[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                 THE ROLE OF PHARMACY BENEFIT MANAGERS

=======================================================================

                                HEARING

                               BEFORE THE

   SUBCOMMITTEE ON THE ADMINISTRATIVE STATE, REGULATORY REFORM, AND 
                               ANTITRUST

                       COMMITTEE ON THE JUDICIARY

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION
                               __________

                     WEDNESDAY, SEPTEMBER 11, 2024
                               __________

                           Serial No. 118-98
                               __________

         Printed for the use of the Committee on the Judiciary
         
         
                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]         


               Available via: http://judiciary.house.gov
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
56-838                     WASHINGTON : 2024                  


                       COMMITTEE ON THE JUDICIARY

                        JIM JORDAN, Ohio, Chair

DARRELL ISSA, California             JERROLD NADLER, New York, Ranking 
MATT GAETZ, Florida                      Member
ANDY BIGGS, Arizona                  ZOE LOFGREN, California
TOM McCLINTOCK, California           STEVE COHEN, Tennessee
TOM TIFFANY, Wisconsin               HENRY C. ``HANK'' JOHNSON, Jr., 
THOMAS MASSIE, Kentucky                  Georgia
CHIP ROY, Texas                      ADAM SCHIFF, California
DAN BISHOP, North Carolina           ERIC SWALWELL, California
VICTORIA SPARTZ, Indiana             TED LIEU, California
SCOTT FITZGERALD, Wisconsin          PRAMILA JAYAPAL, Washington
CLIFF BENTZ, Oregon                  J. LUIS CORREA, California
BEN CLINE, Virginia                  MARY GAY SCANLON, Pennsylvania
KELLY ARMSTRONG, North Dakota        JOE NEGUSE, Colorado
LANCE GOODEN, Texas                  LUCY McBATH, Georgia
JEFF VAN DREW, New Jersey            MADELEINE DEAN, Pennsylvania
TROY NEHLS, Texas                    VERONICA ESCOBAR, Texas
BARRY MOORE, Alabama                 DEBORAH ROSS, North Carolina
KEVIN KILEY, California              CORI BUSH, Missouri
HARRIET HAGEMAN, Wyoming             GLENN IVEY, Maryland
NATHANIEL MORAN, Texas               BECCA BALINT, Vermont
LAUREL LEE, Florida                  Vacancy
WESLEY HUNT, Texas
RUSSELL FRY, South Carolina
MICHAEL RULLI, Ohio
                                 ------                                

               SUBCOMMITTEE ON THE ADMINISTRATIVE STATE,
                    REGULATORY REFORM, AND ANTITRUST

                     THOMAS MASSIE, Kentucky, Chair

DARRELL ISSA, California             J. LUIS CORREA, California, 
MATT GAETZ, Florida                      Ranking Member
DAN BISHOP, North Carolina           HENRY C. ``HANK'' JOHNSON, Jr., 
VICTORIA SPARTZ, Indiana                 Georgia
SCOTT FITZGERALD, Wisconsin          ERIC SWALWELL, California
CLIFF BENTZ, Oregon                  TED LIEU, California
BEN CLINE, Virginia                  PRAMILA JAYAPAL, Washington
LANCE GOODEN, Texas                  MARY GAY SCANLON, Pennsylvania
JEFF VAN DREW, New Jersey            JOE NEGUSE, Colorado
HARRIET HAGEMAN, Wyoming             LUCY McBATH, Georgia
NATHANIEL MORAN, Texas               ZOE LOFGREN, California
KELLY ARMSTRONG, North Dakota        STEVE COHEN, Tennessee
Vacancy                              GLENN IVEY, Maryland
                                     BECCA BALINT, Vermont

               CHRISTOPHER HIXON, Majority Staff Director
         AARON HILLER, Minority Staff Director & Chief of Staff

                            C O N T E N T S

                              ----------                              

                     Wednesday, September 11, 2024

                           OPENING STATEMENTS

                                                                   Page
The Honorable Dan Bishop, Member of the Subcommittee on the 
  Administrative State, Regulatory Reform, and Antitrust from the 
  State of North Carolina........................................     1
The Honorable J. Luis Correa, Ranking Member of the Subcommittee 
  on the Administrative State, Regulatory Reform, and Antitrust 
  from the State of California...................................     2
The Honorable Jim Jordan, Chair of the Committee on the Judiciary 
  from the State of Ohio.........................................     5
The Honorable Jerrold Nadler, Ranking Member of the Committee on 
  the Judiciary from the State of New York.......................     5
The Honorable Thomas Massie, Chair of the Subcommittee on the 
  Administrative State, Regulatory Reform, and Antitrust from the 
  State of Kentucky..............................................     7

                               WITNESSES

Dr. Anthony T. LoSasso, Professor and Chair, Department of 
  Economics, DePaul University
  Oral Testimony.................................................     8
  Prepared Testimony.............................................    10
Dr. T. Joseph Mattingly II, Associate Professor and Vice Chair of 
  Research, College of Pharmacy, University of Utah
  Oral Testimony.................................................    16
  Prepared Testimony.............................................    18
Dr. Richard G. Frank, Director, Health Program, Brookings 
  Institution
  Oral Testimony.................................................    36
  Prepared Testimony.............................................    38
Dr. Karen Van Nuys, Executive Director, Value of Life Sciences 
  Innovation, USC Schaeffer Center
  Oral Testimony.................................................    49
  Prepared Testimony.............................................    51

          LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING

All materials submitted for the record by the Subcommittee on the 
  Administrative State, Regulatory Reform, and Antitrust are 
  listed below...................................................    89

Materials submitted by the Honorable J. Luis Correa, Ranking 
  Member of the Subcommittee on the Administrative State, 
  Regulatory Reform, and Antitrust from the State of California, 
  for the record
    A report entitled, ``Pharmacy Benefit Managers: The Powerful 
        Middlemen Inflating Drug Costs and Squeezing Main Street 
        Pharmacies,'' Jul. 2024, Federal Trade Commission, Office 
        of Policy Planning
    A report entitled, ``A brief look at current debates about 
        pharmacy benefit managers,'' Sept. 7, 2023, Brookings
    A report entitled, ``The 2024 Economic Report on U.S. 
        Pharmacies and Pharmacy Benefit Managers,'' Mar. 2024, 
        Drug Channels Institute
    A report entitled, ``PBMs and Prescription Drug Distribution: 
        An Economic Analysis of Criticisms Levied Against 
        Pharmacy Benefit Managers,'' Jul. 19, 2024, Compass 
        Lexecon
    An article entitled, ``The Opaque Industry Secretly Inflating 
        Prices for Prescription Drugs,'' Jun. 21, 2024, The New 
        York Times
    An article entitled, ``Mail-Order Drugs Were Supposed to Keep 
        Costs Down. It's Doing the Opposite,'' Jun. 25, 2024, The 
        Wall Street Journal
    A dissenting statement of Commissioner Melissa Holyoak, 
        Federal Trade Commission, Jul. 9, 2024, in the matter of 
        the Pharmacy Benefit Managers Report, submitted by the 
        Honorable Nathaniel Moran, a Member of the Subcommittee 
        on the Administrative State, Regulatory Reform, and 
        Antitrust from the State of Texas
    A letter to Jonathan Kanter, Assistant Attorney General, U.S. 
        Dept. of Justice, Antitrust Division, Xavier Becerra, 
        U.S. Dept. of Health and Human Serices, and Lina M. Khan, 
        Chair, Federal Trade Commission, PhRMA, June 5, 2024
    A joint letter to the Members of the California Congressional 
        Delegation, from California Life Sciences and California 
        Pharmacists Association, regarding PBM reforms

                 QUESTIONS AND RESPONSES FOR THE RECORD

Questions for Richard Frank, Director, Health Program, Brookings 
  Institution; Anthony T. LoSasso, Professor, Chair, Department 
  of Economics, DePaul University; Karen Van Nuys, Executive 
  Director, Value of Life Sciences Innovation, USC Schaeffer 
  Center; T. Joseph Mattingly II, Associate Professor and Vice 
  Chair of Research, College of Pharmacy, University of Utah, 
  submitted by the Honorable J. Luis Correa, Ranking Member of 
  the Subcommittee on the Administrative State, Regulatory 
  Reform, and Antitrust from the State of California, for the 
  record

    Response from T. Joseph Mattingly II, Associate Professor and 
        Vice Chair of Research, College of Pharmacy, University 
        of Utah
    Response from Karen Van Nuys, Executive Director, Value of 
        Life Sciences Innovation, USC Schaeffer Center
    Response from Anthony T. LoSasso, Professor, Chair, 
        Department of Economics, DePaul University
    Response from Richard Frank, Director, Health Program, 
        Brookings Institution

