PBM Power Play: Examining Competition Issues in the Prescription Drug Supply Chain

Chairman Chuck Grassley (R-IA)SPEAKER_11

Good morning. We welcome everybody to this hearing. We're examining competition issues in the prescription drug supply chain. Pharmacy benefit managers, PBMs as we call them, play a significant role in drug supply chain. Initially, PBMs primarily served as an administrative capacity. But their role has evolved, and they now exercise growing influence on prescription drug supply chain. And as the middleman, they determine what medications a patient can use and how much the patient pays at the pharmacy counter. PBMs have also become more consolidated. The three major PBMs control roughly 80% of the PBM market, and many are vertically integrated with insurance companies, providers, and more. This power drives up prescription drug costs at the pharmacy counter. Indeed, a recent report found patient out-of-pocket drug costs reached $98 billion in 2024, a 25% increase in just five years. PBMs claim, on the contrary, that they help lower cost. Yet their business practices are opaque. We don't even know what they do. We know their impact, though, and they do everything in their power to steer business away from the competition towards their own entity. I'm committed to bringing sunshine and accountability to PBMs. Throughout my 99-county tour of Iowa, I've learned firsthand from patients and pharmacists the powerful role that PBMs play in our prescription drug supply chain. To name one example, last summer an Iowan told me her prescription medications had increased from $300 to $1,000 per month. Another Iowan wrote to me recently saying she's scared—that's her word—about her local pharmacy closing, which would leave a void in her community. I hear often from rural Iowa pharmacists about the vital services they provide for their community. We have one Iowa independent pharmacy with us today, but they don't know how much longer they can stay open. PBMs are steering more patients away from their local pharmacists through low reimbursement, mail-order requirements, and limiting patient choice. Iowans are fed up with the skyrocketing cost of prescription drugs and reduced access. Americans are fed up as well. They're eager for Congress to act to put a stop to shady PBM practices. So, I've taken a multifaceted approach to lowering drug costs, holding BPMs and holding PBMs accountable. I partnered with Senator Wyden on a two-year investigation in insulin price gouging. Our investigation found that PBMs encouraged drugmakers to spike the drug's list price in order to offer a greater rebate. This in turn allows manufacturers to secure priority placement on covered meds, all at the expense of patients. I've pressed FTC to study PBMs and their impact on competition and drug prices. The FTC's two interim staff reports are helpful, but I'm eager to get a full study from the FTC, complete with legislative recommendations. That's why this committee recently passed a bill entitled Prescription Drug Pricing for the People Act, which would hold FTC accountable in producing their PBM study in a timely manner. A timely report on PBMs is critical if we can stop some anticompetitive PBM behavior this very day. Arbitrary clawbacks and spread pricings are documented tactics of PBMs, deploying those to fill their pockets with—at the expense of patients and pharmacies. This has to stop. Senator Cantwell and I have worked on a bill that we entitled the PBM Transparency Act through the Commerce Committee to direct the FTC to stop deceptive and unfair pricing schemes by PBMs, as well as to require more transparency. I've also worked on and supported the Finance Committee's PBM legislation from the last Congress. And I've talked to Senator Crapo, and after we get done with some important reconciliation legislation, he indicated he'd like to move on in that area. For too long, PBMs have played a powerful role in determining a patient's access to prescription drugs and their cost. PBMs have only expanded that role in recent years, but their pocketbooks have expanded in ways that don't add up based on the services provided. While PBMs get richer, hardworking Americans pay more and more for their medications. Local pharmacies are shuttering. I'm hopeful that this hearing will shine light on how we can rebalance the power and hold PBMs accountable. I look forward to the testimony of our witnesses today. Senator Durbin.

Ranking Member Dick Durbin (D-IL)SPEAKER_02

Thanks very much, Chairman Grassley. If charges were leveled against the members of the United States Senate and they were accused of legislating, there's no evidence to show it. This is our fifth month of session this year. We've had five bills on the floor of the Senate. Five. I want to thank Chairman Grassley for this hearing. This is a bipartisan issue. This is one where Democrats and Republicans, through your leadership, Mr. Chairman, and others, can really bring a measure to the floor that Americans give a damn about: the high cost of prescription drugs. It's a real worry for people as to how they're going to pay for the things that they need to keep themselves healthy and to avoid some terrible outcomes. People in the United States pay the highest prescription drug prices in the world—the highest in the world—on average four times more than people in similar countries pay for brand-name medications. Four times. Democrats took the first step to address this issue three years ago by passing the Inflation Reduction Act. It wasn't popular on that side of the aisle, but we passed it. Among other things, this law capped the price of insulin at $35 a month. It set a $2,000 limit on annual out-of-pocket expenses for seniors. $2,000 a year. Still a lot of money for a person on a limited income, but at least it's a figure that they can think about and budget for. And it let the executive branch negotiate with Big Pharma to lower prices under Medicare, something President Biden used to reduce selected drug prices by up to 79%. All that without a single vote from the other side of the aisle. But between those critical reforms, there's much more work we can do on a bipartisan basis. Wouldn't it be something if we announced we're going to take one whole week and invite all the good bills you've mentioned and others to come to the floor? Let's debate them and vote them up or down. Almost like legislating. One place to start: Big Pharma spends billions of dollars to flood the airwaves with ads. You can't miss them. Patients tell their doctors they need drugs that they can hardly pronounce—Xarelto, congratulations, America, for being able to pronounce the name of that drug—so they can go skiing, golfing, and whitewater rafting. I'm looking forward to it. Only one other developed country in the world permits these outrageous ads that fuel demand for high-cost drugs. You know what it is: New Zealand. Chairman Grassley and I have a simple bill to require direct-to-consumer drug ads to disclose the price charged by the drug company. That's basic, basic transparency to inform America, and it's been supported by President Trump and the Vice President as well. Well, we ought to pass it this year. Another area in need of reform is the topic of today's hearing: pharmacy benefit managers, or PBMs. Take any American at random on the street and ask them what the hell a PBM is. Do they make the drugs? No. Do they prescribe the drugs? No. But they're a key part of pricing those drugs in America. They're the service middlemen that extract colossal profits from patients, doctors, and pharmacies. The big three PBMs—CVS Caremark, Express Scripts,

Ranking Member Dick Durbin (D-IL)SPEAKER_02

and Optum Rx dominate the market, control the flow of prescriptions for more than 200 million Americans, and people on the street couldn't even identify who they are. Over the years, several large insurers, PBMs, and pharmacies have merged, creating vast conglomerates that ignore conflicts of interest at the expense of the patient's pocketbook and health. They engage in self-dealing to steer patients to a PBM's preferred pharmacy, and they squeeze out small, rural pharmacies, not just in Iowa, but Illinois too, with lowball payments. PBMs also abuse rebates and fees to manipulate their formularies, ensuring that they, not the doctors, decide which drugs patients receive. Have you ever had your cancer treatment delayed while you waited for prior authorization on your medication? Thank a PBM. Have you been told you've reached a limit for the EpiPens you rely on to keep your child safe? Thank a PBM. So who is the cop on the beat? Isn't there a federal agency that can address these abuses? As it turns out, there is. It's called the Federal Trade Commission, and under the last chairman, they led the effort to investigate these abusive practices. The FTC even filed suit against the Big Three PBMs for their anticompetitive and unfair practices on insulin pricing. But in a brazen and plainly illegal move, I'm afraid this administration fired the two Democratic commissioners that stopped the progress of this case. If this committee cares about addressing PBM excuses—abuses that make prescription drugs unaffordable, then every member should speak out against these illegal firings. But enforcement's not the only answer. We need legislation. We need a legislative solution to address these tactics by PBMs. Better yet, we need a bipartisan, broad support for it. Congress came together, House and Senate, Democrats and Republicans, to craft a package to reform the PBM industry. Who would stop such a package? Reform of PBMs, finally getting control of prices? Elon Musk. Last December, hours before a vote on this PBM agreement as part of the year-end continuing resolution, Elon Musk, with his chainsaw, unleashed a barrage of tweets opposing the package. The House Republicans caved. That was it. Relief for the struggling independent pharmacy in rural Illinois or rural Iowa was delayed because the world's richest man didn't like the bill. Never mind that five days after tanking PBM reform, health policy expert Elon Musk tweeted, What is a pharmacy benefit manager? That was his tweet. I hope today's hearing builds on the bipartisan package of patent and competition reform bills we advanced earlier this year. But if we want to deliver real relief at the pharmacy counter, it's going to require Republicans and Democrats to stand up to Elon Musk and his chainsaw looking to cut anything in sight. I want to thank the chairman for calling this hearing. The turnout shows the level of interest. It also shows an opportunity for Republicans in the majority and Democrats in the minority to finally get down to work and legislate. Thank you, Mr. Chairman.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Yeah, say, you want to introduce your Illinois witness, then I'll introduce the other 4.

Ranking Member Dick Durbin (D-IL)SPEAKER_02

Thank you, happy to do that. Dr. Sheetal Kircher, did I pronounce that correctly? Okay. Medical oncologist and health services researcher at Northwestern Medicine at Northwestern University Feinberg School of Medicine in Chicago. In 2024, Dr. Kircher was honored with the Fellow of American Society of Clinical Oncology distinction in recognition of her sustained contribution to the field. Thank you for being here.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Ms. Sharon Faust holds a doctorate in pharmacy and an MBA. She's Chief Pharmacy Officer at Navitus Health Solutions. In this role, she oversees health strategy, provider services, Lumicera Health Services, focusing on clinical initiatives, drug management, pharmacy network, and procurement strategies across retail, mail, and specialty channels. She's a licensed pharmacist in Wisconsin, serves on the board of directors of the National Association of Specialty Pharmacy and Drug Selection Advisory Committee of CivicaScript. Our next witness, Dr. Randy McDonough, constituent of mine, he's co-owner of Towncrest Pharmacy Corporation of Iowa, Professor of Pharmacy Management and Innovation at Loma Linda University School of Pharmacy. Dr. McDonough is published and has presented nationally and internationally on pharmaceutical care, medication therapy management, and implementing patient care services in community pharmacy settings. He is recognized for his efforts in developing and implementing new pharmacy business models. He's president for the American Pharmacists Association 2025 to '26. Mr. J.C. Scott, president and CEO of Pharmaceutical Care Management Association. Prior to joining the association, Scott served as chief advocacy officer for Advanced Medical Technology Association, AdvaMed for short, where he oversaw government affairs and external relations. Prior to his present position, Mr. Scott served as Senior Vice President, Federal Relations, American Council of Life Insurers. Mr. Scott has an undergraduate degree in public policy studies, Duke University, and JD, Georgetown University Law Center. Professor Neeraj Sood. Dr. Sood is a professor at USC Price School of Public Policy, where he also served as Vice Dean for Faculty Affairs and Research. He holds joint appointments at USC Keck School of Medicine and USC Marshall School of Business. Dr. Sood is founding member and senior fellow at USC Schaeffer Center for Health Policy and Economics. His research encompasses economic epidemiology, pharmaceutical markets, health insurance, medical innovation, Medicare, and global health. Dr. Sood has authored over 100 peer-reviewed publications in leading journals such as—I won't name all those journals. His work has been featured in major media outlets including Time, New York Times, The Washington Post, Scientific American. With that, I'd like to ask you to rise, and we swear our witnesses at these meetings. Do you swear or affirm that the statements you're about to give before this committee will be the truth, the whole truth, and nothing but the truth, so help you God? I see all of them affirming that. Thank you very much. We'll start with you, Ms faust.

