Why such ‘high markups’? Senators seek drug price probe of insurers who own PBMs
Sens. Elizabeth Warren and Mike Braun wrote a letter to HHS last week to investigate high drug prices – and any role played by health insurers’ shared ownership with the pharmacies that often fill the prescriptions.
Two U.S. senators last week asked the Department of Health and Human Services’ Office of Inspector General to investigate high drug prices and any role played by health insurers’ shared ownership with the pharmacies that often fill the prescriptions.
“In functioning markets, generic drugs cost 80-85% less than their name-brand equivalents, giving patients much-needed relief from high drug costs and saving taxpayer dollars,” Sens. Elizabeth Warren, D-Mass., and Mike Braun, R-Ind., wrote in a letter. “But patients — including patients in public health-care programs like Medicare and Medicaid — who either use or are compelled to use vertically integrated specialty pharmacies are not seeing this relief.”
The senators urged Inspector General Christi Grimm to determine if large insurance companies are using their vertically integrated pharmacies to evade federal requirements that limit the percentage of premium dollars spent on profits and administration, known as the Medical Loss Ratio, or MLR. The letter follows an investigation by the Wall Street Journal revealing significant markups of generic drugs at specialty pharmacies owned by CVS Aetna (which operates the Caremark PBM), Cigna (which owns Express Scripts) and UnitedHealthcare, which owns a PBM and specialty pharmacy.
The Journal’s analysis found that the three companies charged up to 27 times more than a generic reference pharmacy for a selection of 19 drugs. For example, a monthly supply of the generic version of Tarcera, a lung cancer drug, costs $73 at the generic reference pharmacy, compared to $4,409 through Cigna.
“By owning every link in the chain, a conglomerate like UnitedHealth Group — which includes an insurer, a PBM, a pharmacy and physician practices — can send inflated medical payments to its pharmacy,” the letter said. “Then, by realizing those payments on the pharmacy side, the side that charges for care, rather than the insurance side, the insurance line of business appears to be in compliance with MLR requirements, while keeping more money for itself.”
This practice raises costs, hurts independent pharmacies and undercuts the ability of Congress to rein in excessive insurance company profits, Warren and Braun said.
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“Over a decade ago, Congress instituted the MLR to limit the percentage of premium dollars insurers could spend on administrative costs and profits to 15%,” the letter said. “Federal law requires companies to spend the remaining 85% on medical claims. But insurance companies are exploiting loopholes in the law by buying up entities that are eligible for medical claims payments, including pharmacies, so they can get a cut from both sides of the transaction.”