 
                 THE ROLE OF PHARMACY BENEFIT MANAGERS

                              ----------                              


                     Wednesday, September 11, 2024

                        House of Representatives

               Subcommittee on the Administrative State,

                    Regulatory Reform, and Antitrust

                       Committee on the Judiciary

                             Washington, DC

    The Subcommittee met, pursuant to notice, at 2:20 p.m., in 
Room 2141, Rayburn House Office Building, the Hon. Thomas 
Massie [Chair of the Subcommittee] presiding.
    Members present: Representatives Massie, Jordan, Bishop, 
Spartz, Fitzgerald, Bentz, Cline, Gooden, Van Drew, Hageman, 
Moran, Correa, Nadler, Johnson, Scanlon, Lofgren, Ivey, Balint, 
and Ross.
    Mr. Bishop. [Presiding.] The Subcommittee will come to 
order.
    Without objection, the Chair is authorized to declare a 
recess at any time.
    We welcome everyone to today's hearing on the role of 
Pharmacy Benefit Managers.
    The Chair of the Subcommittee, Mr. Massie, is on the floor, 
and in the interest of time and everyone else's presence here, 
I'm going to proceed until he is able to join us.
    In light of that, I will now recognize myself for an 
opening statement.
    Today's hearing will examine the role of pharmacy benefit 
managers, known as PBMs, in the healthcare industry, including 
the ability of PBMs to control access to, and the pricing of, 
pharmaceutical products.
    PBMs serve as one of a handful of intermediaries between 
the pharmaceutical manufacturers that make prescription drugs 
and the patients who consume them. While PBMs are just one link 
in the pharmaceutical distribution chain, we have all heard of 
their alleged outsized influence in the market.
    According to some estimates, the largest three PBMs account 
for nearly 80 percent of the market for pharmacy benefit 
services. The top three PBMs are members of vertically 
integrated companies that also own insurance companies, 
provider groups, and pharmacies.
    In some cases, a patient can purchase insurance, see a 
doctor, and buy prescription drugs from three companies that 
are all owned by the same parent company. Many claim that this 
level of vertical integration is highly beneficial for 
patients. By reducing administrative fees and leveraging their 
sheer size, large vertically integrated conglomerates are often 
able to operate more efficiently than disaggregated companies. 
Additionally, having a vast network of options for patients 
ensures that patients are likely to face the same treatment 
options, regardless of where they are in the country.
    However, vertical integration is not without potential 
harms to patients. Because vertically integrated PBMs control 
so much of the supply chain, and because there are so few 
competitors in the market, PBMs have almost complete control 
over a patient's access to medications. PBMs have the ability 
to control which pharmacies are available to fill 
prescriptions, sometimes steering patients to PBM-owned 
pharmacies. PBMs also have the ability to control which 
medications are available under a patient's healthcare 
coverage.
    Even if a medication is covered, patients often do not know 
how much a prescription drug will cost until they get to the 
register. For most other products, a consumer can research the 
price of a good well in advance of the point of purchase. 
However, a lack of price transparency has, unfortunately, 
become the norm in the healthcare industry.
    We are holding a bipartisan hearing today because across 
the board we are hearing the same things from our constituents. 
When we go home to our districts, we hear about the high cost 
of prescription drugs; we hear about the confusion people face 
in regard to the price of healthcare, and we hear about the 
lack of access to community-based independent pharmacies.
    While pharmacies run by vertically integrated conglomerates 
can save patients money, some patients want the option of using 
their local pharmacist. However, for independent pharmacists, 
the take-it-or-leave-it contracts they sign with large PBMs 
trap them into inflexible arrangements that leave little room 
for innovation.
    Also, for many independent pharmacists, operating outside 
of a large PBM's network, effectively, means closing shop. 
Without a PBM's patients, there isn't enough business to go 
around.
    Today, we have the opportunity to hear from experts in this 
field who have been studying the healthcare supply chain for 
decades. These experts are at the forefront of academic 
scholarship on health policy and are prepared to help us better 
understand the operations of the market and the costs and 
benefits of PBMs more broadly. This information will better 
inform us, as we work on possible solutions and consider the 
proposals that have already been introduced.
    I want to thank the witnesses for appearing before us 
today, and I look forward to hearing what each of you has to 
say.
    I now recognize the Ranking Member, Mr. Correa, for an 
opening statement.
    Mr. Correa. Thank you, Mr. Chair.
    I want to thank our witnesses for being here today. I 
appreciate you being here today.
    Today, we are going to examine the role of pharmacy benefit 
managers, or PBMs, and their impact on our healthcare system 
and the pharmaceutical drug delivery market. Nothing is so 
simple about this topic, but one thing is certain: Things just 
ain't right.
    As the late, great Justice Louis Brandeis would say, 
``Sunshine is the best disinfectant.'' So, I hope that today 
the sun will shine brightly as we work to lift the veil on the 
PBMs and their role on drug pricing and the drug delivery 
market.
    Until recently, most people didn't even know that PBMs 
existed, and now, we see their handiwork everywhere. While some 
of us Americans with good health plans and low deductibles may 
secure our medications at reasonable rates, there are too many 
hard-working Americans who can't afford medications. There are 
too many heart-wrenching stories of families having to choose 
between medications that they need to survive and food or 
housing, and that is not right.
    Decisions, life-and-death decisions, are being made today 
for Americans in closed, backroom deals; instead, they should 
be made by the medical providers, and that is also not right.
    We need to find solutions to these problems, like we did 
when Congress and the Biden-Harris Administration passed the 
Inflation Reduction Act, capping the monthly price of insulin 
and other critical drugs for Medicare beneficiaries.
    We have a responsibility to all Americans to ensure that 
they can fairly access the medications they need. I hope today 
we will learn more from the witnesses on how to achieve this 
goal.
    Let me call your attention to this chart. Nothing is simple 
about this chart. See here, point of payments from 
manufacturers to PBMs. It says, ``Payments for manufacturers to 
PBMs,'' well, there isn't just one payment made that applies to 
everyone. There are many payments, depending on the drug, the 
PBM, the manufacturer, and the deal that is reached.
    What each consumer pays for his medication is even more 
complicated, and this payment is only the first step. 
Understanding how the system works, partially because of the 
complexity and partially due to the lack of transparency, 
requires an advanced degree in engineering design.
    Which drugs are included on PBM-created formularies or the 
list of drugs in the healthcare plan? How much people pay 
following a convoluted process involving a number of entities: 
The PBMs, the wholesalers, the aggregators, or group purchasing 
organizations, pharmacy service administrative organizations, 
health plans, pharmaceutical companies, pharmacists, and even 
the employers. Everyday Americans are at their mercy, relying 
on all these entities to do the right thing.
    The complexities appear integral to the design. It's an 
enigma wrapped in a mystery, hidden in a riddle, in a 
conundrum. The average American and many small businesses can't 
solve this alone.
    Of course, on Main Street, I'm concerned with the stories 
I'm hearing about pharmacies closing, pharmacies receiving 
payments that don't cover the costs, or pharmacies having to 
face payments being clawed back by PBMs. If these stories are 
true, this is both unsustainable and unacceptable.
    Let's be clear. The PBMs have and will continue to play an 
important role in this market, and any suggestions to do away 
with them are misplaced.
    Over the years, the role of PBMs in the marketplace has 
expanded from simply processing claims to having involvement in 
almost all aspects of the pharmaceutical drug market. In fact, 
there are numerous studies showing that PBMs have lowered 
prices of drugs for their clients.
    It should never be the case that a person with insurance 
should pay more at the pharmacy using insurance than off-
insurance, but that appears to be happening in some cases, and 
that, also, is not right.
    As The New York Times reported in its recent investigation, 
the job of the PBMs is to reduce drug costs. Instead, they 
frequently do the opposite; they steer patients toward pricier 
drugs, charge steep markups on what would otherwise be 
inexpensive medications, and extract billions of dollars in 
hidden fees.
    Another mechanism that PBMs may be utilizing is to raise 
costs and reap profits through mail order pharmacies. As The 
Wall Street Journal reported, PBMs encourage employers to use 
mail order pharmacies with the promise of cost savings, but, 
instead, they are increasing costs.
    Specifically, The Wall Street Journal article explained,

        Branded drugs filled by mail order were marked up an average of 
        three to six times higher than the cost of medicines dispensed 
        by chain and grocery store pharmacies and roughly 35 times 
        higher than those filled by independent pharmacies.

    This Subcommittee has jurisdiction over antitrust matters, 
and we need to understand how this market operates. According 
to the FTC's recent released Interim Report on PBMs, the top 
three PBMs control almost 80 percent of the prescription drug 
market--something that came into play over the years of mergers 
with competitors.
    I can show you the chart: The left, where it was before; to 
the right is what exists today. This chart shows the extent of 
how the number of large competitors consolidated over the last 
two decades, and it appears now that the PBM market is overly 
concentrated. Is that causing an anticompetitive result? The 
FTC seems to say yes.
    The extent of vertical integration in the market is also 
astonishing, and quite frankly, as you see on this chart, every 
major health plan is connected to a PBM, specialty and mail-in 
pharmacies, and even one owns retail pharmacies. Some are now 
producing their own drugs for the market. While vertical 
integration can yield important efficiencies and benefits for 
customers, it appears that these deep connections are harming 
independent pharmacists, driving up costs, and harming 
consumers, while enriching corporations.
    The FTC's Interim Report included many worrisome allusions 
and conclusions that PBMs are harming competition and 
consumers. Some of their conclusions: The PBM market is highly 
concentrated.

PBMs, due to their consolidation and integration, exercise a 
        significant power over Americans' access to drugs and 
        the price they pay.
PBMs may be steering patients to their own pharmacies and 
        extracting additional profit, while harming 
        unaffiliated pharmacies.
PBMs are using their market power to force pharmacies to enter 
        into unfair contracts.
PBMs are limiting access to more reasonably priced alternative 
        drugs through contract terms benefiting themselves.

    Finally, I would say to the FTC: It's time to fish or cut 
bait. If PBMs are engaging in anticompetitive activities 
outlined in your report, do something. Either bring an action 
or explain why you're not bringing action.
    Mr. Chair, finally, I ask that the following documents be 
included for the record:

First, the FTC Interim Report: Pharmacy Benefit Managers.
Second, the 2024 Economic Report on U.S. Pharmacies and 
        Pharmacy Benefit Managers.
Third, a Brief Look at Current Data bases about Pharmacy 
        Benefit Managers.
Fourth, the Opaque Industry Secretly Inflating Prices for 
        Prescription Drugs.
Fifth, Mail Order Drugs Were Supposed to Keep Costs Down; It's 
        Doing the Opposite.
Sixth, PhRMA Response to the Joint DOJ-FTC-HHS Consolidation of 
        Health Care Markets.
Seventh, PBMs and Prescription Drug Distribution.
Eighth, California Life Science and California Pharmacists 
        Association joint letter on PBM reforms.