Sharon FaustSPEAKER_12

Thank you. Chairman Grassley, Ranking Member Durbin, and members of the committee, my name is Sharon Faust, the Chief Pharmacy Officer for Navitus Health Solutions. Thank you for inviting me here today to appear before you this morning to discuss competition in the drug supply chain. Navitus supports many of the PBM reforms that you have been working on over the past several years, and I want to thank those of you that have met with us to achieve positive results. Navitus is a transparent, pass-through PBM. It's different from the rest. Navitus was formed more than 20 years ago when the State of Wisconsin Employee Trust demanded a PBM partner that would pass through all rebates, didn't engage in spread pricing, and provided access to all their data. No such PBM existed, so a couple of health plans got together and formed Navitus. Navitus is now owned by SSM Health, a not-for-profit, faith-based integrated health system, and Costco, who became a member—or became an owner following a significant amount of savings when they had Navitus as a client. Based out of Wisconsin, we have 2,100 employees located across 40 different states and operate in all 50 states, all lines of business, accounting for almost 19 million lives. Our model hasn't changed in the last 20 years. We still pass through all our rebates. We focus on a lowest net cost approach, quality of care. We contract with our own pharmacies and support rural and charge clients what the pharmacy is paid, no spread. We give full access and auditability to our clients, and we have auditable and disclosed administrative fees, no hidden fees. We're successful because our partners innovate with us. Our clients are our innovators. We provide high-quality care. A decade ago, our clients came to us and asked for a specialty pharmacy that had the same morals and pass-through model as Navitus. We created Lumicera, which is a cost-plus specialty pharmacy charging clients based on actual acquisition and a flat fee. Lumicera's model is not tied to the drug cost, so incentives are aligned, and patients are cared for with the highest of quality. We also provide access to CivicaScript product, an innovator in the insulin cost space. And we provide point-of-sale discounts that are passed through from manufacturers. For example, our recent announcement with Teva to provide a biosimilar Stelara at a 97% discount at point of sale. That's $29,000 off the list price per fill. That's a partnership that we feel disrupts rebates altogether and delivers immediate savings to the plan sponsor and the patient, and we feel that's meaningful. Navitus never forces a client to use Lumicera, nor do we financially penalize them for that. Majority of our business is actually not from Navitus. While I certainly understand the frustrations with traditional PBMs, PBMs, when properly aligned, serve as a counterbalance to drug manufacturers and facilitate access to pharmacy networks to meet the needs of patients and plan sponsors. I respectfully recommend to this committee: continue to support increased transparency. It's absolutely critical to disrupting business as usual and ensuring competition to make sure we know where dollars are flowing in the system. Consider reviewing the entire supply chain. Americans could benefit from all parts of transparency in the drug supply chain, including wholesalers and rebate GPOs. Be cautious about legislation that would prohibit certain business models. As any other industry, investing in business adjacencies can help improve costs and streamline care. You must encourage competition and the reduction of costs throughout the drug supply chain. Consider language that focuses on behaviors and not broad prohibitions on ownership models. I thank you for inviting me to testify and for looking out for American families, businesses, and patients as the cost of healthcare continues to rise. I look forward to your questions.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Thank you, Ms. Faust. Dr. Kircher.

Sheetal M. KircherSPEAKER_13

Chairman Grassley, Ranking Member Durbin, and members of the committee, thank you for the opportunity for me to be here today. My name is Sheetal Kircher. I'm a medical oncologist at Northwestern Medicine in Chicago, where I specialize in treatment of GI cancers, so pancreas, colorectal cancer. Like Senator Durbin mentioned, when I ask my colleagues or patients what a PBM is, they have no idea. But if you ask about their experience with obtaining specialty drugs, you will get a strong response and likely a story of a patient who had a delay in their care or could not afford their medication. While I'm speaking from the perspective of an oncologist, patients with other complex conditions from rheumatology, gastroenterology, other specialties face similar challenges. So, a few weeks ago, I met a 46-year-old high school math teacher from the suburbs. He was the kind of guy that you would want teaching your kids: energetic, engaged, had two kids of his own. He'd been dealing with what he thought was constipation—too much junk food, not enough water—but unfortunately, what he was dealing with was much more serious. He has a locally advanced rectal cancer that was nearly blocking his bowels. So, within 48 hours, my team, including surgery, radiation oncology, we had met him, reviewed his labs, his scans, his biopsy, and we had developed a treatment plan with curative intent. Time was absolutely critical. I entered his oral chemotherapy prescription into our EMR, directed it towards our in-house, hospital-based specialty pharmacy that's accredited, designed to work with my team. But just as happens with about 60% of the medications that we prescribe, the PBM redirected my prescription to a different specialty pharmacy, one that they owned. We had no say in the matter. Then we waited. Two weeks passed. We submitted documentation, clinic notes, pathology reports justifying a treatment plan that followed every national guideline. During that wait, his bowel symptoms worsened, and he desperately wondered why he had not started treatment yet. That is what we're up against. First, PBMs do not offer the specialized expertise and support that patients with complex conditions need. Cancer therapies require precise handling, close monitoring, and a deep knowledge of the disease. Our pharmacy is staffed by oncology-trained clinicians who don't just fill prescriptions, they educate patients, track adherence, manage side effects, and communicate directly with my team. This tight communication keeps patients safe, out of the hospital, and keeps them on their treatment when appropriate. Our team finds financial assistance—charitable foundations, copay programs, grants—to help reduce the out-of-pocket costs for patients, which oftentimes is what's standing between them taking the medicine and not. This is something that the PBMs don't typically do. And second, PBMs impose utilization management practices and medication switches that can delay care. So, clinicians and patients, we recognize that there needs to be some level of utilization management, like prior authorizations, in order to ensure that these expensive, potentially toxic medications are used appropriately. We get that. But when PBM-owned pharmacies are our only option, these safeguards turn into major roadblocks. Complex approval processes, prior authorizations will delay us for days or weeks because of a lack of integration with our care. Our specialty pharmacy can accelerate these approvals because they have direct access to clinical records, and it avoids this back-and-forth that literally is sometimes with a fax machine, which delays treatment. PBM policies can also have unilateral drug substitutions. So, for my patient, I prescribed a low-cost biosimilar, and the PBM replaced it with a brand name, likely due to rebate incentives. So, when we're trying to do the right thing, prescribing biosimilars for costs, we have substitutions that are done without consulting me. It's unclear who benefits from those savings. Does the payer benefit? And most importantly, do my patients benefit? Finally, PBM-owned specialty pharmacies contribute to waste. When therapies change, as they do a lot, my pharmacist knows immediately and pauses the prescription. Because of the disconnect of PBMs, oftentimes, my patients will have extra medications that we are literally throwing away. These are tens of thousands of dollars that we are throwing away. Caring for patients with cancer is demanding, oftentimes heartbreaking, and a true privilege. Nothing is more difficult for the patient or for me as their doctor as telling them that they have cancer. It marks the start of a journey that is defined by urgency, uncertainty, and a desperate need for coordinated care. This committee has a meaningful opportunity to help reform the policies and practices that are causing delays, confusion, and burden. Thank you for the opportunity. I'm happy to take any questions.

Randy P. McDonoughSPEAKER_05

Good morning, Chairman Grassley, Ranking Member Durbin, and members of the committee. Thank you for inviting me to testify this morning on behalf of my patients. I'd also like to express my gratitude to Chairman Grassley for your years of leadership on pharmacy benefit management, or PBM, reform. My name is Randy McDonough. I live in Iowa City, Iowa. I'm co-owner and CEO of Towncrest Pharmacy Corporation for the past 19 years. And since March of this year, I have served as president of the American Pharmacists Association, or APhA, representing our nation's over 300,000 pharmacists at every site of care. I want to begin my testimony by providing you with a real patient case that provides an example of the egregious business practices of PBMs and the time, effort, and risk I endured to help a patient. The patient is a young man in his early 20s. He has struggled with obsessive-compulsive disorder, or OCD, to the point where it was so debilitating he had to be hospitalized. Finding the right medication for this patient took time and effort, excuse me, and we worked very closely with his physician during that time. Unfortunately, the medication that finally worked cost us $728.35. Our reimbursement from the PBM, excuse me, our reimbursement from the PBM was only $10.33. I followed all the appropriate processes of the PBM to dispute the reimbursement amount, but it resulted in no change and a lack of response from the PBM. I took more drastic measures and went against my contract with the PBM to contact the health plan directly to see if they could help me with this dire situation. I told the health plan that I'm being put into an ethical dilemma: As a business owner, I cannot afford to fill this medication, but as a caring healthcare provider, I recognize that this patient was benefiting greatly from this treatment. It was only because of my tenacious persistence that I got a partial resolution. Due to the health plan pressures, the PBM relented and finally increased the amount of reimbursement, but never to the level where the reimbursement exceeded my cost. Now, perhaps you're thinking that this is just an extreme example, but I challenge you that it's not. Community pharmacists and their staff across this country are being forced into this ethical dilemma multiple times a day with multiple patients, to the point where decisions are being made to even carry or stock medications, especially name brands. And this is not just a brand medication problem, as our reimbursement for generics is based on nebulous, nontransparent, and supposedly proprietary maximum allowable cost, or MAC, pricing, in which the reimbursement for the drug is many times below our cost, and there's minimal or no professional fee to offset the cost of dispensing. In essence, it has become the rule that there is a net-negative reimbursement for a large percentage of medications filled in community pharmacies across this country. So, what does this business model do to the infrastructure of community pharmacies? To be candid, closures. And this leads me to my own practice challenges. Towncrest Pharmacy Corporation, which has been in existence since 1963, is comprised of five community pharmacies and a closed-door long-term care pharmacy. Last year, our total net income for these six pharmacies was over a negative $116,000. This has forced us to make some hard decisions. At the beginning of the year, we were deciding to close a pharmacy in one of our rural communities because of its financial challenges. Still, we were also concerned—another ethical dilemma—that it was the only pharmacy within a 15-mile radius, which is also an issue for access for some of our older and sicker patients who may have physical limitations and transportation challenges. Instead of closing it, we converted it into a hybrid telepharmacy in which pharmacist is present two days a week, the other three days is managed by a technician, and a pharmacist remotes in to provide clinical services. Even in this model, our net income for the first quarter of this year was a negative $80,000, challenging our decision not to close. More recently, on May 1st, we decided to close another one of our rural pharmacies because there was no viable financial path for us to keep the pharmacy open. So now my corporation has become one of the statistics. In Iowa alone, more than 200 pharmacies have closed since 2014, and a record 31 pharmacies closed in 2024. Spread pricing, underwater MACs, DIR fees, clawbacks, true-ups, rebate opacity, take-it-or-leave-it contracts, generic effective rates, and patient steering are terms that we have become familiar with or heard about when talking about PBMs that are harmful business practices. Many of these issues stem from a lack of competition and transparency from the PBMs, but at the end of the day, I just call it a broken system: a system where I want to provide care, but it's become financially infeasible; a system where community pharmacies were an access point for patients, and now more and more pharmacy deserts are emerging; a system in which profits are emphasized over patients; and a system that's about ready to implode upon itself. The race to the bottom has ended, and I, along with my community pharmacy colleagues, can no longer survive. Thank you again for this opportunity to testify at this very important hearing. APhA is committed to working with the committee to enact meaningful PBM reforms that will safeguard community pharmacies and ensure patient access to essential care, particularly in rural and underserved areas like mine in Iowa, which need it most. And I'm happy to answer any questions.

