Chuck Grassley

United States Senator from Iowa

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Grassley Requests FTC Assessment of Pharmaceutical Supply Chain Intermediaries and Recent Consolidation

Aug 17, 2018

WASHINGTON – Senate Judiciary Committee Chairman Chuck Grassley of Iowa today wrote to Federal Trade Commission Chairman Joseph Simons requesting the FTC conduct an assessment of recent and ongoing consolidation in the pharmaceutical supply chain and its potential impact on prescription drug prices for U.S. consumers.

“[I]t is critical for Congress to understand the FTC’s perspective on these issues, including the potential impact of concentration on the marketplace, and more broadly whether the presence of pharmacy benefit managers and other intermediaries in the pharmaceutical supply chain tends to reduce, control, or increase the cost of healthcare in the United States. In the past, the FTC has asserted that allowing competition among PBMs will yield more benefits than contract terms mandated by government,” Grassley wrote. “The pharmaceutical industry, however, has experienced significant changes and consolidation in the intervening years.”

In the letter to Simons, Grassley requests the FTC respond to a series of questions in light of industry consolidation and increasing concerns about the role and influence of supply chain intermediaries, such as pharmacy benefit managers and group purchasing organizations.

Earlier this week, Grassley called on the Justice Department’s antitrust division to conduct a vigorous review of the proposed mergers of Cigna Corp. with Express Scripts Holding Co., and CVS Health Corp. with Aetna Inc. The proposed mergers could have a significant influence on the price of prescription drugs for American consumers.

Full text of the letter follows.

 

VIA ELECTRONIC TRANSMISSION

The Honorable Joseph Simons 

Chairman

Federal Trade Commission

600 Pennsylvania Ave., NW

Washington, DC 20580

 

Dear Chairman Simons:

I write with regard to the Federal Trade Commission’s recent inquiry into intermediaries in the pharmaceutical supply chain, including pharmacy benefit managers (PBMs) and group purchasing organizations (GPOs). As you know, the pharmaceutical supply chain is currently witnessing significant consolidation and vertical integration, by way of the proposed mergers of Cigna Corp. with Express Scripts Holding Co. and CVS Health Corp. with Aetna Inc. The resulting entities would have considerable market share in the provision and management of prescription drug benefits.

According to a new report from the Kaiser Family Foundation, the two combined entities, along with UnitedHealth and Humana, would cover 71% of all Medicare Part D enrollees and 86% of stand-alone drug plan enrollees.[2]  Moreover, these transactions would result in substantial vertical integration within the pharmaceutical supply chain, with the three largest PBMs all vertically integrated with insurance companies.  Vertical integration, like the proposed transactions, can often result in increased efficiencies and consumer benefits, and should be evaluated accordingly.

Such integration, however, can also lead to higher barriers to entry for competition in each standalone market, leading to further consolidation.  These risks have been highlighted by key administration stakeholders. According to President Trump’s Council of Economic Advisers, “[p]olicies to decrease concentration in the PBM market and other segments of the supply chain (i.e., wholesalers and pharmacies) can increase competition and further reduce the price of drugs paid by consumers.”[3] Further, Food and Drug Administration Commissioner Scott Gottlieb recently warned that “consolidation and market concentration make the rebating and contracting schemes [of PBMs] all that more pernicious. And the very complexity and opacity of these schemes help to conceal their corrosion on our system — and their impact on patients.”[4]

Accordingly, it is critical for Congress to understand the FTC’s perspective on these issues, including the potential impact of concentration on the marketplace, and more broadly, whether the presence of PBMs and other intermediaries in the pharmaceutical supply chain tends to reduce, control, or increase the cost of healthcare in the United States. In the past, the FTC has asserted that allowing competition among PBMs will yield more benefits than contract terms mandated by government.[5] Further, a 2005 FTC study of PBMs that own mail-order pharmacies found that such ownership arrangements “generally did not disadvantage plan sponsors” and that “competition in this industry can afford plan sponsors with sufficient tools to safeguard their interests.”[6]

The pharmaceutical industry, however, has experienced significant changes and consolidation in the intervening years. In light of these changes, and of the Commission’s recent roundtable discussion on these complex issues, I respectfully request written answers to the following questions by no later than September 17, 2018.

  1. At its November 2017 roundtable entitled “Understanding Competition in Prescription Drug Markets: Entry and Supply Chain Dynamics,” the FTC invited comment on the following question:
    1. What role do intermediaries, such as pharmacy benefit managers (PBMs) and group purchasing organizations (GPOs) play in prescription drug pricing, consumer access, and quality? What are the benefits and costs of intermediaries in the pharmaceutical supply chain? Has consolidation affected price, access, or quality?

What specific conclusions has the FTC drawn from the comments and dialogue it received in response to the above question?

  1. At its November 2017 roundtable, the FTC invited comment on the following question:
    1. How do companies assess the benefits, costs, and risks of contracting with intermediaries? How well do consumers understand intermediaries’ roles? Is more information necessary?

What specific conclusions has the FTC drawn from the comments and dialogue it received in response to the above question?

  1. What specific actions does the FTC intend to take as a result of its November 2017 roundtable? Please provide a detailed description of any relevant forthcoming actions—including policy proposals, additional research or roundtable discussions, consumer education efforts, or enforcement actions—that Congress should be aware of at this time.
  2. Based on recent market consolidation and integration efforts, does the FTC believe there is sufficient competition in the various markets of the pharmaceutical supply chain?
  3. What specific legal or regulatory obstacles, if any, is the FTC currently facing in its efforts to ensure a competitive and transparent marketplace in the pharmaceutical supply chain, including but not limited to the PBM marketplace?
  4. What specific legislative actions, if any, should Congress be considering at this time to increase transparency in the pharmaceutical supply chain and to best ensure that cost savings or efficiencies are actually passed onto consumers?

 

Thank you for your attention to this matter, and I look forward to your response. If you have any questions, please contact Ryan Dattilo or Kyle McCollum of my Judiciary Committee staff at 202-224-5225.

 

Sincerely,

 

Charles E. Grassley

Chairman

Committee on the Judiciary

 

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