    Thank you, Mr. Chair. ith that, I yield.
    Mr. Massie. [Presiding.] Without objection.
    Mr. Correa. Thank you.
    Mr. Massie. I now recognize the Chair of the Full 
Committee, Mr. Jordan, for his opening statement.
    Chair Jordan. Thank you, Mr. Chair, and I will be brief.
    I appreciate putting this hearing together.
    The Ranking Member just talked about the FTC needs to do 
something. Maybe if they weren't so busy harassing Elon Musk, 
they would have a chance to actually look at this issue in a 
real way. You've got three companies that have 80 percent of 
the market, and the FTC wants to send letters to Elon Musk 
asking what journalists he is talking to. That might be a 
problem, instead of dealing with the issue in front of us.
    So, I appreciate the Chair calling in these experts, 
working the other party to agree to the four witnesses, and 
having this important hearing on something that impacts every 
single one of our constituents in a real way.
    With that, I would yield back.
    Mr. Massie. I thank the Chair.
    I now recognize the Ranking Member of the Full Committee, 
Mr. Nadler, for his opening statement.
    Mr. Nadler. Thank you, Mr. Chair.
    Mr. Chair, the price of prescription drugs is out of 
control, and it is directly affecting the health and safety of 
our constituents. Over nine million adults have skipped 
medications prescribed to them because they could not afford 
them--with women, people with disabilities, and the uninsured 
most affected.
    Prices are skyrocketing and people are dying or not getting 
the care they need, while healthcare giants reap massive 
profits, merge with other companies to entrench their 
dominance, and obscure critical information from Congress and 
regulators about their practices.
    One reason that prescription drugs have become unaffordable 
for so many people is the growing dominance in the healthcare 
market of pharmacy benefit managers, or PBMs, who serve as 
middlemen between drug manufacturers, health insurers, 
healthcare providers, and pharmacies.
    As a recent FTC report found, the PBM market is highly 
concentrated with the largest PBMs vertically integrated with 
the Nation's largest health insurers and specialty and retail 
pharmacies. As a result, the leading PBMs exercise significant 
market power over consumers' access to drugs and the prices 
paid for those medicines. This includes steering contracts to 
their own affiliated businesses and away from local 
independently owned pharmacies. They also have the ability to 
negotiate higher drug prices, while limiting access to 
potentially lower-cost generic alternatives. Because of their 
dominance, they are able to keep their practices largely 
shrouded in secrecy.
    To address these concerns, we must act to increase 
competition in the PBM market. To be clear, the problem is 
bigger than the pharmacy benefit managers. It is true that only 
three PBMs control 80 percent of the market, but PBMs play just 
one part in our overly concentrated healthcare system.
    I urge my colleagues on both sides of the aisle not to lose 
sight of the forest for the trees. If we truly want to address 
the rising cost of prescription drugs and healthcare, we must 
address consolidation industrywide rather than just focusing on 
one class of middlemen.
    For example, 90 percent of all drugs are distributed 
through just three drug wholesalers; 95 percent of all health 
insurance markets are highly concentrated, and approximately 50 
percent of all generic drug markets are dominated either by 
monopoly or duopoly drug manufacturers, when controlling for 
volume.
    Not only does this lack of competition lead to higher 
prices, but it also allows the dominant companies to avoid 
transparency. An environment in which a handful of companies 
control Americans' access to and prices for critical 
medications means that we all lose.
    We lose out on a more innovative healthcare market. We lose 
money paying exorbitant prices for drugs. We lose time fighting 
with our insurance provider for access to the drug our doctor 
prescribed. We lose knowledgeable counseling from our local 
independent pharmacist. In the worst cases, we lose a loved one 
who could not access or afford the medicines they need.
    Although interest in PBMs has ramped up this Congress, 
their market dominance and their role in driving up drug prices 
is not news. This Subcommittee addressed the issue five years 
ago under a Democratic majority. We did not just talk about it; 
we took action.
    It is time for this Republican majority to act as well. We 
do not need another rehash of known issues with no goals or 
plans in mind to fix them.
    Democrats have taken action to rein-in high drug costs and 
to make medication more affordable and accessible. Last 
Congress, over unanimous Republican opposition, Democrats 
passed the Inflation Reduction Act, which expanded Medicare 
benefits, lowered drug costs, and strengthened Medicare for the 
future.
    This Committee also passed three bipartisan bills that 
would have addressed drug pricing: The Stop Stalling Access to 
Affordable Medications Act, the Affordable Prescriptions for 
Patients Through Promoting Competition Act, and the Preserve 
Access to Affordable Generics and Biosimilars Act. Republicans 
have failed to advance any of these bills during this Congress.
    It is my hope that, as we continue our work to diagnose the 
problems associated with consolidation and anticompetitive 
conduct in healthcare markets, we will also work together in 
finding meaningful solutions that would provide a better deal 
for Americans on prescription drugs and other healthcare costs.
    I thank our witnesses for appearing today, and I yield 
back.
    Mr. Massie. I thank the gentleman. Without objection, all 
other opening statements will be included in the record.
    I want to say, before I introduce today's witnesses, that I 
want to thank my Ranking Member, Mr. Correa, for making this a 
bipartisan hearing. This is one of those hearings that doesn't 
quite frequently happen in Congress. We don't know what the 
answer is. That is why we are having the hearing.
    A lot of times, I'm not a lawyer, but the lawyers say, 
``Don't ask a question unless you know the answer.'' I'm going 
to ask questions I don't know the answer to today.
    I'm also very appreciative of the witnesses who came here 
and the Ranking Member for making this a bipartisan panel. 
Oftentimes, you get some Republican witnesses and some Democrat 
witnesses. I don't know your political affiliations; don't need 
to know them. That is because we are working for the people 
here today.
    Thank you, Mr. Correa, for--
    Mr. Correa. Mr. Chair, thank you very much. I think you 
have just outlined the heavy burden that these witnesses have 
in educating the Committee on where to go from here.
    Thank you.
    Mr. Massie. That is a heavy lift: To educate Congressman.
    So, with that, I will now introduce today's witnesses.
    Dr. Richard--oh, I'm sorry, we are going to start from 
right to left, I believe.
    Dr. Anthony LoSasso. Dr. LoSasso is a Professor, Driehaus 
Fellow, and the Chair of the Department of Economics at the 
Driehaus College of Business at DePaul University. His research 
focuses on health and labor economics, health policy, and 
health services and outcomes.
    Dr. Joey Mattingly, II. Dr. Mattingly is an Associate 
Professor and Vice Chair of Research at the University of Utah, 
College of Pharmacy. He has worked in pharmacy for over 20 
years, both as a pharmacist and, more recently, as an academic 
focusing on drug pricing policy.
    Dr. Richard Frank. Dr. Frank is the Director of the Center 
on Health Policy and a Senior Fellow in Economic Studies at the 
Brookings Institution. He is the emeritus Margaret T. Morris 
Professor of Health Economics at Harvard Medical School, and 
previously served as the Assistant Secretary for Planning and 
Evaluation at the Department of Health and Human Services.
    Dr. Karen Van Nuys. Dr. Van Nuys is the Executive Director 
of the Value of Life Sciences Innovation Program and a Senior 
Scholar at the USC Schaeffer Center. Her research focused on 
the pharmaceutical distribution system and the impact of 
intermediaries' business practices on prescription drug 
utilization and cost.
    We welcome our witnesses and thank them for appearing 
today.
    We will begin by swearing you in. Would you please rise and 
raise your right hand?
    Do you swear or affirm under penalty of perjury that the 
testimony you are about to give is true and correct to the best 
of your knowledge, information, and belief, so help you God?
    Let the record reflect the witnesses have answered in the 
affirmative.
    Thank you and please be seated.
    Please know that your written testimony will be entered 
into the record in its entirety. Accordingly, we ask that you 
summarize your testimony in five minutes.
    Dr. LoSasso, you may begin.

                STATEMENT OF DR. ANTHONY LoSASSO

    Dr. LoSasso. Thank you, Chair Massie and Ranking Member 
Correa, and Members of the Committee. I appreciate the 
opportunity to be here with you today to be part of this 
conversation on this really important topic.
    My name is Tony LoSasso. I am the Chair of the Economics 
Department at DePaul University in Chicago and have been 
studying the healthcare system for about the last 30 years.
    PBMs are an important, but widely misunderstood--and I 
believe wrongfully maligned--part of the pharmaceutical supply 
chain. I like to point out to people that no less than ancient 
philosopher Plato had serious misgivings about middlemen. So, 
you're in good company when you express skepticism and concern 
about the role of middlemen.
    However, we're going to talk a lot today, I hope, about 
nuances. We'll talk about spread pricing and a lot of other 
pharmacy networks, lots of details. At heart, what PBMs do is 
force pharmaceutical companies to compete on price. Competing 
on price, generally speaking, is the last thing that 
pharmaceutical companies want to do.
    I find it somewhat amazing that rebates have been made into 
some sort of nefarious practice. This, to me, is testimony to, 
apparently, a reality distortion that the pharmaceutical 
industry is capable of pulling off. Rebates are a good thing 
because they represent price decreases, and price competition 
is a good thing for consumers.
    So, the effort to regulate, and I fear neuter, the impact 
of PBMs only plays into the hands of the pharmaceutical 
industry and strengthens their bargaining power vis-a-vis PBMs. 
Now, make no mistake, I am a fan of the pharmaceutical 
industry. They are an engine of innovation that truly improves 
lives, and I want them to succeed. I want us all to live to be 
120 and be happy and healthy.
    That does not mean that pharma should get a hall pass from 
competition. Pharma has very rich profit margins, monopoly 
privilege that comes with patent protection, and they are, by 
and large, firmly in the driver's seat when it comes to pricing 
power.
    There's a lot of talk about concentration in the PBM 
industry, rightfully so. However, the flip side of that is, 
with that market concentration, which is again is not monopoly, 
70-80 percent, that is big; that is significant. That does not 
mean that there is not entry in that industry, the PBMs 
industry, that is. With that concentration does come bargaining 
power and an ability to push back and against what I just 
mentioned as the pricing power of the pharmaceutical industry.
    Complaints from pharmacies, which I'm sure we'll discuss, I 
think distract from the key issues around getting drugs 
efficiently to patients. Many pharmacies, independent and 
otherwise, have lived off high dispensing fees for many years. 
Pushback against that is a good thing. It's a good thing for 
consumers. It may not be a good thing for independent 
pharmacists, but the market is tough, and I think we want to be 
in the business of encouraging competition that pushes entities 
toward being more efficient.
    Doctors, and I mean the real doctors that help people, they 
know that, for people with chronic disease, adherence is an 
enormous factor when it comes to drug delivery. Mail order has 
been proven to be a mechanism to improve adherence to a drug 
regime.
    So, to wrap up, I think it's essential that we recognize 
the value of PBMs and support their continued role in the 
healthcare system. So, we should focus on enhancing, wherever 
possible, market mechanisms in the pharmaceutical supply chain.
    So, I just simply urge this Committee to carefully consider 
the broader implications and potential for unintended 
consequences of any legislation or regulatory efforts that 
might weaken the role of PBMs.
    Thank you.
    [The prepared statement of Dr. LoSasso follows:]

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    Mr. Massie. Thank you, Dr. LoSasso.
    Dr. Mattingly, you may begin.

                STATEMENT OF DR. JOEY MATTINGLY

    Dr. Mattingly. Chair Massie, Ranking Member Correa, and the 
Members of the Subcommittee, thanks again for this opportunity.
    My name is Joey Mattingly. I'm a pharmacist and a health 
economist on the faculty at the University of Utah. I study 
drug pricing policy, pharmacy supply chain dynamics, and just 
ways to improve our healthcare system. I also support our 
university human resources team that's responsible for managing 
the benefits for 30,000 beneficiaries.
    I have worked in this field for 20 years, starting as a 
pharmacy technician in my hometown of Bardstown, Kentucky, then 
becoming a pharmacist and a district manager for a large 
grocery store chain.
    The past 10 years has been focused on drug pricing 
research, academic research, specifically, talking about what 
we're getting into today.
    While the increase in interest in regulating PBMs allows us 
to have a really rich discussion on how we pay for 
pharmaceuticals, my fear is that advocacy efforts by all 
stakeholders involved who stand to win or lose from the 
regulation, it just distracts us from facts. I've had the 
pleasure of working with all stakeholders involved in these 
policy fights, and I genuinely empathize with all the 
stakeholders.
    In my written testimony, I've tried to detail several key 
issues in the same way that I would teach my students, which I 
just want to give a quick shoutout to the University of Utah, 
my students, for helping prepare for this testimony.
    To kick things off, I just want to highlight three key 
areas I'd like the Committee to consider.
    (1) We need a process to balance the individual patient 
goals with the population goals. When I get sick, I can talk to 
my doctor about a variety of treatment strategies. If that 
strategy involves a medication, I'm also free to go to any 
pharmacy I want.
    However, as an employee of the University of Utah, if I 
wish to go at the University of Utah, if I wish to use my 
prescription insurance to pay for that medication, the decision 
is no longer just a patient-doctor decision because I'm, 
essentially, asking all my coworkers to pay or contribute for 
my benefits. So, now, my healthcare goals have to align with my 
employer's goals. So, we need to work on developing a fair 
process that finds a win/win for both the patient and the 
employer, as well as how to settle disagreements.
    (2) If you remove the PBM from the equation today, who or 
what steps in to fill that void? PBMs have been around since 
the 1960s, and while they have substantially evolved, many of 
their core functions have remained constant for the past 60 
years. PBMs, typically, gain customers from a process where 
they respond to competitive bids, Requests for Proposals, from 
plan sponsors, like employers and governments, who are 
requesting for help developing formularies, managing a pharmacy 
network. So, when we remove the PBM, we just have to know, OK, 
then what? Who steps in and who stands to gain from this new 
environment?
    (3) Our pharmaceutical supply chain is riddled with 
anticompetitive business practices by design. We have to 
grapple with the fact that we made a tradeoff in the 1960s to, 
essentially, by incentivizing the development of new 
pharmaceuticals, we decided we would grant innovators temporary 
monopoly power or market exclusivity. We, the U.S. citizens, 
would get this massive investment from the business community, 
which we have, and then, we would have to pay higher prices 
initially. Forty years of celebrating the Hatch-Waxman Act, now 
we've got a rich generic manufacturing community as well for 
the last 40 years.
    PBMs, along this time, have evolved to leverage large 
populations to gain price concessions from these pharmaceutical 
manufacturers that we grant those exclusivity rights. 
Additionally, they use their size and their scale to capture 
price concessions from pharmacies as well.
    On one hand, this is good if the savings are passed on to 
the health plans. On the other hand, the price concessions from 
these, that these pharmacies give make once profitable 
pharmacies no longer sustainable.
    So, as this Subcommittee deliberates whether PBM practices 
require additional regulation, I would just simply ask the 
Members, walk through the same mental exercise as I try to ask 
my students to walk through. Eliminate the PBM from the 
equation, and then, play out the scenario for each of these 
different stakeholders--what happens with patients and their 
caregivers; what happens with the health plan sponsors; what 
happens to pharmacies; and what happens to drug manufacturers?
    Thank you all and I look forward to answering your 
questions.
    [The prepared statement of Dr. Mattingly follows:]

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    Mr. Massie. Thank you, Dr. Mattingly.
    Dr. Frank, you may begin.
    Oh, make sure your microphone is on and pull it near you. 
There you go.