Juan Carlos ScottSPEAKER_04

Thank you, Chairman Grassley, Ranking Member Durbin, and members of the committee. I appreciate the opportunity to join today's hearing on behalf of PCMA. We represent the nation's PBMs, which negotiate and administer prescription drug benefits for 289 million insured Americans. Everything PBMs do relates back to our mission of lowering drug costs and creating affordable access for patients. No employer, union, or other plan sponsor is under any obligation to hire a PBM. Nearly all choose to hire one because our companies lower costs. PBMs negotiate with manufacturers, partner with pharmacies, and deliver $148 billion in savings annually for employers, unions, retiree plans, government programs, and patients. Employers and other health plan sponsors not only choose whether to use a PBM, but also have the final say on the pharmacy benefit design that best meets the needs of their populations. They choose how to set up their contract and how to pay for the services, and they choose how best to use the savings delivered by the PBM. And there is a lot of choice. The PBM market is competitive and evolving rapidly. Today, we have more than 70 full-service PBMs operating nationwide, and new entrants are continually emerging and winning market share, with an 18% increase in the total number of PBM businesses over a 5-year period. PBM business models are structured in a variety of ways, adding to the choice and optionality for employers and plan sponsors. Some PBMs are stand-alone companies. Some stand-alone companies focus only on certain therapeutic areas and categories of medications. Other PBMs may have an affiliated mail, specialty, or retail pharmacy, or be part of a larger healthcare company, which can add to the ability to offer a total care package to patients enrolled in a plan. Restrictions on this business model diversity and PBM affiliation with pharmacies would reduce pharmacy access and availability, not improve it. It would reduce competition in the pharmacy market and could raise costs, not lower them. The choice of what type of PBM to hire is up to the employer or plan sponsor to determine what assistance they want in administering their healthcare benefits and what will deliver the highest quality, best health outcomes, and lowest cost for the enrollees they serve. PBMs compete in a rigorous RFP—request for proposal—process on a regular basis that requires them to constantly innovate to retain existing customers and grow new business. So, reports of employers and health insurers changing PBMs only underscores the competitiveness of the market and the importance of choice. We hope to use today's discussion to clarify any misunderstanding about how PBMs work. Our industry supports choice and flexibility for clients, maintaining robust competition in the market, providing transparent, actionable information to employers, plan sponsors, patients, prescribers, policymakers, and maintaining a healthy pharmacy market to be there to serve patients. In addition, and to be clear, our companies support and advocate for lower list prices on all prescription drugs. Our mission is to negotiate for lower net costs for employers and clients, which means lower costs for patients. A lower list price means a better starting point for those negotiations, and we have been actively calling on drug companies to lower their prices. I do not dispute that there is an affordability challenge for many patients and a need to continue to improve how the system serves consumers. Understanding drug costs must include a look at the entire supply chain, including drug companies and wholesalers, pharmacies, and other stakeholders. And that is why we support Chairman Grassley Prescription Pricing for the People Act to take a holistic approach to addressing prescription drug affordability. I will tell you, PBMs are not waiting for government intervention or mandates to address what the market is asking for. Our companies are already adapting, evolving, and innovating to meet demand in the market, to lower out-of-pocket costs for patients, and improve transparency for plan sponsors and consumers. PBMs are putting in place new options for partnering with and reimbursing pharmacies, focusing on programs that increase reimbursements in rural areas in particular, and expand the scope of services that pharmacists can provide for patients. We urge policymakers to recognize these innovations happening in the market when considering drug pricing legislation, and we also encourage the committee to address the underlying price of prescription drugs, which are uniquely high in this country. PCMA applauds and strongly supports the bipartisan work of this committee to address drug company patent abuse and DTC advertising so that we can have more competition and lower costs. Congress is focused on lowering drug costs and improving care for patients; so are we. PCMA looks forward to working collaboratively with the committee and other stakeholders to address prescription drug affordability and improve the system for patients. Thank you for including me today. I look forward to your questions.

Chairman Chuck Grassley (R-IA)SPEAKER_11

you, Mr. Scott. Now, Professor Sood.

Neeraj SoodSPEAKER_00

Chairman Grassley, Ranking Member Durbin, and members of the committee, thank you for the opportunity to testify today about competition issues in the prescription drug supply chain. My name is Neeraj Sood, and I am a senior scholar at the Leonard D. Schaeffer Institute for Public Policy and Government Service and professor at the University of Southern California. The opinions I offer today are my own. I've been studying the economics of the prescription drug industry with a particular focus on the supply chain for about a decade. Today, I will share key findings from my research that highlight the need for reform and also suggest reforms that can make the markets work better for the American patient. In 2017, my colleagues and I conducted one of the first comprehensive studies of the supply chain. Our research revealed that out of every $100 in prescription drug spending, about $40 went to firms in the supply chain. This finding was striking because it challenged the conventional narrative that manufacturers were solely responsible for high prescription drug costs. When I presented these findings, I often got the question, Okay, but are these firms making too much money? To answer that question, we analyzed the financial performance of publicly traded firms in the supply chain and compared their returns to the average return for the S&P 500 companies. We found that insurers, PBMs, and pharmacies that are often consolidated in one corporate entity earned significantly higher excess returns compared to the S&P 500. This finding suggests that the prescription drug supply chain is not competitive, and economic rents are well beyond those enjoyed by other large firms in the US economy. My research on insulin markets suggests that PBMs seem to be leveraging their market power and extracting profits at the expense of patients. We found that between 2014 and 2018, net prices received by manufacturers decreased by 33%. However, at the same time, the share of insulin expenditures captured by PBMs increased nearly threefold. And at the same time, overall expenditures on insulin increased modestly. So put simply, PBMs are doing part of their job, negotiating lower prices from manufacturers, but failing at another crucial aspect, ensuring that these savings benefit patients and the healthcare system more broadly. My recent research focuses on vertical integration in the supply chain. That is, different stages of the supply chain—insurers, PBMs, pharmacies—are consolidated under one single corporate entity. I believe such vertical integration raises significant antitrust concerns by creating incentives to disadvantage pharmacies and plans that compete with the PBM's own pharmacies and plans, as also noted by Chairman Grassley. In a recent study on the Medicare Part D market, we find evidence suggesting that vertically integrated PBMs raise the cost of rival plans and increase premiums for Medicare beneficiaries. I want to conclude by offering some policy recommendations. First, establish fiduciary responsibility for PBMs. Require PBMs to act as fiduciaries for their clients so that they are legally obligated to act in the best interest of health plans and their members. Second, increase price transparency. This will promote more competition in the market, and it will allow payers and policymakers to evaluate PBM performance, whether they're delivering the value they say they deliver. Third, reform the rebate system. Patients should pay cost-sharing based on the actual post-rebate price and not the list price. The current system of rebates inflates list prices. In fact, my research finds there is a one-for-one relationship between rebates and list prices. Fourth, ask FTC and DOJ to scrutinize vertical integration on antitrust grounds. And fifth, get rid of information asymmetry, which is have all PBM clients should have unfettered access to their pharmacy claims data so that they can evaluate the value and efficiency of their drug benefit. In conclusion, our pharmaceutical distribution system should work for patients, not against them. Thank you for the opportunity to testify today. I would be happy to answer any questions.

Chairman Chuck Grassley (R-IA)SPEAKER_11

I'm going to start with my Iowa constituent. Last year, 29 Iowa pharmacies closed, many of which were in rural areas and have served their communities for decades. You own a small group of rural pharmacies and recently had to close some. What legislation would you like to see Congress pass to help rural pharmacists like yourself and the patients you serve? And since bureaucracy can work faster than Congress, is there anything that HHS can be doing that would help along this line?

Randy P. McDonoughSPEAKER_05

Senator Grassley, I appreciate the question. Before answering your question, I do have a couple of points. One is I want to be clear that pharmacy deserts occur not only in rural areas, but also urban areas, negatively affecting the care of our most vulnerable patients. The second point is that community pharmacy is much more than just a place where prescriptions are filled. It's a place where patients have access to a trusted healthcare partner. It's a place where patients receive healthcare services ranging from medication management, point-of-care testing, and immunizations to health promotion and chronic disease management. It's a place where care coordination and medication management service help patients achieve optimal outcomes. And it's a place where pharmacists and their staff work closely and collaboratively with physicians, other providers, and community-based organizations to optimize patient care. To answer the question, as far as the first part of your question and legislation, I think a good place to start is your bill, S. 526, the PBM Transparency Act, where it bans PBM deceptive and unfair pricing schemes, prohibits PBM clawbacks of payments that have been made to pharmacies, and improves transparency about spread pricing and pharmacy fees. Next, I'd like to address the fair reimbursement to community pharmacies in Medicare Part D. Senate Bill 5, or S. 882, the Patients Before Middlemen Act, it enhances the PBM transparency and accountability to reduce prescription costs for seniors, also ensures all treatments are fair treatment for all pharmacies as it relates to Medicare Part D contracts. But what's missing is, again, addressing reasonable and relevant Part D reimbursement from CMS to make pharmacies whole. Lastly, I talked about the services that we provide beyond prescription dispensing. I do think we have to develop some kind of a payment model for those services that is having impact not only on patient clinical outcomes, but also on total cost of care. Your second part of your question is about HHS and what they could do, and is it possible to provide authority for the Secretary of HHS to fix Medicare Part D payments for community pharmacies to ensure fair and reasonable reimbursement so we can continue to provide care to our senior patients.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Thank you. Ms. Faust, my PBM Transparency Act will require PBMs to be fully transparent about how much money they make and prove their value. What kind of transparency does Navitus provide to its clients and what does real transparency look like?

Sharon FaustSPEAKER_12

Thank you. Navitus provides full transparency. We provide access to all the data, all the clients' data, and access to what pharmacies are paid and auditability of that as a fiduciary representative for our plan sponsors. I think your bill does a great job of introducing transparency, and that's really, really needed in this industry.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Okay. Next, I have a question for Professor Sood. The primary responsibility of a fiduciary is to run a health plan solely in the interest of participants and beneficiaries for the exclusive purpose of providing benefits. At least 5 states have imposed fiduciary or duty of care requirements on PBMs. Should— I think you said this in your statement. Do you want to expand on what you said in your statement about the fiduciary responsibilities?

Neeraj SoodSPEAKER_00

Sure. Thank you for the question, Senator Grassley. I think the price transparency bill that you have proposed complements fiduciary responsibility. So the idea of price transparency is to figure out if you're getting good value for your money or not, if your PBM is acting in the interest of your members or not. And what fiduciary responsibility does is it legally obligates the PBM to act in the interest of the members. So if you find out that the PBM is not acting in the interest of your members, you have some recourse to address that that issue. So I think fiduciary responsibility combined with transparency can really make the markets work better for the American patient.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Okay. Senator Durbin.

Ranking Member Dick Durbin (D-IL)SPEAKER_02

Thanks, Mr. Chairman. I may be mistaken. I may have missed this completely as I listened to the witnesses, but I suspect that we have a federal issue that has been disclosed to us this morning at this hearing. I suspect that our witnesses have given us a challenge as to whether we're going to do something about it. I suspect there's a possibility that we may even have to legislate, pass a bill, make a law. And I think you've spelled out in graphic terms why this is essential. My challenge to colleagues on my side of the aisle and the other side of the aisle is, let's not walk away from this hearing and say, Oh, my God, that's really a mess. Let's do something that we were elected to do and legislate. The chairman has some legislation. I am co-sponsoring some of it with him. Each of us has an idea, I'm sure, because we wouldn't have run for office if we didn't, and we have a challenge that's given to us by this panel. Dr. Kircher, I tried to imagine you're walking into that patient's room day after day after day and explaining that the therapy he needed to stop the cancer in his body was being held up because of a fight, a jurisdictional fight about how to get the drug to the hospital. How in the world do you possibly explain that to your patient?

Sheetal M. KircherSPEAKER_13

It's interesting because, as an oncologist, we're very well trained to deliver bad news. I can tell patients that they have a cancer, that it's progressed, that maybe they ultimately need to be transitioned to hospice care even. But what I've noticed since I started practicing in 2011 is increasing conversations that I am not prepared for. It's interesting that I can have a conversation about end of life, but I'm having more and more about affording our medications and making these difficult decisions that are well beyond the four walls of our clinic and involve just obtaining their medications. So, as fast as we're hustling in clinic to see patients and get them what they need, we hit this roadblock that is really difficult to deal with.

Ranking Member Dick Durbin (D-IL)SPEAKER_02

So to my colleagues, what if this was a member of your family? What if it was your spouse or your child that we were talking about? That really brings it home. And Dr. McDonough, what you and Dr. Kircher told us about your belief in your professional responsibility to the patient really rings true to me. You care. And because you care, that patient's going to get better treatment. And the bottom line, Professor Sood, is you've gone through and analyzed these from an economics viewpoint. I'm really impressed with what you found. And Mr. Scott, the bottom line is this: you argue that PBMs give us competition, choice, and flexibility, and the evidence is absolutely to the contrary. What you've just heard, the illustrations on both sides of you, are proof positive that that is not your goal. I could go into vertical integration, the opioid crisis, spell out what PBMs have done over and over again, but how in the hell do you answer this Dr. Kircher plea to us to give her patient the medicine he needs to get well, and get into a battle over pricing? You say, well, you go into it voluntarily, you pick a PBM voluntarily. Clearly, that's not exactly the case. Voluntarily, she had a pharmacy in her hospital that she wanted to use, but you didn't give her that choice. I don't see how PBMs, in the examples that we've heard today, have done the right thing for the patient. They've done the right thing for their bottom line. Please.

