, we would do well to remember the insight made famous by Robert Bork’s seminal work The Antitrust Paradox: “Competition must be understood as the maximization of consumer welfare.”

Competition ensures that consumers receive the lowest prices and the best services.  In the context of PBMs, competition can drive innovation as PBMs battle one with another to offer prospective clients the best pharmacy network options and clinical management, in addition to cost savings.  Insufficient competition may result in higher prescription drug prices for consumers, as well as pharmacies being so squeezed for revenue that they are unable to provide the quality of services consumers presently enjoy.

Throughout this hearing, we must also keep in mind the unique challenges and opportunities present in our healthcare market.  As former-Secretary of Health and Human Services Michael Leavitt recently noted, “Lack of coordination in providing healthcare is a major contributor to overspending. . . .  [Recently combined health-services companies] understand that to develop the capacity to improve care and reduce costs, they must scale and innovate in order to achieve needed efficiencies for payers and providers.”   

To properly focus our antitrust analysis today, and to maximize consumers welfare in terms of prices, service, and quality, we must ensure that PBMs operate in a robustly competitive market, while at the same time allowing for the type of consolidation and efficiency that drives innovation and cost savings.