                 STATEMENT OF DR. RICHARD FRANK

    Dr. Frank. OK. Chair Massie, Ranking Member Correa, the 
Members of the Subcommittee, thank you for inviting me here 
today to talk about the role of pharmacy benefit managers, or 
PBMs.
    In my remarks here, I want to touch on three issues.
    First, how PBMs are paid and what that implies for the 
market.
    Second, market structure within which PBMs operate; 
specifically, vertical integration of PBMs and insurers on one 
hand, and highly concentrated horizontal markets for PBM 
services on the other.
    Third, I want to talk about the circumstances facing 
independent retail pharmacies and the role that PBMs play in 
that.
    So, let me start by noting that PBMs came to prominence by 
introducing procompetitive incentives to market prescription 
drugs. That resulted in price concessions that are estimated to 
be 10-28 percent.
    Turning now to payment, PBMs are paid in several ways.
    The first is service fees for performing specific functions 
like claims processing.
    The second form of payment is to retain part of rebates 
that they negotiate. Estimates of retention rates fall in the 
9-13-percent range. Rebate retention creates incentives for 
PBMs to bargain hard.
    PBMs also earn revenues through a variety of fees charges 
to pharmacies, and some PBM revenues come about because they 
pay less to pharmacies than they charge the insurer or the 
employer. That's called spread pricing.
    PBMs negotiate a mix of fees, retained rebates, and spreads 
with their customers. So, when larger retained rebates happen 
and spread prices are larger, in allowable contracts, service 
fees tend to be lower.
    Now, let me turn to market structure. In 2022, the largest 
four PBMs accounted for 87 percent of sales. This is due to 
both scaled economies and horizontal mergers that we saw in 
that chart. This likely gives large PBMs the upper hand in 
negotiations with some payers and pharmacies, resulting in the 
ability to extract excess profits.
    The market has also moved rapidly toward vertical 
integration. Each of the four top PBMs is integrated with a 
major insurer. Vertical integration, in theory, can create 
synergies by managing the drug and the medical benefits 
together. Those synergies can result in improved patient care 
and reduced costs.
    Vertical integration can also have a less happy result, 
such as avoidance of regulatory rules. This stems from the 
ability to disguise profits as costs to avoid regulations that, 
for example, limit the margins of health insurers.
    Another concern involves potential anticompetitive conduct. 
For example, insurers may choose to sell their PBM and health 
insurance services to employers as a package or a bundle, and 
that would impede competition from insurers who don't have a 
PBM.
    The evidence on these things is thin. There's little 
evidence showing that there are synergies, but there is 
emerging evidence suggesting that there is regulatory gaming 
linked to vertical integration.
    Let me now turn to retain pharmacies. Steering of customers 
to PBMs, to preferred pharmacies, claim to disadvantage 
independent pharmacies. This is particularly troubling in rural 
America because of the greater potential for pharmacy deserts. 
Independent pharmacies face challenges, though, broad economic 
challenges, such as competition from mail order, smaller scale, 
and lack of robust purchasing arrangements.
    The situation for pharmacies, independent pharmacies, is 
varied. The number of rural independent pharmacies declined 16 
percent between 2003-2021, while urban chains, I mean, while 
rural chains grew about 4.5 percent. During that same period, 
metropolitan independent pharmacies grew 28 percent, while the 
chain pharmacies only grew 10.5 percent. So, it's a mixed 
picture. Gross margins were flat at around 21 percent over the 
recent history.
    Then, there's scale problems. Independent pharmacies 
dispense about a third of the number of prescriptions that a 
chain pharmacy does on average. So, they just have a much 
smaller scale, and their purchasing arrangements leave them 
sort of 2-6 percent, with higher costs of about 2-6 percent.
    So, in finalizing, let me just make one final comment that 
I concluded after undertaking, undertaking a view of the 
landscape; those efforts to improve competition and efficiency 
in PBM markets is a sensible way to go, but being successful in 
doing that will only make a small difference to the overall 
drug pricing problem.
    Thank you for your attention.
    [The prepared statement of Dr. Frank follows:]

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    Mr. Massie. Thank you, Dr. Frank.
    Dr. Van Nuys, you are now recognized for your statement.

                STATEMENT OF DR. KAREN VAN NUYS

    Dr. Van Nuys. Chair Massie, Ranking Member Correa, and the 
honorable Members of the Subcommittee, thank you for the 
opportunity to testify about pharmacy benefit managers in our 
healthcare system.
    I'm an economist and have been researching pharmaceutical 
distribution economics at the USC Schaeffer Center for the last 
decade. The opinions I offer here today are my own.
    PBMs play a crucial role in our healthcare system. They are 
key intermediaries managing drug benefits, negotiating rebates, 
designing formularies, and processing claims. Their central 
role in the system affords them unique access to data about 
nearly every transaction in the value chain.
    The industry's current structure and practices raise 
significant concerns about market power, pricing distortions, 
and misaligned incentives that may raise costs for patients, 
employers, and taxpayers while stifling competition.
    Today, three PBMs handle about 80 percent of the U.S. 
retail prescription market. All three are vertically integrated 
with large insurers, specialty pharmacies, and other healthcare 
entities. Those three vertically integrated companies ranked 
4th, 6th, and 16th in the Fortune 500, accounting for nearly a 
trillion dollars in revenue.
    This concentration of market power combined with extensive 
vertical integration has enabled several concerning practices. 
I'll give some examples.
    First, although PBMs are supposed to lower drug costs, we 
found that involving a PBM increases generic drug costs. We 
discovered that Medicare could have saved $2.6 billion in 2018 
on the most common generic drugs if they had been purchased at 
Costo for cash. On average, Medicare overpaid by 21 percent.
    Second, the current rebate system is driving up branded 
list prices. We found that between 2014-2018, insulin list 
prices rose 40 percent, while the net prices taken home by 
manufacturers fell 31 percent. Those 31 percent savings that 
PBMs were negotiating for manufacturers were not passed on. 
They were absorbed by the PBMs and other intermediaries. Over 
five years, the share of insulin spending captured by PBMs and 
other intermediaries more than doubled.
    Third, we've seen PBMs steer patients to higher-cost drugs. 
They have given more favorable formulary placement to expensive 
brand-name drugs over lower-cost generics or biosimilars, 
likely due to the larger rebates offered on higher-priced 
products.
    Fourth, spread pricing, where PBMs charge health plans more 
than they pay pharmacies and pocket the difference, enables PBM 
to hide their true compensation. A 2018 Ohio State audit found 
PBMs charged 31 percent average spreads for generic drugs in 
its Medicaid managed care system.
    Finally, PBMs are increasingly restricting access to 
medications. Schaeffer researchers found that from 2011-2020, 
the share of drugs restricted in Medicare Part D plan 
formularies rose from 32-44 percent.
    The impact of these inefficiencies in the PBM market is 
far-reaching. Federal programs like Medicare and Medicaid are 
overpaying for drugs, increasing costs for taxpayers. Employers 
are struggling to assess whether they're getting value for 
money from their PBMs. Consumers are facing higher out-of-
pocket costs and restricted access to medications, and 
uninsured individuals are paying inflated cash prices that may 
put needed medications out of reach.
    I recommend several policy options to address these market 
inefficiencies.
    First, we need more transparency. This means requiring 
greater disclosure of rebates and true net pricing to PBM 
clients. CMS should be authorized to develop and publish high-
quality average net price benchmarks by drug for key supply 
chain transactions.
    Second, we need to reevaluate the current rebate system and 
develop alternatives that better align with patient and payer 
interests. We should ensure that patient out-of-pocket 
expenditures are based on post-rebate prices.
    Third, we need to scrutinize vertical integration in the 
PBM industry more closely. This includes investigating 
practices that weaken standalone competitors. Finally, we must 
explore ways to align PBM incentives with the interests of 
patients and payers. This could involve changing how PBMs are 
compensated or imposing fiduciary requirements on them.
    In conclusion, while PBMs play a crucial role in our 
healthcare system, the current industry structure raises 
significant concerns about the impact on drug prices, patient 
access, and overall health costs. By implementing these policy 
recommendations, we can better harness the potential benefits 
of PBMs for the benefit of patients, employers, workers, and 
taxpayers.
    Thank you. I'm happy to answer your questions.
    [The prepared statement of Dr. Van Nuys follows:]