Juan Carlos ScottSPEAKER_04

And, Mr. Durbin, thank you for the opportunity to comment on some of the issues that have been raised. And I want to start first by just expressing my sympathy for the experience that Dr. Kircher shared. My father also suffered from cancer at the end of his life, and then Alzheimer's disease. And the coverage that he had through his healthcare benefit, the way that that system worked in both instances to make sure that he was getting the drugs he needs—and you know about Alzheimer's disease, that requires constant changes and dosage adjustments—the way that that worked properly allowed my mom and I to spend time focusing on him at the end of his life instead of having to focus on some of those administrative challenges. And that is the way we believe the system should work for all patients. We want to make sure that is working better. As has been said before, those steps can be important in order to make sure that we are getting the right medicine to the right patient at the right cost. And at the same time, in today, 2025, the way that the system—we should not be using fax machines, right? We should be at a place where that exchange with the physician can happen in a more instantaneous place so that we don't have those unnecessary delays, especially in the case of pharmaceuticals like cancer treatment.

Ranking Member Dick Durbin (D-IL)SPEAKER_02

Mr. Chairman, to my— to you and to my colleagues, if this isn't a call to action, I don't know what is. Imagine your own member of a family that you love going through this mess because we failed to change the law. I hope we do.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Lee.

Senator Mike Lee (R-UT)SPEAKER_03

Thank you very much, Mr. Chairman. Thanks to all of you. Mr. McDonough, I'd like to start with you. With PBMs controlling formulary design and drug access, what prevents PBMs from steering patients toward their own pharmacies, even if cheaper alternatives exist?

Randy P. McDonoughSPEAKER_05

It doesn't. I mean, that's one of the issues that's happening, is that patients are being steered. Um, to a lot of times the mail order or to the brick-and-mortar pharmacies that they own. And so we don't even have that choice. And what's also concerning to me is the confusion that they bring into the marketplace, especially for our older patients who receive letters and they're not sure if they're supposed to go mail order. They don't know they have a choice, and they feel like if they don't do it, they're going to lose their benefit. And so they feel like they are being forced to do that. We see all kinds of letters that have come to the patients that have come to us to indicate that just adds to the confusion.

Senator Mike Lee (R-UT)SPEAKER_03

I, I can imagine, um, if this has the potential at least to harm independent competitors and to force consumers to pay higher prices. Have you seen that?

Randy P. McDonoughSPEAKER_05

Absolutely. Absolutely.

Senator Mike Lee (R-UT)SPEAKER_03

Now, Mr. Scott, in the negotiation with drug manufacturers, scale appear appears to be really important to PBMs, and one can understand why it could be. Now, the top three PBMs are vertically integrated, and they control, as I understand it, what, about 80% of the market? So, in light of that, how do smaller PBMs compete without the scale and the vertical integration that the big three, who control 80% of the market, have?

Juan Carlos ScottSPEAKER_04

Yeah, I'll try to be quick. I went too long for Mr. Durbin question. Just real quick to address your steering question, PBMs, in their designed networks when an employer hires them, just like you have a network of doctors and hospitals, a network of pharmacies, and they're looking at three considerations when it comes to retail: geography, and then quality for the patient, and cost. And whether it's an affiliated pharmacy or not, those are the considerations in designing the network. And the data would tell us that there are not higher reimbursements for affiliated pharmacies than unaffiliated pharmacies. If there were and it was costing the employer more money, then the employer would not use that PBM anymore. On your point about integration in the marketplace and scale, yes, scale matters in terms of being able to use group purchasing economics to achieve discounts from drug companies. That's an important piece of what PBMs do. Smaller PBMs, in addition to trying to provide discounts, can offer a more tailored, unique level of service, benefit, patient experience, other considerations that an employer may have in mind when choosing who they want to partner with. So, it really gives some optionality in the market, and the smaller PBMs compete by doing things in a different way than some of the established companies.

Senator Mike Lee (R-UT)SPEAKER_03

Okay. So, you're insisting they can compete notwithstanding that. Now, Professor Sood, with vertical integration, spread pricing, and the somewhat inherently opaque nature of these rebate negotiations, how is pricing distorted and how does it impede competition?

Neeraj SoodSPEAKER_00

So, if you focus on vertical integration, what it does is it creates conflicts of interest. So, for example, Senator, if I'm a health plan and I'm competing with you, and if I have my brother who owns a PBM—so let's assume JC is my brother and he owns a PBM and he's providing services to you—how do you feel about that? That creates a conflict of interest because you're like, Hey, he's my brother. He's not going to provide services to you because you're competing with me. So I think there's that conflict of interest that arises in dealing with health plans. It also, as Randy mentioned, it arises in steering patients to their own pharmacies rather than independent pharmacies. And as you said, since these plans are all vertically integrated, if I want to enter this market, it's a big hill for me to climb, because now I need to be a PBM, I need to be a pharmacy, I need to be an insurer all at the same time, and that is really tough to enter in this market. So what we'll be left with is two or three big firms that control majority of the market.

Senator Mike Lee (R-UT)SPEAKER_03

In your view, are those 2 or 3 big firms using their, their scale and their market advantage so as to impede entry, to serve as a natural restriction on entry into the marketplace such that others can't get into that marketplace?

Neeraj SoodSPEAKER_00

I, I think so. That I think, uh, again, these conflicts of interest create this incentive to kind of help your own pharmacies and your own plans, which hurts entry of other pharmacies and plans, which reduces competition in the market, and which increases costs.

Senator Sheldon Whitehouse (D-RI)SPEAKER_10

Thank you. Mike Tomczak, Barrington.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Whitehouse.

Senator Sheldon Whitehouse (D-RI)SPEAKER_10

Thanks very much, Chairman. Good to have you all here for the hearing. Seems to me that pharmaceutical pricing is the decision of the pharmaceutical companies, and Big Pharma would like nothing more than a world in which they control the prices. They have huge sway in this building, and their opposition, if you want to call it that, the concerns on price come from individual patients who have essentially no market power. We've seen really significant pricing abuses by Big Pharma. We pay the highest prices in the world for a great many pharmaceuticals here. President Trump is responding to how sick Americans are of pharma pricing by proposing his executive order to lower it and set U.S. pharmaceutical pricing at international standards. I think that's a signal of how things are going out there. In that environment, a PBM done right is the only institutionally powerful correction to pharma's hegemony over prices. Now, we got a little bit of help by letting Medicare do some negotiation. That's a start. We hope we can do more of that. But other than that, it's just an open-field advantage for Big Pharma to roll over individual patients with no structural opposition. So a PBM done right is actually a counterforce to pharma's, should we say, exotic pricing structures. Because they're able to buy at scale, because they can apply leverage, because there is excess profit baked into the pharma pricing model, they actually can provide a pretty important service. I don't know about you, but when I turn on my iPad, I pretty much always now see an ad paid for by pharma trying to throw PBMs under the bus for pharma's pricing policies. Now, if you're Big Pharma and people are mad about the way you price your drugs and why Americans have to pay more than essentially any other country for pharmaceutical costs, then as President Trump noticed by announcing this next executive order, there's a pretty fed-up public out there. And pharma's response is not to lower its prices, but to move PBMs in the line of fire and try to make them the source of the blame. So I'm sort of watching what looks like a bit of a political strategy by Big Pharma to point the finger at PBMs. There are clearly problems with PBMs, and the worst problem is if the PBMs and Big Pharma are colluding. If the PBMs and pharma are colluding to make the underlying pharmaceutical prices even higher and not complain about the basic pharmaceutical prices, so that they have a bigger margin that they can negotiate for their clients, so that they can get a bigger fee, then you have both pharma and PBMs engaged in an essentially collusive enterprise to cheat the American consumer. That behavior we need to get rid of. But the idea that we need to get rid of PBMs when they're the only significant structural pushback on pharma's pricing, I think, would be a real mistake. And what I'm seeing: Big Pharma, knowing everybody's mad at them, running all these ads, throwing PBMs in the way of public irritation, as if as if pharma doesn't control its own pricing. I I worry about this. Mr. Scott, who sets the prices for pharmaceutical products?

Juan Carlos ScottSPEAKER_04

Drug companies and drug companies alone.

Senator Sheldon Whitehouse (D-RI)SPEAKER_10

Yeah. And you'd agree with me that if drug companies and PBMs are colluding to keep prices high just to give PBMs a bigger share and kind of a general truce so that customers still get screwed, that would be an abuse of the PBM model.

Juan Carlos ScottSPEAKER_04

And that is not happening. And you're pointing to the advertisements as good evidence there is no general truce. We have been calling actively for drug companies to lower their list prices on all prescription drugs. That's a key part of what we advocate for.

Senator Sheldon Whitehouse (D-RI)SPEAKER_10

Well, my time has expired, but I think there's a role for PBMs here. And I think the most important signal we're seeing right now is pharma's ad campaign trying to defend its exotic pricing techniques by putting somebody else in the line of political fire.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Whitehouse, you raised a lot of questions. The four bills that were in the last Congress, one in the House, three in the Senate, none of them did away with PBMs, but they all called for transparency, and it seems the answer to all the questions you raised will be solved at least partly by transparency.

Senator Sheldon Whitehouse (D-RI)SPEAKER_10

We worked on those bills together in Finance, Mr. Chairman. We look forward to continuing to work with you on those bills. I think we just have to understand what the problem is here in order to get the correct solutions, and I thank you for that observation.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Tillis.

Senator Thom Tillis (R-NC)SPEAKER_09

Thank you, Mr. Chairman. Thanks to all the witnesses for being here. As Senator Durbin was making some opening comments, Senator Durbin, I think we're probably going to leave this meeting also saying, What a mess. And one of the reasons I think that we are is we talk past each other and we're not talking about the entire value chain. And until we do, we're going to pick our favorite target, whether it's pharma, whether it's PBMs, and we're going to keep spinning our wheels. You take a look at bad policy, I think in the ACA, everybody's high-fiving because pharma took a haircut. Nobody's talking about how wonderful it was that we had a 60% reduction in small molecule research, which we all know is one of the most promising fields for therapies and cures going forward. So you got to understand the consequences. If some of these companies were so flush with cash and and we're not, uh and can manage the risk, why on earth are they publicly saying in board meetings that they have a 60% reduction collectively in small molecule research? Just one point. I actually think everybody needs to get into the barbershop. I've been saying this for years. A haircut should be coming, but everybody has to be in the barbershop. The question is, are we going to end up with a haircut like Mike Lee's or one like John Kennedy's? And the only—no offense, Mike. I like your new haircut.

Senator Mike Lee (R-UT)SPEAKER_03

a compliment.

Senator Thom Tillis (R-NC)SPEAKER_09

But, I know it. But, but the point is is we keep talking past each other. I can't even get TRICARE, the biggest PBM for federal employees, one that I'm on, I can't even get transparency from them. I tried it in the prior administration. I want to audit the TRICARE PBM. At least we can eat our own dog food, right? And audit our PBM, but what I get back in response to a request on pricing information is a heavily redacted report. This administration, I'm going to try again. I tried it with the Biden administration. Can we at least audit our own PBM and in a confidential way figure out what's in the black box? And I think if we start doing that systematically, Professor Sood, I think some of your— some of your insights specifically into PBMs are probably correct. We're probably going to find out, I mean, I believe that one thing we have to recognize is the PBM mission has has varied dramatically since it was first established. And so the question is, is that mission creep necessary or not necessary? Is it value-added or is it adding cost? But until we get into a structured analysis and get everybody in the barbershop versus using this foreign— this forum to demonize a link in the value chain, then we're going to end up with the same old hearing that I've been to for the better part of 10 years now. We do it every year. It's great. Love it. We hear some very insightful comments and we get nothing done. So, I do think that today, and I have to respectfully disagree with the President, well, in the same way that I've criticized my colleagues and former President Biden for a 60% reduction in small molecule research, for using march-in rights, TRIPS waivers, everything else to solve this problem, I think they're wrong-minded. What is right-minded is to modernize PBMs, figure out what their value added is, determine how we implement price transparency, and then we will create something that has an enduring value for the only person I care about, and that's the patient. So, I do have a quick question for for you, Mr. Scott. What's wrong with Mr.— Professor Sood's suggestion that PBMs should operate as a fiduciary?

