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Problems Arise When Pharmacy Chains Own Pharmacy Benefit Managers
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Problems Arise When Pharmacy Chains Own Pharmacy Benefit Managers

Testimony Before the Ohio Senate Insurance, Commerce, and Labor Committee

SOURCE: Center for American Progress

CAP Senior Fellow David Balto testifies before the Ohio Senate Insurance, Commerce, and Labor Committee. Read the testimony (CAP Action).

Chairman Buehrer, Vice Chair Faber and Ranking Member Schiavoni, thank you for the opportunity to testify today in support of Senator Patton’s bill, Senate Bill 154. My testimony today documents the tremendous need for legislation to address the increasing problem of the ownership of pharmacy benefit managers, PBMs, by pharmacy chains and the need for regulation to stop these relationships which lead to less competition, greater fraud and deception, and harm to health plans, employers and unions, and consumers.

I am a Senior Fellow at the Center for American Progress Action Fund and have practiced antitrust law for over 25 years, both in the government and in private practice. Prior to entering private practice, I was at the Federal Trade Commission as the policy director of the Office of Policy and Evaluation for the Bureau of Competition of the Federal Trade Commission and attorney advisor to Chairman Robert Pitofsky. At the FTC, I helped direct the first antitrust cases against pharmacy benefit managers, PBMs. I have counseled health plans, PBMs, pharmacies, and consumers on PBM competition and consumer protection issues. My comments are based on those decades of enforcement and real world experience.

S.B. 154 is an innovative and important piece of legislation. The business of pharmacy benefit managers is enormously complex: PBMs play a central role in financial transactions involving plan sponsors, drug manufacturers, and pharmacies. For this system to work effectively PBMs must be independent—what plans are fundamentally purchasing is the services of an “honest broker” trying to seek the lowest prices and best services from pharmaceutical manufacturers and pharmacies. When the PBM is owned by the entity it is supposed to bargain with there is an inherent conflict of interest, which can lead to fraud, deception, anticompetitive conduct, and higher prices. That is why, when pharmaceutical manufacturers obtained PBMs in the 1990’s, the FTC acted to eliminate those conflicts of interest. Then it challenged the acquisition of PCS by Lilly and Medco by Merck, because of the concern that having a manufacturer own a PBM would be giving the “fox the keys to the hen house door”—and would lead to higher prices for consumers.

In recent years, the major PBMs—including those with a clear conflict of interest in their cross-ownership with pharmacies—have engaged in a variety of anticompetitive and anticonsumer practices. S.B. 154 appropriately addresses these practices, and I urge the committee to enact it.

CAP Senior Fellow David Balto testifies before the Ohio Senate Insurance, Commerce, and Labor Committee. Read the testimony (CAP Action).

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