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    Mr. Massie. Thank you, Dr. Van Nuys.
    I now recognize the--oh, sorry. We will now proceed under 
the five-minute rule with questions, and I now recognize the 
gentlewoman from Indiana for five minutes.
    Ms. Spartz. Thank you, Mr. Chair. I appreciate having this 
hearing, and I hope we will have a good discussion. I know we 
had a lot of about--discussion about competition and 
consolidation, and since we talked about Plato, I have to 
mention Aristotle, about his oligarchs and oligopoly issues 
that he discussed when we have business controlling the 
government.
    That is what is happening in healthcare. Unfortunately, we 
don't have the markets. We have oligopolies in each sector of 
healthcare fighting on committees and bankrupting the country 
and bankrupting the families. So, we need to have a serious 
discussion. It is going to be destruction of our country.
    Healthcare became the biggest driver of our national debt 
and debt of American families, one of seven families on 
insolvency for medical debt. We right now have hyperinflation 
of price, and the system is going to blow up. A lot of my 
colleagues on the other side will offer complete government 
takeover, which is going to be a terrible solution.
    We need to have a solution, as you know, I am glad that the 
Chair--the minority leader of the Committee mentioned about 
Affordable Care Act, Obamacare--but as you know, that actually 
drove consolidation hospitals. As you know, maybe not, it was a 
bad intent, but a lot of payments were to consolidate the 
market through Medicare. We have seen what's happening.
    A lot of you know what site neutrality does with hospital 
overbilling, Medicare, roughly 300 billion effects our budget. 
Then Biden enslaved doctors. Let's talk about, recently, 
Inflation Reduction Act--we give a huge subsidy to big 
insurance and subsidize their profits. So, premiums--that is 
another 300 billion hit to the budget.
    So, we now have a huge problem there. We need to have 
discussions, not look for the evils. There was a reason that 
PBMs were created. They are not doing their job, too. They are 
not passing along their rebates to consumer. We do not have 
competition in that market. Everyone is making a lot of money, 
and country is going bankrupt.
    This is a big problem, whether it is through government--
but it is a government-created monopoly. We are subsidizing 
through Medicare, through Medicaid, through all the bills, 
create barriers of entry, Affordable Care Act, even though 
physicians cannot own hospitals. Well, physicians can be owned 
by a hospital, but cannot own hospitals--and a lot of mandates 
and insurance in all the industry.
    So, we need to have a serious discussion. I appreciate you 
being open-minded because we all have in it together. We need 
to get all the stakeholders to the table, not look who is evil, 
because it is like a balloon. It is going to pop-pop on the 
other side because we have enormous opportunity for innovation, 
and we have to have. This is what changed Americans' lives. It 
helps us to be a healthy country.
    We have to have competition for value and outcomes, not 
wait until person gets so sick and keep them alive. As long as 
they are not dead, they are very profitable. People serve a 
system. This became so corrupt. We have to have a bipartisan 
conversation, and I hope we can.
    I hope people in your industries will be able to step up 
because it is very difficult to do it here. As I always say, 
there is no lobby for the people here, OK? We are supposed to 
be the lobby. So, appreciate a lot of my Republican colleagues 
bringing some transparency and conversation. So, I hope my 
Democrat colleagues will join in some of these discussions 
because we have to save healthcare.
    So, my question that I want maybe goes from looking from a 
PBM perspective and some other ones, if you would look from 
some of the key issues including in--because I understand we 
are going to eliminate PBMs. Big pharma is going to do whatever 
they want. They were the ones that created it, right? What 
would you do to make sure that we don't create where we do is a 
lot of regulating PBMs more, giving insurance commissioners 
more power, create that--they just go lobby more State houses 
and write bigger checks in the State house. There will be 
oligopolies protected at the State level, OK?
    So, this is not a solution. So, what can we do in that 
particular industry to make sure that we have a competition for 
value and help people have access to proper medication, that we 
have more choices for consumer, and be able to have innovative 
solution entering that, and how the PBM market can be more 
competitive?
    So, Dr. LoSasso, I start with you. I think I have almost 
run out of time, so if you briefly can think quickly, sir, 
because you have a need to be very quick.
    Dr. LoSasso. Thank you, Congresswoman. Well, there's a lot 
there. I think that you definitely raised some important points 
there. I think we do want to have a system that allows for 
competition in the drug space that represents a meaningful 
counterweight to, as mentioned earlier, the monopoly privilege 
that pharmaceutical companies have with patent protection.
    So, I guess I would say just be very cautious--in closing, 
be very cautious about how you go about trying to regulate it 
because we've seen many instances where well-intentioned 
regulation leads to terrible, unintended consequences.
    Mr. Massie. The gentlelady yields back, and I will 
recognize the Ranking Member, Mr. Correa, for five minutes.
    Mr. Correa. Thank you, Mr. Chair.
    Our witnesses I can see clearly now. This has clarified the 
whole picture. Like my colleague from Indiana said, though, 
PBMs don't work. The Inflation Reduction Act didn't work. 
Obamacare didn't work.
    So, I was trying to legislate from the view that we don't 
want to do any harm. Do no harm. We want to be careful with the 
good intentions. There is a lot, a lot, of legislative 
proposals out there right now, too many of us to look at in 
this brief time period. I am going to talk about three of them 
right now, and if I can get some very quick opinions from the 
four of you as to some of these proposals.
    Banning rebates, Ms. Van Nuys--Dr. Van Nuys--good or bad?
    Dr. Van Nuys. I can't give you--
    Mr. Correa. Complicated.
    Dr. Van Nuys. Yes. It's complicated. I'm sorry. It's full 
industry, but--
    Mr. Correa. Dr. Frank, banning rebates?
    Dr. Frank. I think rebates serve--
    Mr. Correa. Can't hear you.
    Dr. Frank. I think rebates serve a useful purpose. I think 
they have strong incentives. Coupled with market power, they 
can create problems.
    Mr. Correa. Banning rebates--yes/no?
    Dr. Frank. No.
    Mr. Correa. Dr. Mattingly, banning rebates?
    Dr. Mattingly. No. I do think that rebates allow an 
opportunity to--you want the person negotiating the lower price 
to have some skin in the game, too. So, it's something we have 
to debate. Is it 100 percent pass-through that we want back to 
the health plan, or do we want the PBM to have--
    Mr. Correa. There is an incentive, skin in the game. Don't 
ban them is what you are saying.
    Dr. LoSasso?
    Dr. LoSasso. Short answer, no. Longer answer, rebates 
themselves are a workaround, a bodge, if you will, that cropped 
up because--probably arguably Robinson-Patman Act. So, maybe 
eliminate Robinson-Patman.
    Mr. Correa. OK. Easier said than done. Second, spread 
pricing. Dr. Van Nuys, eliminate it? Yes or no?
    Dr. Van Nuys. Don't eliminate, but I think introduce 
transparency.
    Mr. Correa. Dr. Frank?
    Dr. Frank. Transparency is a good idea here.
    Mr. Correa. Was that a no, yes or no, on spread pricing 
eliminated? Yes/no?
    Dr. Frank. No.
    Mr. Correa. OK. Dr. Mattingly, spread pricing?
    Dr. Mattingly. No. Same thing. I think there needs to be 
incentives along the supply chain.
    Mr. Correa. Would you also say transparency?
    Dr. Mattingly. Absolutely.
    Mr. Correa. OK. Dr. LoSasso, spread pricing, eliminate? 
Yes/no?
    Dr. LoSasso. It's a no on eliminating spread pricing 
because it does align incentives, and as it stands right now, 
payers have the choice. They can offer spread pricing or do 
fees. They generally choose for spread pricing.
    Mr. Correa. Mr. Chair, I am on a roll here. I think we got 
some consensus. Let's try a third one here.
    Transparency. Dr. Van Nuys, more transparency?
    Dr. Van Nuys. A hundred percent, yes.
    Mr. Correa. Dr. Frank?
    Dr. Frank. I'm a targeted yes. I think that there are 
private negotiations that have been where you get better prices 
because they're done privately, but there are a variety of 
places where transparency would be helpful.
    Mr. Correa. So, private negotiations are good because--
    Dr. Frank. So, for example, rebates are one of the places--
the CBO and the Office of the Actuary in HHS both have scored 
positive costs if you make the rebates fully transparent.
    Mr. Correa. Dr. Mattingly?
    Dr. Mattingly. I think we need to be very clear. 
Transparency to whom? Transparency is good, but to whom?
    Mr. Correa. Us. The world. Public.
    Dr. Mattingly. Yes. So, if it's to the patient--so, often, 
the customer of the PBM--or the PBM is serving a health plan, 
like an H.R. director. So maybe we have to talk about, what's 
the transparency from H.R. to its employees on, like, a self-
funded insurance plan or whatnot?
    So, we just need to be clear what's the transparency, what 
we're talking about, as we're writing these regulations.
    Mr. Correa. Dr. LoSasso, transparency? Yes/no?
    Dr. LoSasso. Transparency is not an automatic no-brainer. 
Yes, I think there--I can go very far afield here and cite a 
famous study in economics of the Danish ready-mix cement market 
where prices for cement were mandated by the government to be 
transparent, and prices subsequently rose because--
    Mr. Correa. Thank you.
    Dr. Frank, my 17 seconds left, the FTC interim report 
provided many examples of harm to healthcare market by PBMs. 
Can you quickly tell me what the FTC got right and what they 
got wrong in that report, Dr. Frank?
    Dr. Frank. They raised a lot of potential difficulties. 
However, the evidence presented is pretty thin.
    Mr. Correa. Out of time. Mr. Chair, thank you very much.
    Mr. Massie. Thank you. The Member yields back.
    Without objection, Ms. Ross will be permitted to 
participate in today's hearing for the purposes of questioning 
the witnesses if a Member yields the time for that purpose.
    Now, I would like to recognize the gentleman from Wisconsin 
for five minutes.
    Mr. Fitzgerald. Thank you, Mr. Chair.
    In the 24 years I was in the Wisconsin State Senate, this 
issue was something that we worked on, and actually with 
President involved, and actually tried to move PBM legislation 
on a couple of occasions.
    Unfortunately, what we saw was--in Wisconsin--that there 
were many--I will call them hometown pharmacies, smaller, 
independent pharmacies, which--many of my constituents were 
customers of these pharmacies for many years, loved their 
pharmacist, right? Very comfortable with the advice they were 
being given, long-term plans that was integrated with their 
physicians.
    Clearly, what was happening was that the PBMs started to 
skim. As that happened and they became larger and greater, we 
started to see pharmacies start to close in Wisconsin, and they 
ended up at one of the big three, right?
    So, Dr. LoSasso, can you talk a little bit about the 
landscape and where we were maybe 20 years ago compared to 
where we are now on the vertical integration of PBMs and how 
they interact with the pharmacies that our constituents deal 
with all the time?
    Dr. LoSasso. Of course. Thank you, Congressman. So yes. As 
has been pointed out by folks on this panel and the Members of 
the Committee, there has been quite a great--quite a lot of 
vertical market integration going on in the PBM space. This is, 
again, as has been pointed out, not necessarily a bad thing. 
There are potential efficiency gains.
    I guess I'll speak to this idea that you raise around what 
I guess I would refer to as contracting--creating selective 
networks of pharmacies were you could have a pharmacy that is 
on the outside, will not be part of the network created by the 
PBM. Selective contracting is a quite old concept in healthcare 
and other industries as well. What it does is it effectively 
allows for lower prices that are passed on to consumers, 
ultimately.
    In other words, if a low-efficiency, high-cost pharmacist--
pharmacy--cannot meet the terms that the PBM asks of them, they 
can't be part of the network. What do we do about--I don't know 
that we do anything about that, to be honest, because I think--
do we want to have a system that props up the inefficient 
providers in markets? I would argue no, that's not a--that 
should not be a policy goal. So, I guess I'll pause there.
    Mr. Fitzgerald. Very good.
    In July 2024, the FTC released its Interim Staff Report on 
PBMs, which concluded that PBMs wield significant power of 
patients' ability to access affordable drugs. Unlike the 2005 
report on PBMs, the report did not have the support of the 
entire commission.
    In fact, Commissioner Holyoak dissented, arguing that the 
report failed to meet the standards of economic rigor expected 
of commission reports more generally. Chair Khan argued that 
the report lacked empirical evidence of a number of factors, 
including the State of competition in the prescription drug 
market.
    Dr. Frank, you commented on the FTC report and the 
Commissioner Holyoak's dissent in your testimony. Do you think 
her concerns about the report were actually legitimate or not?
    Dr. Frank. I commented on her dissent as well as one of her 
colleagues' dissents to the report. There were multiple places 