Juan Carlos ScottSPEAKER_04

Just on a basic level, the definition essentially of a fiduciary is a person or entity who is in a position of control and decision-making authority over another person's property or finances. The role of the PBM when hired by the employer or others is to recommend and to administer benefits at their direction. They don't make decisions for plan sponsors. They don't have that decision-making authority.

Senator Thom Tillis (R-NC)SPEAKER_09

Then what else would need to change to make it reasonable?

Juan Carlos ScottSPEAKER_04

Well, I, I think what a number of you have been pushing at around transparency is, is an important thing to comment on, because we have leaned in as an industry to try and engage with the committee, both sides of the Congress, on embracing transparency. If Congress says you want to set a floor, then we'll work with you to set that floor as long as our clients can choose additional add-ons to that in terms of data. And

Senator Thom Tillis (R-NC)SPEAKER_09

Thank you, Scott. I hate to break you off, but Senator Grassley, I really think that one of the things that we should probably do outside of the structure of a committee is to have a work group for those of us who are willing to participate, get all the players at the table so that we can have a good, old-fashioned debate club versus the very limited question-and-answer that we have here. And that would be something If you're okay with it, I'd like to follow your lead. If not, then I'm likely to convene it myself so that I can get everybody in the room and we can have a very transparent discussion and comprehensive discussion about how we fix the value chain and how we ultimately address this problem. The most favored nation coming out of the administration, all these other things are shortsighted, unsustainable measures that are not going to produce the result I do believe all of us on this committee want to achieve. It's not the what, but we've got a very wide range of differences on the how. Thank you, Mr.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Finance and Health, and I think we'd have to get those chairmen to agree to that. Senator Coons.

Senator Chris Coons (D-DE)SPEAKER_07

Thank you, Chairman Grassley, Ranking Member Durbin, for convening this, and thank you to the panel for your important work. Let me ask a few questions, if I might. In my small state of Delaware, from 2018 to 2020, Delawareans footed the bill for over $24 million in unnecessary prescription drug payments, largely due to the practices that have been the focus of this hearing. And as a state, we have now enacted a series of PBM reform laws, notably all passed unanimously through our state legislature. I don't think that happens very often in any state. So I'm glad that PBM reform has some level of bipartisan support in Congress, including bills led by Chairman Grassley and other members of this committee. In fact, a ban on so-called spread pricing was one of the only provisions that I was glad to see in the House Republicans' reconciliation bill. Of course, I would have chosen to use the billion dollars in savings to fund community health centers and combat the opioid epidemic, not to give bigger tax cuts. But I'm glad for the opportunity to discuss what reforms could bring transparency, lower drug prices, and improve patient access. If I could, Dr. Kircher, thank you for your work on pancreatic cancer, a disease that's impacted my family specifically. I've received substantial outreach from Delawareans about the need for PBM reform, from clergy to breast cancer survivors. How do PBM practices make it harder for patients struggling with cancer treatment to access lifesaving medications?

Sheetal M. KircherSPEAKER_13

Um, there's a, there's a couple different ways, and the patients don't know that a PBM is even involved,

Senator Chris Coons (D-DE)SPEAKER_07

right?

Sheetal M. KircherSPEAKER_13

But where they hit, where the rubber hits the road for them is like the disconnect between my prescription pad and them receiving the drug. Like, some black box happens sometimes when we can't fill it at our specialty pharmacies, and that might be different within different specialties. So these are for highly complex chemotherapy drugs. Um, and so patients, when we can't use our own pharmacy, really negatively are impacted.

Senator Chris Coons (D-DE)SPEAKER_07

I've seen that directly, personally, with 3 family members who've died of cancer. But thank you for your work and for raising that issue today. If I could, to Mr. Scott and Dr. McDonough, I've seen reports as high as 80% of rural and independent pharmacies receive reimbursement below the cost of procuring and dispensing some drugs. The owner of an independent pharmacy in southern Delaware told me he can no longer even afford to stock certain expensive treatments for HIV, GLP-1s. His reimbursements after PBM fees are unpredictable, and he can't afford to lose money every time he dispenses one of these. Mr. Scott, why isn't there greater transparency into the reimbursement process? And Dr. McDonough, how could greater transparency help level the playing field, particularly for independent pharmacies and rural pharmacies?

Juan Carlos ScottSPEAKER_04

I'll go first and briefly to say, understand the mechanics of how this works, because there is transparency when the pharmacy is choosing to contract to be part of a PBM's recommended network,

Senator Richard Blumenthal (D-CT)SPEAKER_01

right?

Juan Carlos ScottSPEAKER_04

And more than 80, 85% of those independent pharmacies are actually empowering a wholesaler through their PSAO, Pharmacy Services Administrative Organization, to negotiate on their behalf. You have three big wholesalers controlling 90% of the market. They're selling the drugs to the pharmacy, and they're negotiating these contracts on their behalf. And that is the starting point for determining how the reimbursement is going to flow to a pharmacy in a network.

Randy P. McDonoughSPEAKER_05

I think transparency is key. You know, when you think about the physician writing the prescription and then the end user being the patient, and normally filled at a pharmacy, there's a lot of stuff that happens in between,

Senator Chris Coons (D-DE)SPEAKER_07

right,

Randy P. McDonoughSPEAKER_05

where things are getting siphoned off and everything else and fees. And I think One, spread pricing we know is real. We, um, as an independent pharmacy, we had a local employer who approached us and asked us if we would be willing to do direct contracting with them. I was lucky that this CEO had had experience in the insurance agency area, and he said that, you know, I want to see what you— if you give us a direct price, what that would do. That's been 5 years ago. They stay with us. They've saved a heck of a lot of money. Patients are happy because they get to go to a pharmacy that's going to provide services for them. And we actually made some money where we could stay open. So I do think transparency all along the line to find out what's going on. But I also think when we talk about rebates, that's so opaque. What do we have to do to really understand about rebates? And do we need rebates? I mean, that's a broad and a radical thing of thinking about, but let's just start from the very scratch and saying, you know, can we do something where we know our actual cost? I couldn't tell you what my actual cost is because of rebates. So I do think we have to have a lot more transparency.

Senator Chris Coons (D-DE)SPEAKER_07

Ms. Faust Dr. Faust, to follow up on the point Dr. McDonough just made, should all PBMs be required to operate with the same level of transparency as yours when it comes to selecting drugs and obtaining rebates? And what other practices could PBMs learn from your company?

Sharon FaustSPEAKER_12

Yeah, we believe wholeheartedly in transparency and passing through rebates, especially as it relates to passing that savings through to the client. All PBMs should be— have transparency across the entire drug supply chain. And so that would be a great first step. Around debates.

Senator Chris Coons (D-DE)SPEAKER_07

Thank you to all the witnesses today. Thank you,

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Coons. Senator Kennedy.

Senator John Kennedy (R-LA)SPEAKER_06

Professor Sood, as I understand it, 80% of the PBM market is controlled by 3 companies, 3 PBMs that are vertically integrated. Is that right?

Neeraj SoodSPEAKER_00

That is correct.

Senator John Kennedy (R-LA)SPEAKER_06

Does your research show that the prices that consumers pay are higher than they would be if those companies were not vertically integrated?

Neeraj SoodSPEAKER_00

So, my research on Medicare Part

Senator John Kennedy (R-LA)SPEAKER_06

D— Give me an answer.

Neeraj SoodSPEAKER_00

Uh, partially.

Senator John Kennedy (R-LA)SPEAKER_06

What do you mean partially? They're either higher or they're lower. So there's no such thing as a partial price.

Neeraj SoodSPEAKER_00

what I find is that Medicare Part D premiums are higher as a result of vertical integration.

Senator John Kennedy (R-LA)SPEAKER_06

Okay.

Senator John Kennedy (R-LA)SPEAKER_06

Well, then why don't we— I'm all for transparency, Mr. Chairman. I want to say that. But why don't we skip the foreplay and go right to the sex and get rid outlaw vertical integration for for Part D? Would you accept an amendment to your bill like that?

Chairman Chuck Grassley (R-IA)SPEAKER_11

I don't want to answer that question right now because I want to study that.

Senator John Kennedy (R-LA)SPEAKER_06

Would you support that, Mr. Scott? Let me just guess what your answer is.

Juan Carlos ScottSPEAKER_04

No, sir, and I can explain why.

Senator John Kennedy (R-LA)SPEAKER_06

No, you speak Sanskrit. I'm sorry. You're good at it, and I know your job is to protect PBMs, and, like Tillis, I don't think PBMs are the only ones at fault, but you don't have unclean hands. Professor Sood, you say PBMs ought to be fiduciaries. To whom?

Neeraj SoodSPEAKER_00

To both the plan and their members.

Senator John Kennedy (R-LA)SPEAKER_06

Well, what if the plan and the members' interests diverge? Who are they fiduciaries to?

Neeraj SoodSPEAKER_00

Ultimately, in principle, they should be fiduciaries to the members.

Senator John Kennedy (R-LA)SPEAKER_06

Okay.

Neeraj SoodSPEAKER_00

So, for example, ERISA makes—

Senator John Kennedy (R-LA)SPEAKER_06

I get it.

Neeraj SoodSPEAKER_00

Okay.

Senator John Kennedy (R-LA)SPEAKER_06

I get it. Mr. Chairman, again, why don't we skip the foreplay and go right to the sex? Why don't we just amend your bill to require that PBMs have a fiduciary obligation to plan members?

Chairman Chuck Grassley (R-IA)SPEAKER_11

Well, I think that's been suggested, and I think there's part of that in, in our legislation, but probably not fully enough to satisfy you.

Senator John Kennedy (R-LA)SPEAKER_06

Well,

Chairman Chuck Grassley (R-IA)SPEAKER_11

so let me look at what you want to add to it.

Senator John Kennedy (R-LA)SPEAKER_06

Okay, I mean, I'm not criticizing your bill. I don't want my office to end up in Bethesda. So I'm not criticizing your bill. I like transparency. But we're just nibbling around the edges here. And with respect, Mr. Scott, your definition of a fiduciary is wrong. A fiduciary isn't somebody that controls the decision. You know that, and I know that. A fiduciary is somebody who has who has a legal obligation to give his client the best advice and to do what's best for his client. It doesn't replace agent with principal or vice versa. You know that, and I know that. Well, you you need to talk to your lawyers. I I may be wrong, but I doubt it. Let me go back to Professor Sood. Tell me two things you would do tomorrow to fix PBMs and result in lower prices for consumers?

Neeraj SoodSPEAKER_00

So I think the 2 things I would do— Very specific. Yes. Uh, I would, uh, implement price transparency so that everyone knows what they're paying and—

Senator John Kennedy (R-LA)SPEAKER_06

Okay, price transparency just tells us who's going to— who's screwing us.

Neeraj SoodSPEAKER_00

Yeah. Okay. And then the fiduciary responsibility says If you're getting screwed, I can take you to court. So I would do those 2 things. And those are, I think, better than banning particular practices, because otherwise it's whack-a-mole. You ban spread pricing and something else will show up a year from now.

Senator John Kennedy (R-LA)SPEAKER_06

I got 29 seconds. Do you have any other suggestions? I appreciate your straight

Neeraj SoodSPEAKER_00

talk. So the other thing we can do is what I recommended is pass-through of rebates to patients. So suppose a drug—

Senator John Kennedy (R-LA)SPEAKER_06

Say that again.

Neeraj SoodSPEAKER_00

So, pass-through of rebates to patients. So, for example, the list price of a drug is $50,000, but the rebate on the drug is $40,000. So, when a patient is paying cost sharing, suppose 10%, they should be paying on the post-rebate price, so which is the $50,000 less the $40,000 rebate. Right now, what's happening is patients are paying cost sharing on the $50,000. So, this would immediately lower patient out-of-pocket costs. So, as Dr. Kircher said, for the cancer patients—

Senator John Kennedy (R-LA)SPEAKER_06

So you're saying that the PBMs are jacking up, are encouraging manufacturers to jack up the list price so they can jack up their rebates?

Neeraj SoodSPEAKER_00

And that—

Senator John Kennedy (R-LA)SPEAKER_06

Is that right?

Neeraj SoodSPEAKER_00

Yes.

Senator John Kennedy (R-LA)SPEAKER_06

That's illegal.

