Warren, Braun Urge Department of Health and Human Services (HHS) Inspector General to Determine if Vertically-Integrated Health Care Companies Are Hiking Prescription Drug Costs, Evading Federal Regulations
“Vertical integration in the drug supply chain is raising prescription drug costs, which are already far too high, while undermining Congress’ intent of improving health care quality.”
Washington, D.C. — Today, U.S. Senators Elizabeth Warren (D-Mass.) and Mike Braun (R-Ind.) sent a letter to Christi Grimm, Inspector General at the U.S. Department of Health and Human Services, urging her to determine if large insurance companies are using their vertically integrated pharmacies to evade federal requirements that limit the percentage of premium dollars spent on profits and administration, known as the Medical Loss Ratio (MLR), resulting in sky-high prescription drug costs and excessive corporate profits. The letter follows an investigation by the Wall Street Journal revealing significant markups of generic drugs at specialty pharmacies owned by CVS Aetna, Cigna, and UnitedHealth – all of which also own or are affiliated with their own PBMs.
“In functioning markets, generic drugs cost 80 to 85 percent less than their name-brand equivalents, giving patients much-needed relief from high drug costs and saving taxpayer dollars,” wrote the Senators. “But patients – including patients in public health care programs like Medicare and Medicaid – who either use or are compelled to use vertically integrated specialty pharmacies are not seeing this relief.”
The Journal’s analysis found that CVS Aetna, Cigna, and UnitedHealth charged 27.4, 24.2, and 3.5 times more, respectively, than a generic reference pharmacy across a selection of 19 drugs. For example, a monthly supply of the generic version of Tarcera, a lung cancer drug, costs $73 at the generic reference pharmacy, compared to a staggering $4,409 through Cigna.
One key factor driving these high prices appears to be the fact that the insurers featured in this analysis – Cigna, UnitedHealth, and CVS Aetna – also own or are affiliated with other key links in the drug supply chain: pharmacy benefit managers (PBMs) and pharmacies. Each of these companies owns or is affiliated with the country’s three largest PBMs – which together account for 80 percent of the PBM market. PBMs negotiate drug prices with pharmaceutical manufacturers on behalf of insurers and set prices at the pharmacy, but when those same insurer clients own the PBMs and their own specialty pharmacies, they can profit handsomely.
“By owning every link in the chain, a conglomerate like UnitedHealth Group – which includes an insurer, a PBM, a pharmacy, and physician practices – can send inflated medical payments to its pharmacy. Then, by realizing those payments on the pharmacy side – the side that charges for care – rather than the insurance side, the insurance line of business appears to be in compliance with MLR requirements, while keeping more money for itself,” wrote the Senators.
“This anticompetitive behavior raises costs, hurts independent pharmacies, and undercuts Congress’ ability to rein in excessive profits of insurance companies,” the Senators continued. “Over a decade ago, Congress instituted the MLR to limit the percentage of premium dollars insurers could spend on administrative costs and profits to 15 percent. Federal law requires companies to spend the remaining 85 percent on medical claims. But insurance companies are exploiting loopholes in the law by buying up entities that are eligible for medical claims payments, including pharmacies, so they can get a cut from both sides of the transaction.”
The Senators have asked the Office of the Inspector General to determine the extent to which corporations’ price-setting strategies increase costs for patients and evade federal MLR requirements.
Senator Warren has led fight against consolidation in the health care industry:
- On November 9, 2023, Senator Warren sent a letter to Federal Trade Commission (FTC) Chair Lina Khan and Commissioners Bedoya and Slaughter expressing disappointment with the FTC’s proposed consent order allowing pharmaceutical giant Amgen to move forward with its acquisition of Horizon Therapeutics (Horizon) and urging the FTC to reject the use of behavioral and structural remedies going forward. In the letter, Senator Warren underscored FTC’s responsibility to hold Big Pharma accountable and protect competition and access to pharmaceutical products, given concerns that deals such as this one could raise the price of medicine.
- In October 2023, U.S. Senator Warren and Representative Pramila Jayapal (D-Wash.) sent a letter to the Department of Justice (DOJ) Antitrust Division and the Federal Trade Commission (FTC), urging them to carefully scrutinize UnitedHealth Group’s (UHG’s) pending acquisition of Amedisys. The lawmakers urged the agencies to scrutinize similar deals, reject behavioral or structural remedies, and oppose any health care acquisition that would threaten competition, increase prices, and reduce quality of care.
- In September 2023, Senator Warren and Representative Becca Balint (D-Vt.), along with a bicameral group of lawmakers, submitted a public comment to the Federal Trade Commission (FTC) and the Department of Justice (DOJ) in support of the agencies’ proposed merger guidelines.
- In June 2023, at a hearing of the Senate Finance Committee, Senator Warren raised concerns about how profiteering in Medicare Advantage (MA) is driving vertical consolidation in health care.
- In March 2023, Senator Warren sent a letter to FTC Chair Lina Khan and Commissioners Alvaro Bedoya and Kelly Slaughter urging them to carefully scrutinize CVS Health Corp’s (CVS) pending acquisition of Oak Street Health, Inc (Oak Street).
- In January 2023, Senator Warren sent a letter to Federal Trade Commission (FTC) Chair Lina Khan and FTC Commissioners Alvardo Bedoya and Rebecca Kelly Slaughter urging the agency to closely scrutinize two pending big pharmaceutical mergers: Amgen and Horizon Therapeutics, and Indivior and Opiant.
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