that both commissioners pointed out that the evidence was 
pretty thin, and it is hard to draw conclusions about, sort of, 
some of the big points raised in the report. I think that my 
reading is consistent with that.
    Mr. Fitzgerald. Very good.
    Just really quick, the Trump-era price transparency rule--
that required hospitals to post prices showing their average 
negotiated rates since 2021. Many of the hospitals that we 
worked in with Wisconsin have implemented tools on their own. 
They have kind of created a website so that there is 
transparency.
    Dr. Mattingly, do you believe that a similar price 
transparency rule for PBMs would be a positive step? Do you 
think it is being utilized, and would it work?
    Dr. Mattingly. Yes. I do want to--sorry. I do want to 
entertain something like that. I think it could be positive. I 
think it's really important to recognize that for some generic 
prices, it's maybe helpful. We can look and see what a price of 
a low-cost generic is, but if it's a really high-cost-brand 
medication, knowing what the price is, isn't going to matter if 
you need that drug.
    So, if it's a life-saving medication, it's not going no 
matter what the price is. You can tell it--you can post it 
everywhere you want, and I still need it. You know? So, I guess 
we just got to figure out, when is it actually going to help?
    Mr. Fitzgerald. Yes. I yield back.
    Mr. Massie. I thank the gentleman.
    I now recognize the Ranking Member of the Full Committee, 
Mr. Nadler, for five minutes.
    Mr. Nadler. Thank you, Mr. Chair.
    Dr. Van Nuys, in your written testimony, you discuss the 
practice of spread pricing. Could you explain how this practice 
works and why it is concerning, especially in the context of 
government programs like Medicaid?
    Dr. Van Nuys. Yes. Spread pricing is the practice where a 
pharmacy benefit manager reimburses the pharmacy one rate for 
filling a prescription and then charges the health plan a 
different, higher rate for filling that same prescription. Then 
they keep the difference, and that's called the spread.
    The health plan does not see what the pharmacy is 
reimbursed. As a result, the health plan doesn't know what they 
are paying. Part of what they are paying for pharmacy benefit 
services is that spread, and they don't know how big it is. 
Nobody can make a good, sound economic decision without knowing 
what prices they're paying.
    The State of Ohio audited its Medicaid managed care program 
in 2018 and learned that they were being charged those spreads 
of 31 percent on average on generic drugs. As a result, they 
fired their PBMs, which suggests to me that they were very 
surprised to learn that the spreads were as high as they were. 
They would not have known about this if they had not done this 
audit.
    So, I think that having spread pricing--the practice by 
itself is not as problematic as the fact that there's no 
transparency into it, and it actually masks prices and 
compensation levels for PDMs.
    Mr. Nadler. Thank you. Dr. Van Nuys, how do PBM practices 
affect the uninsured?
    Dr. Van Nuys. The uninsured? Oh. So, when it comes to 
negotiating the prices of brand drugs, pharmacy benefit 
managers and drug manufacturers negotiate over the list price 
of the drug and the rebate. We've heard a little bit about 
rebates here, right?
    So, in the process of negotiating that, the PBM wants a 
higher rebate because they get to keep a part of it, and the 
manufacturer wants to pay a higher rebate because that will get 
them preferred placement on the formulary. So, both of those 
agents are sort of working toward higher rebates, but what that 
tends to do is push up the list price of the drug because the 
rebate is taken out of the list price, and the net price is 
what remains.
    Mr. Nadler. No one is pushing in the other direction.
    Dr. Van Nuys. No one's pushing in the--not on the list 
price. So, uninsured patients frequently face the list price of 
the drug, not that negotiated net price after the rebate, but 
the list price of the drug.
    Mr. Nadler. So, the uninsured pay higher prices than the 
insured.
    Dr. Van Nuys. Yes.
    Mr. Nadler. Dr. Frank, we have talked about a lack of 
competition in the PBM market contributing to high drug prices. 
Do you believe this is also a problem in other sectors of the 
healthcare industry?
    Dr. Frank. The concentration is problematic elsewhere, 
absolutely. I think we see it a bit in Medicare Advantage, for 
example. That would be one of the places that I think is a 
poster child for sort of high levels of concentration.
    Mr. Nadler. What recommendations do you have for promoting 
competition in hospital and physician markets?
    Dr. Frank. Well, I'll give you one example. In Medicare 
Advantage, we have set things up so that the county is where 
competition happens, right? That's the way the markets are 
defined. That's fine in your borough. It's not so great in 
Nebraska.
    What we could do to promote competition is make markets 
larger so that companies that enter can count on getting a lot 
of business. In New York, it's true--Nebraska, not so much.
    Mr. Nadler. New York what?
    Dr. Frank. In New York, it's true that you go into that 
market; there are a lot of bodies for you to compete for. 
That's less true in Nebraska. So, by making the markets 
geographically larger, getting more people in, you create 
incentives for entering competition.
    Mr. Nadler. Thank you.
    Dr. Van Nuys and Dr. Frank, in order, what reforms do you 
recommend that Congress take to address the concerns related to 
PBMs?
    Dr. Van Nuys, let's start with you.
    Dr. Van Nuys. I recommend creating greater transparency by 
developing and publishing pricing benchmarks that are true net 
pricing benchmarks so that the folks who are transacting in 
these markets can actually make better economic decisions, know 
what prices they're facing.
    Mr. Nadler. Dr. Frank?
    Dr. Frank. I guess I would try to do things that promote 
competition from independent pharmacies--I mean independent 
PBMs--because, right now, you've got the three vertically 
integrated ones, and there is some midsize independent PBMs. To 
try to get them and others like them to be able to compete more 
effectively, doing things to encourage their entry into the 
market could go a long way to help.
    Mr. Nadler. You mentioned the three vertically integrated 
PBMS. Do you think antitrust action should be taken against 
them?
    Dr. Frank. Well, no, let me tell you what my concern with 
taking antitrust action is. The areas of antitrust that are the 
hardest to make a case on, where the case law and the economics 
is messiest, is in vertical relations. I think you'd have to go 
after that. Because the process is a very long litigation, 
highly uncertain given the messiness of the area--I would try 
out something else first.
    Mr. Nadler. Thank you.
    My time has expired. I yield back.
    Mr. Massie. The gentleman yields back.
    I now recognize the Chair of the Full Committee, Mr. 
Jordan, for five minutes.
    Chair Jordan. Thank you, Mr. Chair, for this important 
hearing.
    Dr. LoSasso, you started off our testimony--I think it was 
your second sentence you said even Plato doesn't like or didn't 
like middlemen, referring to the PBMs. The way I understand 
it--and again, just a country boy here, but PBMs work with 
insurance companies to negotiate prices with manufacturers and 
then dictate to the pharmacy what they get paid. If you are not 
in the network, look out. You are in trouble.
    That doesn't sound like a middleman. That sounds like the 
dictator at the top. That sounds like a monopoly. That is the 
concern, and particularly when 80 percent of the market is 
vertically integrated, as the gentleman just pointed out, as 
the Ranking Member just pointed out.
    So, I guess I am going to go back to the question the 
Ranking Member just asked Dr. Frank. Why isn't this an 
antitrust concern? I guess I will start with the guy who 
brought up the middlemen at the start of the hearing, Dr. 
LoSasso.
    Dr. LoSasso. Thank you, Congressman. So, yes, broadly 
speaking, the picture you paint is more or less accurate--
    Chair Jordan. Well, first, is the picture accurate? I am 
not trying to paint any special picture. I am trying to get to 
the facts. That is an accurate picture, isn't it?
    Dr. LoSasso. Well, it ignores some important aspects, which 
is that the payer ultimately--
    Chair Jordan. Three pharmacies, 80 percent of the market. 
Are three PBMs 80 percent of the market? Is that true?
    Dr. LoSasso. Estimates vary, but yes, 70-80 percent, 3-4.
    Chair Jordan. Three dominate, right?
    Dr. LoSasso. Three to four, yes, depending on--
    Chair Jordan. They work with insurance companies to 
negotiate prices with manufacturers and then tell pharmacists 
what you are going to get paid.
    Dr. LoSasso. So, remember the key part there is that 
pharmaceutical companies control list price, right? 
Pharmaceutical companies have a great deal of market power, 
given monopoly privileges.
    The payer, on the other end, the person--the entity at--
whether that's a labor union, whether that's a large employer--
they are able to view options. They're able to say, ``No, I 
don't want''--the first thing--I'm not a large employer, of 
course, but I would want to know, what is the average spread? 
You're offering me an alternative. The PBMs say I could do 
spread pricing. Here's an option. I can do spread pricing; I 
can do fees.
    Well, what is the spread? Why didn't that Medicaid 
program--I think it was Ohio. That would have been one of the 
first questions I'd ask if I was an Ohio Medicaid Director. 
What is the average spread price for generics? I'd hate to find 
out with an audit down the road.
    So, all I'm saying is that there are people with skin in 
the game that are able to push back, and that is the payers.
    Chair Jordan. Let me ask you this. Can a large PBM tell an 
independent pharmacy: If you work with some new innovative 
company to bypass our network, we will cut your pharmacy off 
from our network and subject you to fees and audits? Can that 
happen, Dr. Mattingly? We'll jump around a little.
    Dr. Mattingly. I'm sorry. Can you repeat that scenario 
again?
    Chair Jordan. Could a large PBM tell an independent 
pharmacy: If you work with a new innovative company to bypass 
our PBM network, we will cut your pharmacy off from our network 
and subject your pharmacy to fees and audits? Can they do that?
    Dr. Mattingly. I don't know, but they might be able to, 
yes.
    Chair Jordan. Dr. Frank, what do you think? Can they do 
that?
    Dr. Frank. I think that's certainly a risk that they can 
often have the market power--
    Chair Jordan. We think it is happening.
    How about you, Dr. Van Nuys?
    Dr. Van Nuys. Yes, I think it probably happens.
    Chair Jordan. Yes. Is that--we got the manufacturer. We got 
the insurance company. We got the wholesale distributors. We 
got the pharmacists. We got the PBMs. If they can do that, that 
is probably not good for the one we should care about most, 
which is the patient, right?
    Dr. Van Nuys. Yes, particularly patients in rural areas or 
in underserved areas where, disproportionately, independent 
pharmacies are the ones who are serving those patients.
    Chair Jordan. Dr. LoSasso, I started with you. I will give 
you the last word here and my last few seconds. Anything you 
want to add?
    Dr. LoSasso. Well, I would--yes. I appreciate that. Thank 
you. I would just add that pharmacy networks, selective 
contracting, broadly speaking, as I pointed out earlier, that 
is a mechanism that can be used to ensure a high-performing set 
of pharmacies that can deliver drugs to patients. I can't speak 
to any of the sort of punitive measures that you mentioned. I 
don't know anything about that.
    As a general matter, being able to create a high-performing 
network of pharmacies is a useful function because it can 
improve efficiencies. It can force the pharmacy that can't meet 
the objectives of the PBM, in this instance, to become more 
efficient or move on.
    Chair Jordan. I was going to yield my remaining time to the 
Chair, but as happens sometimes, there is nothing left. Thank 
you, Mr. Chair.
    Mr. Massie. Thank you. The gentleman yields back.
    I now recognize the gentleman from Georgia for his five 
minutes.
    Mr. Johnson. Thank you, Mr. Chair, for this very important 
and bipartisan hearing.
    With all due respect to my friend, the country boy from 
Ohio, I would point out there is a lot of city boys who would 
be interested in the same answers that you were trying to 
elicit. I will point out, too, the witness--
    Chair Jordan. Ah, it is great to see we are on the same 
page for a change, brother.
    Mr. Johnson. I am happy about that.
    Chair Jordan. Yes. That is--amazing day.
    Mr. Johnson. Now, typically, when a widget is manufactured, 
the widget manufacturer would manufacture the widget. The 
widget would then be placed with a distributor. The distributor 
would then place the widget with a retailer, and the retailer 
would make it available to the customer. Correct? That is the 
normal supply chain or distribution channel.
    It is much more complicated in the pharmaceutical industry. 
I would also point out the fact that drug prices in the United 
States of America, as it relates to pricing for the same drug 
in another industrialized Nation, the cost in the U.S.--like 
say insulin, for instance. Back in 2018, a vial of insulin in 
the U.S. cost $98.70, and you go right across the border to 
Canada and get that same vial for $12.
    So, we see these kinds of price disparities across a broad 
range, in fact all, pharmaceutical drugs. We see that 
happening. We also know that 90 percent of the pharmaceutical 
drugs that are delivered to consumers--90 percent are generics. 
So, there is no exclusivity issue in terms of patents.