Neeraj SoodSPEAKER_00

And the jack— That's

Senator John Kennedy (R-LA)SPEAKER_06

illegal.

Neeraj SoodSPEAKER_00

Yes.

Senator John Kennedy (R-LA)SPEAKER_06

I

Neeraj SoodSPEAKER_00

don't know about that, but it—

Senator John Kennedy (R-LA)SPEAKER_06

I do. It's illegal as hell.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Before I call on Senator Hirono, I want to remind my members we've got to vote and they're enforcing the 30-minute rule, so I'm going to go vote. Will you take over while I'm gone? And then I'll be back before you finish, I'm sure. Senator Hirono.

Senator Mazie Hirono (D-HI)SPEAKER_16

Thank you, Mr. Chairman. I thank all of the panelists for being here. Prescription drug supply chain is not competitive. I think that is very clear based not just on today's testimony, but in prior hearings. One of the reasons is vertical integration. So, Professor Sood, you were asked by my colleague just now what things would you do. Can you just explain why we shouldn't try to break up the vertical situation, the vertical integration situation? We do have a bill that would require the divestiture of PBMs owning pharmacies. So why wouldn't that be a structural change that we should be contemplating?

Neeraj SoodSPEAKER_00

So I think we can contemplate that change, but I'm not sure if that change is required or how disruptive that change would be. I would encourage DOJ and FTC to look at antitrust issues related to vertical integration and try to address them. And if that can address these issues, then we don't need to take the more heavy-handed approach, which would be forcing PBMs to divest pharmacies, et cetera. So I'm not saying I'm not just fully sold on that right now, but I recognize that there are antitrust issues and DOJ and FTC should address them.

Senator Mazie Hirono (D-HI)SPEAKER_16

Well, we're not expecting too much along these lines from either entity, by the way, because the FTC had opened some, I think, investigation along the lines that you suggest, and there are some markets that just are not given to competition, and I would say this is one of them. And I'm not blaming PBMs for the over the drug companies. This is not a matter of whose fault it is, but there's some structural kinds of changes, and I would say that a vertically integrated entity, you just immediately have created a conflict situation. And so one of the ways that antitrust comes in is by requiring divestiture. And having practiced in this space as an antitrust lawyer, I think that there's some markets, as I say, that are not given to the kind of reforms that you're talking about. So we can have all the price transparency you want, but if you don't have much power, so what? So even if the three largest PBMs control 80% plus, even if they are, if there's transparency in pricing, if there's a lack of power on the part of the entities that they are working with, really the question becomes to me: So what? Now, I am also at a loss as to why we permit spread pricing. So, Ms. Faust, yours is a pass-through PBM. Why shouldn't we require all PBMs to be pass-through and not engage in the kind of spread pricing that certain entities such as, I would say, the Iowa AGs said that the spread pricing enabled PBMs to retain millions and millions in probably undue profits? So what do you say about eliminating spread pricing? There are some states that have done that, including Hawaii.

Sharon FaustSPEAKER_12

We support transparency, and that includes transparency to what pharmacies are being paid, which is why our model aligns with clients paying what pharmacies are paid and no spread or capture in the middle. That supports both pharmacies and the plans, which should really be the gold standard to support patient care.

Senator Mazie Hirono (D-HI)SPEAKER_16

Professor Sood?

Neeraj SoodSPEAKER_00

I agree that I think I would support eliminating spread pricing. I don't see how it serves patients.

Senator Mazie Hirono (D-HI)SPEAKER_16

Dr. Kircher, you have real-life experience in your cancer patients. And cancer treatments are—I understand, I know from my own experience—very complicated. And you have to the medications and the impacts of medications. So you have had patients who have literally been at death's door because you're not able to get the PBMs to move fast enough. And they do not have the expertise to decide which medication is the most efficacious. So what is the kind of reform that we need to do with prior approval by PBMs?

Sheetal M. KircherSPEAKER_13

Yeah. And I think a good point has been made by a lot of people in this committee of that it's probably not just the PBMs. I think there's every line in the chain, coming from the manufacturers, the payer solutions, as well as we saw with the Inflation Act and insulin. But I think we need to— I got lost in the question. What was the question again?

Senator Mazie Hirono (D-HI)SPEAKER_16

Prior approval. What can we do to reform prior approval?

Sheetal M. KircherSPEAKER_13

No, I think these drugs are so expensive that we get it that you need prior approval. We just need them resolved quickly and, um, and effortlessly. You know, I think that's the main thing that we're asking. Not that they don't exist, but that we can resolve them quickly.

Senator Mazie Hirono (D-HI)SPEAKER_16

I think that is a hard row to hoe considering they don't really— PBMs don't really have the expertise, from my understanding, of making these determinations quickly. Thank you, Mr. Chairman.

Senator Josh Hawley (R-MO)SPEAKER_14

Thank you very much, Senator. Mr. Scott, let me start with you. You represent the largest association of PBM companies, I think. Is that right?

Juan Carlos ScottSPEAKER_04

Yes, sir. I believe the only—

Senator Josh Hawley (R-MO)SPEAKER_14

the, the largest and only. Perfect. Now just help me understand what it is your, your business is supposed to be doing. You're supposed to be making drugs cheaper for patients. Is that basically right?

Juan Carlos ScottSPEAKER_04

We're supposed to help employers and plan sponsors administer benefits at a more affordable point for the consumers.

Senator Josh Hawley (R-MO)SPEAKER_14

Okay, more affordable for consumers. That's patients. So you're supposed to be making drug— would you say that you're succeeding?

Juan Carlos ScottSPEAKER_04

We've had, we've had success in managing the net cost of drugs across most categories of medications. And yes, in, in large part, but we have the challenge of ever-escalating drug company list prices to work against.

Senator Josh Hawley (R-MO)SPEAKER_14

Okay, let me translate that for you. I think the answer you're looking for is no, you're not succeeding at all. Look, let's look at some data. This data shows the percentage that Americans pay more than other countries for brand-name drugs. In Canada, we pay 324% more than Canadians pay, 445% more than France, and so on. On average, altogether, we pay 422% more than all of these other countries. Now, either you're the worst negotiators in the history of the world or something's wrong with your business model. Which is it?

Juan Carlos ScottSPEAKER_04

Those, if I may, Senator, those are comparisons of list prices. Drug companies alone, as we talked about earlier, set the list price. The PBM is negotiating down the net cost.

Senator Josh Hawley (R-MO)SPEAKER_14

Look, this is consumers are you're not you're not actually you're not telling me that that consumers aren't paying more in the United States than they are overseas, are you?

Juan Carlos ScottSPEAKER_04

I, I think the data would tell us that they are exposed to higher prices. And then it comes to an issue of benefit design. The plan decides what your copays—

Senator Josh Hawley (R-MO)SPEAKER_14

Yeah, and the— here's the benefit design. The design of the plan benefits the insurance companies and you. It does not benefit the patients. Patients are getting screwed, if I may. We are paying two, three, four times more for drugs. People in my state can't afford insulin. They can't afford the most basic drugs. That's when they have plans, plans that are managed by you. And you guys are getting rich off of it, absolutely filthy rich. The FTC's report— so this is the government report now— found that the top three PBM companies generated $7.3 billion in profits between 2017 and 2022. $7.3 billion. That's a lot of money. Why is it that nobody can afford their drugs in this country, but you're making $7.3 billion? That's more than the revenue of some nations.

Juan Carlos ScottSPEAKER_04

If I may, 2 points. One, you're not wrong that we need more competition among drug companies. The patent reforms that you all have advanced in this committee— the more we can have competition, we can leverage that to address that cost challenge that we have. I'm

Senator Josh Hawley (R-MO)SPEAKER_14

glad you say we need competition, because don't you think the competition we really need is to break up this alliance between insurance companies and PBMs?

Juan Carlos ScottSPEAKER_04

No, sir.

Senator Josh Hawley (R-MO)SPEAKER_14

The biggest 3 PBMs are owned by the biggest insurance companies. You're like one huge giant pharma industry, a giant pharma series of monopolists, right? Why is it a good idea for the biggest PBMs to be owned by the biggest insurers, and now you're buying up pharmacies as well? Why should we allow that? Why should insurance companies, PBMs, also own pharmacies?

Juan Carlos ScottSPEAKER_04

So a couple of—

Senator Josh Hawley (R-MO)SPEAKER_14

how is that good for patients?

Juan Carlos ScottSPEAKER_04

It's good for patients and for plans because it's creating optionality in the market.

Senator Josh Hawley (R-MO)SPEAKER_14

It's creating optionality. In the state of Missouri, just last year, we lost 73 independent pharmacies across my state in 19 different counties. Do you know that two entire counties in the state of Missouri now have—wait for it—zero pharmacies? Zero. Now, you are making $7.3 billion, you and the companies that you represent, and yet two whole counties in the state of Missouri have no pharmacies. 73 closed last year. Why shouldn't we be breaking you guys up? I mean, this looks like classic monopolist behavior. The patients are getting screwed. Missourians are getting screwed. You're getting rich.

Juan Carlos ScottSPEAKER_04

Respectfully, Senator, you keep citing a gross revenue number of the drug. Every dollar spent on prescription drugs— you're not

Senator Josh Hawley (R-MO)SPEAKER_14

making— you don't have profits?

Juan Carlos ScottSPEAKER_04

Profits are in the low single digits. Your profits

Senator Josh Hawley (R-MO)SPEAKER_14

are not better than they've ever been?

Juan Carlos ScottSPEAKER_04

I don't know on the trend over the years.

Senator Josh Hawley (R-MO)SPEAKER_14

Yes, you do. You know exactly. It is all laid out in the FTC report. You absolutely know the answer. Your profits have increased and increased and increased, and now you are buying up pharmacies, and you are the— you're buying up pharmacies and you're putting independent pharmacies out of business, and you're doing it deliberately because you are giving special rebates and lower costs to the pharmacies that you own, and you are directing patients to the pharmacies that you own, such that if they don't go to a pharmacy that you own, they have to pay higher costs. They have to pay out-of-network costs, right? You're nodding your head, Dr. McDonough. You've lived this, right?

Randy P. McDonoughSPEAKER_05

I have lived this. I live it every day. Yes, it's exactly what's happening.

Senator Josh Hawley (R-MO)SPEAKER_14

So, Mr. Scott, why don't we break you guys up? Can you agree? I mean, if you believe in competition, you just said a second ago, We need more competition, by golly. Well, let's do it. Let's pass a law that says PBMs cannot own pharmacies. You for that?

Juan Carlos ScottSPEAKER_04

No, sir. And we've seen that competition grow in the last 5 years by 18% in the PBM market, by 9% in the last 2 years.

Senator Josh Hawley (R-MO)SPEAKER_14

Wait a minute, you've seen pharma— you've seen the number of pharma pharmacies grow in this country?

Juan Carlos ScottSPEAKER_04

The number of PBMs, meaning it's a competitive marketplace.

Senator Josh Hawley (R-MO)SPEAKER_14

It's not

Juan Carlos ScottSPEAKER_04

a

Senator Josh Hawley (R-MO)SPEAKER_14

competitive marketplace. The biggest 3 PBMs own 80% of the business. 80%. And you're in turn owned by the biggest insurance companies. The problem is there is no competition. It's a racket. It's a total racket. And the people who lose are the patients who cannot afford their prescription drugs. It's time for this Congress to do something about it. Uh, now, Senator Welch,

Senator Peter Welch (D-VT)SPEAKER_08

uh, thank

Senator Josh Hawley (R-MO)SPEAKER_14

you.

Senator Peter Welch (D-VT)SPEAKER_08

Thank you very much, and I associate myself with the remarks from the senator from Missouri. We only have 126 independent pharmacies in Vermont. They've been going out of business left and right. My view, they're absolutely critical to the community. Main Street's getting devastated. This is especially true in rural America. And Jeff Hochberg, who's the head of our independent pharmacy group, who's got a pharmacy in Rutland and a few other places, showed me the DIR returns. And you have the same problem, Mr. McDonough, that I think all independent pharmacies have. You get paid less for filling a prescription, and you don't even know you're going to get a clawback from the PBM until after the fact. Is that true?

Randy P. McDonoughSPEAKER_05

That is true, especially as we look, they're doing true-ups now where from two years ago or something because of our PSAO.

Senator Peter Welch (D-VT)SPEAKER_08

But it was thousands of dollars.

Randy P. McDonoughSPEAKER_05

It is.

Senator Peter Welch (D-VT)SPEAKER_08

It's unbelievable.

Randy P. McDonoughSPEAKER_05

Yeah.

Senator Peter Welch (D-VT)SPEAKER_08

And by the way, I just want to acknowledge—and my wife, first wife, had cancer. The pharmacist was so crucial to us. You're getting cancer-related drugs, and you get the prescription, and, Dr. Kircher, you know this, and it isn't exactly the way—it's trial and error as you go on. And the person we could talk to was our local pharmacist. And God bless you all for the work that you do for all of our communities. Mr. Scott, I want to ask you, how in the world can a business survive if they sell the product at what is an agreed-upon price, and then you reimburse them at a lower price months after the fact? How in the world is that a fair business model that makes it at all possible for our community pharmacies to survive?

Juan Carlos ScottSPEAKER_04

Just 2 quick holding statements and then to address your question.

Senator Peter Welch (D-VT)SPEAKER_08

I don't want 2 quick holding statements. Well, I have a simple question. They agree on a price, you agree on a price, and then you do a clawback.

Juan Carlos ScottSPEAKER_04

We all have

Senator Peter Welch (D-VT)SPEAKER_08

some complicated formula.

Juan Carlos ScottSPEAKER_04

We all have the same goal, Senator. We need a healthy retail pharmacy market because if we can't serve patients with those access You

Senator Peter Welch (D-VT)SPEAKER_08

know what? We don't have a healthy retail pharmacy market.

Juan Carlos ScottSPEAKER_04

And we

Senator Peter Welch (D-VT)SPEAKER_08

doesn't exist. They're under incredible pressure, and we can be blind to it, but you're suggesting— I want an answer of how we deal with Mr. McDonough, and how we deal with Jeff Hochberg, and how we deal with all these community pharmacies in our small towns throughout the country. What's

Juan Carlos ScottSPEAKER_04

answer? Those reimbursements are per the agreed-upon contract that the PSAO negotiates on behalf of the pharmacy.

Senator Peter Welch (D-VT)SPEAKER_08

I'm going to interrupt here. Professor Sood, you told me that 40% now of the cost of pharmaceutical drugs is in the supply chain, all right? So that's people reaching in who have access to this market, which, by the way, the individual consumers have no access to at all. They just got to get the drug for a person they love, and they'll mortgage their house, they'll sell a retirement, they'll do whatever it takes to take care of the the well-being of the person they love. So, this question of DIR and clawback, is that one of the aspects of how this is getting to be such a rip-off?

Neeraj SoodSPEAKER_00

Yes, yes, completely. And I agree that for a business, if you don't know what the price you're getting for the services you provide— and I don't think it's a choice for independent pharmacies because if the big 3 PBMs control 80% of the market they control 80% of the patients. So if they don't sign a contract with the PBM, they lose 80% of the market. So I don't think there's a real choice here.

Senator Peter Welch (D-VT)SPEAKER_08

Thank you very much. Oftentimes, not what you do, it's how you do it. I think we need pharmaceutical companies to help us with drugs, but the pricing that they do is terrible. We may need PBMs, but how they do it makes a huge difference. Ms. Faust, I was impressed at the transparency in your PBM. And the information you provide, is it different than the information that the other PBMs provide?

Sharon FaustSPEAKER_12

Our practices are different. They focus on lowest net costs, and we've never actually done DIR practices.

Senator Peter Welch (D-VT)SPEAKER_08

You've never done that since you survived?

Sharon FaustSPEAKER_12

No, because we believe that that wasn't—

Senator Peter Welch (D-VT)SPEAKER_08

Okay, you're going to keep— It's clear what happens. We squeeze and crush the independent pharmacies. What about on the pricing? Do you share information with your members that is not shared with the people who sign up with Mr. Scott organizations?

Sharon FaustSPEAKER_12

The pricing for the plan sponsors is auditable and available. Patients get pricing through any sort of applications which are also at pbm

Senator Peter Welch (D-VT)SPEAKER_08

Well, what's the transparency you have that is different than the transparency from the Mr. Scott organization?

Sharon FaustSPEAKER_12

We show— we have all of our fees fully disclosed.

Senator Peter Welch (D-VT)SPEAKER_08

Are your fees fully disclosed?

Juan Carlos ScottSPEAKER_04

Many of our members offer the same model.

Senator Peter Welch (D-VT)SPEAKER_08

What?

Juan Carlos ScottSPEAKER_04

Many of our member companies as an association, our member companies offer the same

Senator Peter Welch (D-VT)SPEAKER_08

model. No, here's the question I asked. Are your fees disclosed? Could I look up your fees right now?

Juan Carlos ScottSPEAKER_04

We're a trade association with a number of individual company members, and I'm saying those companies, many of them, structure it the same way as Navitus.

Senator Peter Welch (D-VT)SPEAKER_08

All right, my time is up. Thank you all very much for your testimony. Senator— I'm sorry, you're the chair.

Senator Marsha Blackburn (R-TN)SPEAKER_17

Yes, thank you very much, and I'll recognize myself for questions. I want to thank all of you for being here. This is an issue that our healthcare marketplace has struggled with for many years. And Dr. McDonough, I do want to come to you first, because in Tennessee, where I represent, since 2010, we have had 120 of our independent pharmacies close, and this is tragic. Many times that pharmacy is the only access point for healthcare in these communities. And to a pharmacy, they—when I go in and talk with these individuals, and I'm in each of our 95 counties every year, and they will talk about how horribly they were treated by the PBMs. So I'd like for you just to talk about, for just 30 seconds, about how growth and consolidation around this PBM model has strangled not only you but other independent pharmacies?

Randy P. McDonoughSPEAKER_05

You know, when we saw the chart that showed the $7.3 billion in, in profits that the PBM industry is making, I can guarantee you during that same time from 2017 to 2022, we just saw our, our profits going down to the point where we have no profits. We're being squeezed. And that's very concerning to me because when we lose that community pharmacy, whether it's in an urban area where they might be the community pharmacy for that area or in a rural area that we're in, they ain't coming back. I've had so many mayors and city managers and towns come to me and saying, will you open up a pharmacy? I'm like, we can't. We can't afford to. So it has had dramatic impact on us. To the point where now we've closed a pharmacy and, uh, converted another one to a hybrid telepharmacy, and that's still struggling. And I want to make it clear, it's not because we're bad business people. I want to make that perfectly clear. It's because we are not making any money on the drug, let alone the services that we provide to the patient to ensure that patient is achieving a therapeutic outcome with that medication. So we're losing it twice. We're losing it on the drug side and we're losing it on the service side. There's no way.

Senator Marsha Blackburn (R-TN)SPEAKER_17

You're You're right about that. I want to talk about bad actors with Mr. Scott for a few moments. We recently had the Department of Commerce and Insurance in Tennessee do a report that gave us some really disturbing information on one PBM in Tennessee. And what they found was that they were forcing these independent pharmacies, the non-affiliated, to pay a higher inflated rate on over 550 drugs. And they profited more than $30 million through spread pricing. Now, this gets to my first point about those 120 independent pharmacies that we have lost in Tennessee. Now, this same PBM failed to reimburse 265 pharmacy claims within the legally legally set 7-day business day period. And that impacted 40 separate pharmacies in the state. You know, it doesn't take a lot to connect the dots on this, and there are just there are so many examples of these egregious practices. For the purpose of this hearing, I've given you one finding from this report. And what we have seen is you talk about transparency, we don't have it. And it is insulting to patients and to pharmacies and pharmacists and to these independent pharmacies. So talk to me about how a $30 million spread and delayed reimbursement for pharmacy claims meets the transparency standards you claim the PBMs are putting in place?

Juan Carlos ScottSPEAKER_04

Thank you, Senator Blackburn. I can't speak specifically to the individualized example, but I can cite to another report that was recently produced by Dr. Carlton from the University of Chicago looking at these questions and using the exact same dataset that's been submitted to the FTC for their ongoing study, and the conclusion was that unaffiliated pharmacies are not being paid less than affiliated pharmacies.

Senator Marsha Blackburn (R-TN)SPEAKER_17

Well, I will tell you, in Tennessee that is not the case. And if you would like to see the study, I would be more than happy to submit it to you.

Juan Carlos ScottSPEAKER_04

I, I will certainly take a look at it, Senator. If I could make 2 quick points

Senator Marsha Blackburn (R-TN)SPEAKER_17

very quickly— my time's expired—

Juan Carlos ScottSPEAKER_04

the practice of affiliation is not unique. Hospitals, wholesalers, grocery stores, Amazon, others are all partnering with pharmacies in order to provide that efficiency of of care. And the other is, this same point has been made a couple of times, paying pharmacists to be able to do more services for patients is something that we really strongly support and there's legislation

Senator Marsha Blackburn (R-TN)SPEAKER_17

Do you support that like you support the hike in administrative fees that your pharmacies have put in place? They have doubled. Doubled. You've got administrative fees for prescriber education, medication adherence, data analytics— pardon me— and these have increased 51%, $3.8 to $5.7 billion in a 2-year period of time. If I had my way, I'd do away with these programs. Senator blumenthal.

Senator Richard Blumenthal (D-CT)SPEAKER_01

Thanks, Mr. Chairman. Thank you all for being here, and thanks for holding this hearing.

Senator Richard Blumenthal (D-CT)SPEAKER_01

I want to come back to the rebates issue. We all know that pharmacy benefit managers negotiate with drug manufacturers on rebates, and theoretically they can save money for consumers if the PBMs pass along the benefit of those rebates to their clients, the employers and others, that then can use the money to reduce the plan's cost. There's been some debate, I know, and discrepancies on the issue. Last summer, the three largest PBMs testified in Congress that 95 to 98% of the rebates they collected from drug manufacturers go back to employers. Last year, the Kaiser Foundation conducted a survey, I think it's 2,142 randomly selected companies, and found that only one in five of those employers actually received most of the rebates. The other four in five didn't know what percentage of the rebate they receive or reported receiving only some or a little bit of the rebate. I know the PBMs have long argued that rebates help employers by providing flexibility in their benefit designs and in in other ways. But if the employers aren't getting most of the rebates or don't even know what they're getting, tell me how there's merit to the PBM's arguments. Mr. Scott, could you explain—I know there's been some discussion of it here—how you reconcile the argument that the benefits go to the employers when the employers aren't getting those benefits or don't know whether they're getting them?

Juan Carlos ScottSPEAKER_04

Thank you for the question, Senator. I believe they are getting them, and they have the optionality to choose to get 100% of them, or to use— well,

Senator Richard Blumenthal (D-CT)SPEAKER_01

you believe they're getting them, but the Kaiser Foundation found they're not.

Juan Carlos ScottSPEAKER_04

I think the discrepancy we've seen in the data is that some of it is not reflective of the trend that we have seen a lot more of that pass-through model in the last year to 18 months. And that's a, that's a pot that more employers are saying we want them all. We've had one of the big 3 PBMs say we're going to do only 100% rebate.

CROSSTALK

The

Senator Richard Blumenthal (D-CT)SPEAKER_01

Kaiser Foundation survey is outdated?

Juan Carlos ScottSPEAKER_04

I would need to look at it to understand. I'm making a supposition that that's maybe why it's why it's not lined up with the other studies from GAO, from Dennis Carlton, from

Senator Richard Blumenthal (D-CT)SPEAKER_01

others. Changed in the last year?

Juan Carlos ScottSPEAKER_04

Employers are making a different choice. They're using their ability to design their contract to say that they want 100% pass-through in more instances.

Senator Richard Blumenthal (D-CT)SPEAKER_01

And you're saying that has made a radical difference in whether they're getting the benefits of rebates?

Juan Carlos ScottSPEAKER_04

That, that choice has always

Senator Richard Blumenthal (D-CT)SPEAKER_01

existed before when they weren't getting benefits.

Juan Carlos ScottSPEAKER_04

That, that choice has always existed for them. Uh, and so we, we are for transparency to make sure employers are getting all the information when they're making that decision, and then letting them choose whether they want to receive the rebates. What's the

Senator Richard Blumenthal (D-CT)SPEAKER_01

latest credible study that you would urge us to—

Juan Carlos ScottSPEAKER_04

that the piece completed by Dr. Carlton from the University of Chicago, which was just updated in the last month, shows that we're almost at a 100% pass-through.