    So, question I want to ask--the widget manufacturing 
process in the U.S. being as complicated as it is, does that 
same supply chain distribution process--is it employed in a 
place like Canada? Do--yes, Dr. Van Nuys.
    Dr. Van Nuys. I am not an expert on the Canadian drug 
distribution market, so I can't say for sure. I do believe that 
because of the very different healthcare system in Canada 
versus the U.S., we don't have the same kind of intermediaries.
    Mr. Johnson. I guess what I want to ask is, do PBMs exist 
in any other market than the U.S.? Can you answer that, Dr. 
Mattingly?
    Dr. Mattingly. Absolutely. Congressman, I love your example 
of the widget. I use that in my class all the time, so thank 
you for that.
    Absolutely. So, in Canada--and I had this opportunity right 
after pharmacy school. I got to go spend about a month with the 
British Columbia Ministry of Health, so working with the 
province. So, this was for the government. So, I went and 
shadowed and worked there for four weeks, came back. I was 
like, ``That was like a PBM.'' Right? So, their State level, 
province, is making the same decisions.
    Mr. Johnson. Single-payer kind of model.
    Dr. Mattingly. Well, and Canada has multiple provinces. So, 
it's not a single payer, as we like to think. It's even more 
complicated there.
    Mr. Johnson. Well, single concept. Multiple payers, I 
guess, but same concept.
    Dr. Mattingly. Right. Sure.
    Mr. Johnson. A single payer among various provinces.
    Dr. Mattingly. Well, instead of our premium payments going 
to function to a for-profit company that's set up to administer 
the benefits, it's maybe my tax dollars that are going through 
that way. So, it's just two different ways of handling it.
    Mr. Johnson. How is it that the U.S. distribution channel 
for pharmaceuticals incorporated the PBM model as its 
distribution process? How did that come about, and why? Is it 
still useful?
    Dr. Mattingly. Yes. It did start in 1958 in Canada and made 
its way over to the United States in the early 1960s. We 
started as prepaid pharmacy card systems. So, pharmacists 
actually helped us create these to begin with because we 
thought pharmaceuticals were getting too expensive in the 
1960s. So, a way to handle that was, ``Let's pay ahead of 
time,'' and again, knowing that patients are going to have this 
spending.
    So, it started, again, to address as the rising costs of 
drugs were coming along. Again, the rising cost of drugs to 
your widget--we put these widgets through many years of 
research and development that have to then meet a barrier that 
they are safe and efficacious to be distributed to our 
patients.
    Mr. Johnson. That should have no bearing on the 
distribution process.
    Dr. Mattingly. Oh, no, sir.
    Mr. Johnson. OK. I have no further questions. I yield back.
    Mr. Massie. Thank you. The gentleman yields back.
    I now recognize the gentleman from Oregon for five minutes.
    Mr. Bentz. Thank you, Mr. Chair, and thank all of you for 
your testimony.
    Dr. Mattingly, what exact part, if there is just one part, 
have PBMs played in the closing of the small pharmacies? 
Certainly, in my district back in Oregon, it is a huge, huge 
space--my district is bigger than the State of Washington, and 
we had at one time small pharmacies all over it. They are 
disappearing.
    It is not just pharmacies that have disappeared. We have 
seen a wave of consolidation in the funeral homes, consolidated 
towing companies, and doctors have become hospitalists. The 
whole thing is collapsing into bigger spaces or perhaps more 
efficient, perhaps not.
    So, tell me, though, what PBMs have done to cause this 
trend to continue, if anything.
    Dr. Mattingly. Thank you. That is a great question. I 
absolutely--from my perspective, I feel like there is a major 
just scale difference and I talk about--again, to try to 
encourage my students because pharmacies close and pharmacies 
do open. So, there are pharmacists who seek out to start a new 
business.
    If I want to open Joe's Pharmacy, my ability to negotiate 
with three companies that control 80 percent of the 
prescription drug market is quite limited. So, at the end of 
the day, it is often that size and scale thing. It is not just 
the independents, because I think we have seen large chains 
announce that they are closing stores, too, meaning that, is 
our retail market changing? It is something that we have to 
consider.
    Even during the pandemic--I grew up working at a grocery 
store. I always loved to go to the grocery. During the 
pandemic, I had my groceries delivered a time or two, and it 
was like, that is pretty convenient. Maybe I don't need to go 
to the big box to get my groceries. I still do because I enjoy 
it, but my point is I don't know how much of it is also a 
function of the retail market changing that we have to 
evaluate.
    Mr. Bentz. Do you have a number of how much PBMs take out 
of the healthcare system? Cost the healthcare system? I heard 
at one point someone said it is a very small percentage of the 
total 3\1/4\-4 trillion we spend.
    Dr. Mattingly. Oh, that is a really good question, a really 
good research question, so thank you for that. I would say one 
of the things we are focused so much on the pharmacy market 
side of it, and I think maybe what you are getting at is, too, 
is the pharmacy segment is still a small segment of the overall 
healthcare spend. I don't know if that is where you were 
headed.
    Mr. Bentz. No, no. My question simply is, PBMs are 
providing some sort of a service. How much of it is it costing?
    Dr. Mattingly. No. So, I don't have that.
    Do you have that, Richard? Please.
    Dr. Frank. Their margins are about 4-6 percent, and--what?
    Mr. Bentz. Four to six percent?
    Dr. Frank. Four to six percent. So, if you kind of look at 
that as part of the--in terms of the overall drug spend, it is 
actually, pretty small because--
    Mr. Bentz. So, when I was--the articles I read suggested 
that we were using PBMs as a whipping boy for a much larger 
problem, but that is why I am trying to get at how big a 
problem is this. If we get busy as a Congress, we are going to 
solve this problem. How much have we reduced the cost of 
medicine?
    Dr. Mattingly. Right. So, that was a point I was trying to 
make at the end of my presentation, which was, even though 
there is good things that can happen by addressing the PBM 
market, but it is only going to do a small, modest amount to 
really bring down the cost of prescription drugs.
    Mr. Bentz. Right. Certainly, if someone has that number, I 
would love to see it.
    Dr. Van Nuys, do you have reason to believe that PBMs are 
the worst of the middlemen? Or is there somebody worse? Or 
maybe they are not bad. Maybe they are good. Maybe they are the 
best of the middlemen. Where do they fit.
    Dr. Van Nuys. I don't think I have a way to rank order 
them. I will say to your question about, how much PBMs are 
costing the system, keep in mind that the three largest ones 
are vertically integrated with health plans and pharmacies, and 
so on, and because of that vertical integration they can shift 
revenues and profits into other sectors.
    So, just because what we are reporting as PBM--the PBM 
share, it doesn't necessarily mean that this is the whole--
    Mr. Bentz. Right. You shifted to the entire supply chain, 
and we are selecting just one part of it. Are you saying that 
we should change our focus to that entire vertically integrated 
thing?
    Dr. Van Nuys. I think in the case of a vertically 
integrated company, yes.
    Mr. Bentz. Yes, Dr. Frank.
    Dr. Frank. Yes. I think that one of the important things 
that maybe we haven't brought out as much is that a lot of 
these issues are now insurance issues and not PBM issues, 
because in fact, as we said, they are all vertical--most 70 
percent of Americans are in vertically integrated plans that 
have a PBM and an insurance policy. A lot of the things that 
are going on are driven by the dynamics of the insurance market 
as much as the PBM per se.
    Mr. Bentz. Right. Thank you all very much.
    I yield back.
    Mr. Massie. The gentleman yields back. I now recognize the 
gentlelady from Pennsylvania for five minutes.
    Ms. Scanlon. Thank you, Mr. Chair. Thank you to our 
witnesses. It is always interesting trying to find the 
particular antitrust angle that we can bring to some of these 
issues that really kind of cross a broad swath of our country.
    We know our healthcare system is becoming defined by 
concentration and a lack of competition, whether we are talking 
about insurers, providers, drug manufacturers, PBMs, or all the 
middlemen throughout the system. We see the impact of decades 
of mergers and acquisitions, the rise of private equity in our 
healthcare system, which is causing particular problems and 
lacks antitrust enforcement.
    I am kind of interested in the suggestion we used. What is 
it? Robinson-Patman, was that--yes. That was your suggestion? 
We will get to that in a minute.
    So, we see that Americans don't have many choices usually 
among which insurers to pick or providers to see or PBMs to use 
or even pharmacies to go to. So, that drives the result that 
Americans pay more for prescription drugs and healthcare 
generally than nearly every other advanced economy.
    We also see that conglomerates own the pharmacy networks as 
you have suggested, and when we look at this whole picture and 
incredibly the thicket of interrelating operations here, we see 
why the patient often loses out in the fight between the 
pharmaceutical companies, the insurers, and the PBMs over who 
has to pay what.
    I am encouraged by this bipartisan work by our colleagues 
here and other Committees to produce legislation to promote 
transparency and rein in some of this sector's worst practices. 
I would be pleased to see this Committee advance serious 
legislation to combat these problems.
    I am concerned about the counterproductive attempts we are 
seeing by the House Majority to repeal provisions in the 
Inflation Reduction Act that have been lowering drug prices for 
seniors and saving taxpayer dollars. That bill allowed, as you 
know, Medicare for the first time ever to negotiate directly 
with drug manufacturers to lower and cap the prices that 
seniors pay, and my senior constituents are really concerned 
about the prospect that we might see the significant progress 
we have made there rolled back somehow. So, don't want to see 
that.
    I did want to pick up on a couple of the issues that Mr. 
Bentz raised, and also some of the issues raised by our 
witnesses. Dr. LoSasso, what was your suggestion with respect 
to enforcement I think it was of Robinson-Patman? How would 
that address the issues we are talking about today?
    Dr. LoSasso. Well, I guess I should point out, first, that 
I am not a legal scholar, nor do I claim to be, but my better-
informed colleagues tell me that the reason behind the somewhat 
clumsy rebate mechanism is because of restrictions in Robinson-
Patman around price discrimination policy. So that is probably 
the extent of my understanding of Robinson-Patman Act.
    Ms. Scanlon. OK. So, more research for us.
    Dr. LoSasso. Indeed.
    Ms. Scanlon. OK. Dr. Mattingly, you noted that the 
concessions that PBMs get from pharmacies are contributing to 
consolidation of pharmacies, essentially squeezing the 
independents out of the market. What could Congress do to 
remedy this?
    Dr. Mattingly. When we are evaluating legislation, 
especially things like NADAC--or, sorry, National Average Drug 
Acquisition Cost, or cost-plus-type pricing, because we know 
those kind of things have been thrown out there--when we are 
talking about what the cost of the drug should be and the cost 
of the dispensing fee, we need to really understand, what is 
the value of the service that the pharmacist is providing?
    When I was a pharmacist--I guess I am still a pharmacist, 
but I was a real pharmacist before--I wasn't incentivized to 
tell the patient not to take a drug, right? Like my revenue is 
based on you filling a prescription. If I say we talk and we 
figure out your history, and it is like, hey, maybe you 
shouldn't take this medication, I get zero revenue. Now, we 
swear an oath, like we would do that.
    Maybe that shouldn't be the case. Like maybe we should 
figure a way for the care that I provide that I am compensated 
for, and then there could be a combination of that fee for 
service in combination with a capitated kind of model.
    Ms. Scanlon. Interesting. Dr. Frank, I was interested in 
your comments about the pharmacy deserts in rural areas. We see 
a similar thing in the very economically distressed urban areas 
that I represent. I have limited time, so I was going to ask 
Dr. Van Nuys, you suggested that the savings that PBMs are 
negotiating are being absorbed by them rather than being passed 
along to patients or insurers or other payees and suggested 
that one way to better align the PBMs' incentives with patients 
and payers would be to impose fiduciary duties on PBMs. What 
would that look like?
    Dr. Van Nuys. It is a good question. It is a very complex 
fix to a very complex system. Right now, PBM--the only 
fiduciary responsibility that PBMs have is to their 
shareholders. That is not necessarily how we want our 
healthcare to operate. So, requiring PBMs to act as 
fiduciaries, either to their health plan clients or to the 
employees and beneficiaries of those health plans, changes the 
focus of what is required of them.
    Ms. Scanlon. OK. Thank you. I see my time has expired. I 
yield back.
    Mr. Massie. The gentlelady yields back.
    I recognize the gentleman from North Carolina for five 
minutes.
    Mr. Bishop. Thank you, Mr. Chair. This is an intimidating 
kind of witness--or hearing in which to ask questions, 