Senator Richard Blumenthal (D-CT)SPEAKER_01

I haven't seen that study. Has anyone else on the— We'd

Juan Carlos ScottSPEAKER_04

be happy to share that with you.

Senator Richard Blumenthal (D-CT)SPEAKER_01

Thank you. None of you have seen it. Uh, let me ask, um, all the witnesses on patent laws. Um, you're all familiar with the drug manufacturers' misuse of patent laws to in retaining, in effect, monopolistic control. Do all of you agree that reforms in the patent laws would enable lower costs for consumers?

Sharon FaustSPEAKER_12

Yes.

Senator John Kennedy (R-LA)SPEAKER_06

Yes.

Senator Richard Blumenthal (D-CT)SPEAKER_01

Hopefully we'll have unanimity because my time is about to expire.

Randy P. McDonoughSPEAKER_05

Yes.

Senator Richard Blumenthal (D-CT)SPEAKER_01

I take it that we do. Thank you, Mr. Chairman.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Uh, Senator Britt.

Senator Katie Britt (R-AL)SPEAKER_19

Thank you, Mr. Chairman. Mr. McDonough, or Dr. McDonough, as an independent pharmacist operating in a community setting, you are not just a healthcare provider and part of that ecosystem, you're also running a small business. We've seen over 6,500 independent pharmacies close their doors since 2010. And in Alabama, we looked at the reliable data between 2015 and 2018, we had over 225 close their doors. That goes to a rate of about one per month. When you're dealing with a state like Alabama, when in our rural communities, local independent pharmacies is often the only healthcare provider within 20 or 30 miles, this is absolutely completely unacceptable. When PBMs impose retroactive clawbacks, DIR fees, and below-cost reimbursement rates, they're not just squeezing your bottom line, they are pushing out entire communities towards pharmacy deserts. Based on what you've seen, are current PBM practices accelerating the loss of rural pharmacies, and what does that mean for basic access to medications and clinical services in places like rural Alabama?

Randy P. McDonoughSPEAKER_05

Yeah, I would definitely say— excuse me— that it has been accelerating. If you look at just some of the, the past information that we've had within our own pharmacy and looking how much we lost, and I'll use the pharmacy that we just closed, you know, 2 years ago we were at a negative $95,000 as our net amount that we made. Last year was a negative $75,000. Then we dug into the data, 25% of all the prescription claims that we filled were lower than zero. Unbelievable. So it's negative. A third of the prescriptions were $0 to $5. What does that mean? Well, if we look at cost of dispensing, you talk about being a small business. I hire people in my corporation. In our corporation, we have, you know, 70 to 80 employees. I take it very seriously You know, when we have to think about closing something because I'm affecting people's potential livelihoods. I've also seen how community pharmacies, when they close up, how the community misses them. Absolutely. Because they may be the only healthcare provider, as you said, that they have access to. And these are not just community pharmacies. These are people who are trusted within the community, who contribute back to the community. These are the people who get the calls after hours and actually will take a drug to a patient at their home. That's what's missing, and we're going to be losing more and more. So as long as we keep debating about this— because people have asked me, do you think we're going to see more closures? I'm like, absolutely.

Senator Katie Britt (R-AL)SPEAKER_19

There is a relationship aspect in our rural communities that cannot be matched. When you're looking at creating opportunity, that opportunity for the American dream, you can't draw in that opportunity without access to care, without access to pharmacies. No one is going to come and locate a plant and create good-paying jobs or decide to expand in a place that has a pharmacy desert. We know that that is true. And so looking at this in a place like Alabama, where 55 out of 67 of our communities are rural communities, they deserve better. And so when we're looking at all of this, and I think Mr. Scott made clear this morning, most employers do rely on PBMs to manage cost. But still, as the PBM debate rolls on, I'm struck by how the patient and employers, the ones who are actually paying the bills, seem to be the least empowered voices in the entire system. Employer-sponsored healthcare insurance remains the primary source of health coverage in America, so more than 164 million Americans obtain coverage through an employer. Dr. Sood, why do most employers accept a model where intermediaries are incentivized by the size of the rebate rather than the value of the drug to the patient?

Neeraj SoodSPEAKER_00

So I think the challenge is employers don't have a lot of choice. 80% of the market is controlled by the big 3 PBMs, and, you know, that scale is important in in leveraging discounts from manufacturers. But I think employers would prefer a model where there was a direct price reduction and no rebates, because then I can make sure that I've got the money, right? Like, rather—

Senator Katie Britt (R-AL)SPEAKER_19

So are those the structural reforms that you believe are needed, or what else do you think is needed for more visibility, bargaining power, and value for our dollar?

Neeraj SoodSPEAKER_00

So I think what is needed is greater transparency so that we know, or employers can know, whether they're getting a good deal or not. And we need a fiduciary responsibility for PBMs that if they don't act in the best interest of plan members or employees, we can address that in the courts.

Senator Katie Britt (R-AL)SPEAKER_19

And one final question. Dr. Kircher, do you believe that rebate-driven formulary design and utilization tools reflect sound clinical judgment?

Sheetal M. KircherSPEAKER_13

Um, oftentimes no. Oftentimes we are trying to fight for medications that are nationally guideline accepted that we are still fighting for. Thank

SPEAKER_UNKNOWN

you. For

Chairman Chuck Grassley (R-IA)SPEAKER_11

me to stay here till the end of the meeting, but just in case something happens, I want to say to all the panelists, as chairman of this committee, thank you for your time and and hard work put into this. Senator Booker.

Senator Cory Booker (D-NJ)SPEAKER_15

Mr. McDonough, what happens when a person with a life-threatening disease cannot get access to a life-saving drug?

Randy P. McDonoughSPEAKER_05

Not a good outcome.

Senator Cory Booker (D-NJ)SPEAKER_15

Be more specific for me.

Randy P. McDonoughSPEAKER_05

If they're— if it's a life-threatening situation and they're not getting access to that medication, then the life is at danger.

Senator Cory Booker (D-NJ)SPEAKER_15

And you know situations, right?

Randy P. McDonoughSPEAKER_05

I do know situations

Senator Cory Booker (D-NJ)SPEAKER_15

where contributing to the death of an American was their inability to access over time the life-saving drugs that they need,

Randy P. McDonoughSPEAKER_05

or because of the process of being put into place, such as prior authorizations, that wasn't done timely and the person stroked and died. Yes.

Senator Cory Booker (D-NJ)SPEAKER_15

So, why aren't we calling this what it is? My friends across the aisle and others have called this a scam. Multilevel marketing is a scam. Internet people that prey on senior citizens, that's scammers. This is a level of corporate violence that is costing American lives, a level of colossal greed at the expense of patient well-being. Am I overstating the fact, Mr. McDonough?

Randy P. McDonoughSPEAKER_05

No, there are situations like that with every pharmacy.

Senator Cory Booker (D-NJ)SPEAKER_15

Yeah. And so I've been in your state, and I sat around a table of senior citizens who each of them told me stories that they ration their drugs against doctor's orders,. cut pills in half. What kind of peril does that put people in?

Randy P. McDonoughSPEAKER_05

They're not getting the medication they're supposed to be getting. And it's going to be— again, it's going to be endangering their lives.

Senator Cory Booker (D-NJ)SPEAKER_15

endangering their lives. Because the desperate people in our country who have drugs for cancers, have drugs for heart conditions, have drugs for conditions that are threatening their lives are put in the moral dystopia of having to make a decision that is not left to them to ration drugs or not have them at all when they fulfill the prescription, when they can't fulfill the prescription from their doctor. This is not a scam. This is a moral obscenity, and it's corporate violence. The former FTC chair Lina Khan, under her leadership, released an interim staff report that found that the three biggest PBMs—Caremark Rx CVS, Express Scripts, and OptumRx—marked up numerous lifesaving drugs thousands of percents and many others by hundreds of percents dispensed at their affiliated pharmacies. These drugs include treatment for cancer, HIV, multiple sclerosis, pulmonary hypertension, and more, shockingly hundreds of times the cost of people just over the Canadian border. They made more than $7.3 billion in revenue from dispensing drugs, hiking up prices over the course of just 6 years. This idea of breaking up big medicine is not just about dealing with awful antitrust. And there are a lot of industries where corporate concentration has caused consumers to pay more. But in this case, it's not just causing consumers to pay more. It is, as your testimony has said, threatening the lives of Americans. PBMs are not the only contributor to high drug prices, but the vertical integration that's allowed powerful market players to buy other entities in the supply chain and steer patients towards drugs with higher out-of-pocket costs is causing grievous harms in our country, and it cannot be allowed to go on. According to the research of the American Economic Liberties Project released on March 10th, at least 326 U.S. pharmacies have closed just since December 19th, 2024, when Congress abandoned a bipartisan, bicameral PBM reform as part of the stopgap spending bill. We know how to solve this problem. Inaction is complicity. There is nothing short of an evil going on in our country that is allowing millions of Americans to suffer under an unjust system that's hurting small business people with you that have a larger focus in life, not only running your business, but helping rural communities—again, I've been in your community—helping people get access to drugs, even when you deliver them in the middle of the night. This is wrong. This is unjust. This is violence. This is moral obscenity going on in our nation. We know the solutions. This committee has got to fix it. Thank you.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Schiff.

Senator Adam Schiff (D-CA)SPEAKER_18

Thank you, Mr. Chairman. Thank you for holding this hearing, and thank you for the work you've done to try to reform the practices of PBMs. I have a long family history in this area. My grandfather was a pharmacist. My great-uncle, who turns 100 this week, was a pharmacist. My father worked in a pharmacy growing up. And of course, I've had the same experience that so many of my constituents have had. Dr. Sood, thank you for coming all the way from California. Let me ask you about my experience, because it's left me wondering what player in the scheme of things was responsible for my experience, which was minor compared to what others have experienced. And that is, I was on a medication prescribed by my physician, which was working very well without side effect.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Senator Schiff, will you— when you're done, will you adjourn the meeting?

Senator Adam Schiff (D-CA)SPEAKER_18

Yes, I will.

Chairman Chuck Grassley (R-IA)SPEAKER_11

Thank you very much.

Senator Adam Schiff (D-CA)SPEAKER_18

And I may have to cut it short too to get out in time to vote. So I was on medicine that was working with no side effects. I got a letter, I think either from my insurer or PBM, saying we're taking you off that medicine and putting you on a different one. And I called my physician. I said, why are we changing my medication? It was working perfectly. Well, probably someone is going to get paid more money by moving you to something else. And I said, well, is there an appeal? And he said, yeah, but you'll lose. And I said, well, let's appeal anyway. So we appealed, and he was right, I lost. And then I said, is there any other remedy? He says, well, you can appeal one more time, but you will lose again. We appealed one more time, I lost again. So who made the decision to— well, obviously it wasn't my physician. Who made the decision that I was better off on a different medication.

Neeraj SoodSPEAKER_00

It was the PBM, and I've had a similar experience where my university changed their PBM, and there's a generic medicine, FDA approved, been in the market for 30 years, well established, suddenly wasn't covered because of the change in PBM.

Senator Adam Schiff (D-CA)SPEAKER_18

California experienced a 56% increase, its Department of Managed Health Care, in health plan spending on prescription drugs from 2017 to 2023. How much of that do you think is because of consolidation in the industry? Where would you apportion the increased costs?

Neeraj SoodSPEAKER_00

So, I was one of the experts who back in 2017 opposed the CVS-Aetna merger on vertical grounds, because I thought it would reduce competition in the pharmacy market, reduce competition in the insurance market, and lead to higher costs. I haven't seen the study, but I agree with the general hypothesis that vertical integration could be responsible for higher costs.

Senator Adam Schiff (D-CA)SPEAKER_18

Well, I wish I had more time to ask questions, but I'm likely not to make it in time to vote without adjourning. Thank you all for your testimony today. This concludes our hearing. I want to thank each witness for taking the time to share your experience. Written questions can be submitted for the record until May 20th. I'll ask the witnesses to answer and return the questions to the committee as quickly as possible. This hearing is adjourned.