especially given the way Congress is, you have got to run out 
to do a little speech and get back in, so I missed Dr. LoSasso, 
I missed Dr. Mattingly, I missed Dr. Frank. I got to hear Dr. 
Van Nuys' testimony. Then, I have heard the questions and the 
answers.
    I will say it all seems like a Rube Goldberg contraption, 
and so you have got a lot of really smart experts, and they do 
a lot of research, and we never really get to the point where 
everybody feels like pharmaceutical costs are about right. We 
never get a lot of satisfaction there. You have got some 
arguments, and then you have got--Dr. LoSasso, do I get the 
basic essence of your position that you think this is really 
driven by pharmaceutical manufacturers and the patent system 
and the fact that you have got to sort of have a heavy 
counterweight to them, somebody that can negotiate with them, 
and that is what--PBMs kind of help that function get carried 
out? Is that right?
    Dr. LoSasso. In brief, sir, yes, I do believe that PBMs are 
not only the tip of the spear when it comes to engaging in 
price competition and enforcing price competition, they 
probably are the entirety of the spear.
    Mr. Bishop. OK. Because of the rest of the way the system 
is composed, right? Because you have got pharmaceutical 
manufacturing and you have got the patents associated with 
those, and things like that. Is that--and you have got all the 
consolidation in the healthcare industry through payers, 
payors, and all those kinds of things.
    Dr. LoSasso. In my view, they are the only entity that 
really has an incentive to try to pass along savings, because 
what they are ultimately selling is insurance. The lower the 
premium, the better. If you can bring down the premium, then 
you get more business.
    Mr. Bishop. Do I understand, then Dr. Van Nuys, again, I 
heard your testimony. So, all you believe that PBMs play an 
important role, and they are--on balance, they are a net plus. 
Is that correct? Anybody differ from that point of view?
    Dr. Van Nuys, what I heard you say specifically in your 
testimony, if you will, you told us about a lot of things that 
are problematic, but you also--I thought there was a premise in 
there that they are really important--they provide important 
benefits. Did I get that correct?
    Dr. Van Nuys. Yes. They play an important role. You need 
somebody negotiating drug prices. You need somebody designing 
formularies. You need somebody managing pharmacy networks.
    The second half of your question was, on balance, are we 
seeing those benefits or are we seeing greater costs because of 
this sort of countervailing forces?
    Mr. Bishop. The gentleman from Georgia, Mr. Johnson, said 
something that probably came at one of your testimony--that 90 
percent of the drugs are generics. Is that correct?
    So, I am sort of left surprised by that. If the 
pharmaceutical manufacturers and the monopoly they are 
provided--and I am aware of the games they play in terms of 
trying to preserve patent for a longer period of time and 
reformulate, and so forth, and there is a lot of scams in there 
maybe.
    If it is 90 percent driven by generics, and that is 
supposed to be--that shouldn't be operating, then why are we 
having to set up the whole Rube Goldberg contraption for the 
sake of 10 percent of the market? Dr. LoSasso?
    Dr. LoSasso. It is not 90 percent of the dollars.
    Mr. Bishop. OK.
    Dr. LoSasso. OK. So just to be clear.
    Mr. Bishop. It is interesting and revealing. It is like 
reading Bork's Antitrust--no, it is like having to read the 
CliffsNotes to Bork's Antitrust Paradox and then come in and 
try to ask intelligent questions about it.
    So, given the limitations I am facing on that score, I am 
going to yield to the Chair the balance of my time.
    Mr. Massie. I thank the gentleman from North Carolina.
    Dr. Frank, I think you were centering on what might be a 
solution or an improvement, which was these independent PBMs. 
You said there is some hope there. There is consolidation. 
There is three or four that are controlling everything, but 
there are some trying to get into the market.
    What could we do to make them more competitive? Or is there 
something we could unshackle to make them more competitive?
    Dr. Frank. I think that is a really important question. I 
think it is one that I have been thinking about a lot. I don't 
have a great answer.
    Mr. Massie. Give me your best answer. Best effort.
    Dr. Frank. My best answer is that the government now, one 
way or another, is involved in about half the insurance 
purchases around the country. Right? So, there is probably--and 
I don't know a better way to put it, but there is probably some 
ways to, as we have done in other areas, like when we started 
Medicare Part D, is to put our thumb on the scale a little bit 
to make the market work better.
    How exactly to do that I haven't figured out yet, but I 
think that given what an important role the government has in 
procurement of prescription drugs and working through PBMs and 
PDPs, there may be some ways there to advantage some of these 
independent entities.
    Mr. Massie. The gentleman's time from North Carolina has 
expired, which means my time has expired. I may come back and 
ask some of the other witnesses the same question, so be 
thinking about it.
    I now yield to Mr. Ivey--or, sorry, recognize Mr. Ivey for 
five minutes.
    Mr. Ivey. Thank you, Mr. Chair. I want to commend you for 
this hearing. I think this is a great example of a bipartisan 
effort, and I appreciate the panel as well, very interesting 
and provocative answers.
    I do want to--if the clerk could put up the exhibit. This 
is--are you able to see that? OK. This is from the FTC Staff 
Report ``Pharmacy Benefit Managers: The Powerful Middlemen 
Inflating Drug Costs and Squeezing Main Street Pharmacies.'' I 
wanted to ask you some questions about this.
    Dr. Frank, I think you touched on some of this already in 
talking about how difficult vertical integration antitrust 
cases can be. Man, this sure looks like one to me. You have got 
the concentration of the PBMs, which is around 80 percent. I 
didn't realize until I saw this graphic the extent of the 
vertical integration. This is pretty significant.
    I want to ask you two questions, though. So, even if it is 
a complicated or difficult case to make, and it is sort of 
touches on what the Chair asked a moment ago, isn't this the 
type of thing that FTC/DOJ antitrust should be trying to break 
up in some way?
    If we want to try and figure out a way to give the other 
three PBMs, which I guess is--what is that, Humana, MedImpact, 
and Prime? Are those the three? A chance to try and break into 
that 80 percent wall, wouldn't sort of breaking up the 
relationship between the PBMs, CVS, Express Scripts, and Optum, 
which the rest of their vertical integrated columns, wouldn't 
that be the way to do it? Not sure, but, yes, Dr. Frank, what 
is your take on that?
    Dr. Frank. It certainly is tempting target. As I said, I am 
reluctant just because the economics aren't worked out. We 
don't have super great evidence on that, and it would take us--
you and I would probably be somewhere else by the time that 
those things got worked out.
    I do think that there are other things that we can do in 
the interim that can be done either administratively or 
regulatorily that would sort of move the ball ahead and it is 
for that reason that I--
    Mr. Ivey. OK. Well, let me ask you a quick followup, and 
then I am going to yield some time.
    So, one of the things when I asked unknown--unnamed PBMs 
about this issue, and they said: Well, Mr. Ivey, but the 
relationships between the PBMs and the other entities in that 
vertical column are all those transactions are done at arm's 
length. So, it is all done at fair market value.
    I said--well, I didn't say it. I thought it. Come on.
    [Laughter.]
    Mr. Ivey. Come on. I think one of you referenced a minute 
ago about the possibility of sharing benefits up and down the 
stream. That creates the problem of overpricing at that level, 
and also distorts the information that we are trying to get at 
from the transparency piece.
    I can't think of another way to address it, but I do want 
to yield the balance of my time to the gentlelady from North 
Carolina.
    Ms. Ross. Well, thank you very much, Mr. Ivey.
    I have been working on bipartisan PBM legislation that has 
been going through Energy and Commerce, and you are probably 
familiar with a lot of it. A lot of it, given--and I love the 
setup from my colleague. A lot of the problem is this vertical 
integration, because the savings are not going to the patients.
    So, yes, there might be some savings, but they are either 
going back to the insurance company or they are going to the 
PBM. That doesn't accomplish the goal, and that is the 
antitrust problem. The antitrust problem isn't that there is a 
PBM trying to find efficiency. The antitrust problem is that 
the PBM is either self-serving or serving the people that they 
are contracting with and not serving the patient. That is the 
fundamental thing here.
    I love what Dr. Van Nuys said about having some kind of 
fiduciary responsibility, but I think what we should be 
thinking about is, if you are going to get into the business of 
having vertical integration with PBMs, that the beneficiary 
cannot be the vertical integration. That is the antitrust 
problem, and we need to figure out, maybe it is not breaking it 
up. Maybe it is more regulation for how that vertical 
integration can work.
    That is the nub of it, because the vertical integration is 
not helping the patient at all, and it is not reducing drug 
prices to the patient at all.
    Thank you, and I yield back.
    Mr. Ivey. Thank you. I yield back the balance of my time.
    Mr. Massie. The gentleman yields back.
    I now recognize the gentleman from Virginia for five 
minutes.
    Mr. Cline. Thanks, Mr. Chair. This is a great hearing, 
timely topic, and I appreciate the bipartisan nature of it.
    With the rise in premiums and deductibles and the ever-
increasing costs of prescription drugs, it is clear something 
needs to change, and I am a firm believer that free market 
solutions are the best solutions, and to truly have a free 
market we need competition. When you have 95 percent of the 
prescriptions in the hands of six PBMs, you don't have 
competition.
    This hearing is so important, because we are seeing clear 
anticompetitive growth in our healthcare system. The FTC has 
said that they are going to be taking action in court, but we 
do want to examine, in terms of our Article 1 powers, what 
Congress can do about that.
    Last year, 46brooklyn Research released a report on how 
PBMs define brand, generic, and specialty. They found that 
those definitions--brand, generic, and specialty--differ from 
PBM to PBM. In other words, instead of using the FDA drug 
application designation of NDAs and biologic license 
applications for defining brand and abbreviated new drug 
applications, ANDAs, for defining generic, PBMs essentially 
make up their own definitions.
    Similarly, the analysis found that a surprisingly large 
portion of the drugs on the specialty list were generics, 42-54 
percent. Dr. Mattingly, in your testimony, you mentioned drug 
price definitions and how that can impact what is paid. Have 
you done any research or work regarding how PBMs define drugs 
in their contracts?
    Dr. Mattingly. That is a great question. One of the things 
I kind of joke about with specialty is that it is not really--
it is expensive, and that seems to be the biggest part of the 
definition that leads to that. It causes a lot of problems, so, 
no, I think you are keen to pointing that out, that maybe we 
need to have a more clear definition of what breaks things into 
these tiers.
    Mr. Cline. I saw a couple of other heads nodding. Does 
anyone else want to weigh in on that?
    Dr. Van Nuys. I will also add that I think the 46brooklyn 
folks have also demonstrated that sometimes drugs are 
reclassified and from regular to specialty, and then, because 
of the PBM contract, the patient is required to use the 
specialty pharmacy that is affiliated with the PBM. So, that is 
another--it is not just that the price is different, but now 
you also have to buy it from my pharmacy.
    Mr. Cline. Dr. Frank?
    Dr. Frank. What she said.
    [Laughter.]
    Mr. Cline. Thank you. Dr. Frank, actually, you spoke a lot 
about vertical integration in your testimony. When it comes to 
the big three, which side of the business makes the most cash, 
insurance or PBM?
    Dr. Frank. A huge amount of the profit comes from the 
specialty and the mail order. A disproportionate part. I 
haven't sort of allocated it all out, so I can't give you a 
precise answer, but it is a disproportionate amount coming from 
the PBM, those two pieces of the PBM industry.
    What is important here is also that because of the 
regulations on medical loss ratios in the health insurance side 
of things, it is very convenient for the PBMs to overcharge the 
insurers to avoid regulation because the revenues still go back 
to the parent company and so do the profits, that they are out 
of the reach of the regulators.
    Mr. Cline. Does anyone else want to weigh in on that? Well, 
that we have got a lot of questions that have--and some 
legislation moving forward that may or may not address the 
concerns. I am glad this Committee is exercising its 
jurisdiction, and I think there may be some answers that lie in 
this Committee.
    So, with that, I yield back. Thank you, Mr. Chair.
    Mr. Massie. Would the gentleman yield his remaining--
    Mr. Cline. Yes, I yield back.
    Mr. Massie. So, may I--
    Mr. Cline. I yield to the Chair.
    Mr. Massie. OK. Thank you very much. Didn't want to take 
anything that wasn't mine, but I will take it.
    So, what I hear from small mom-and-pop pharmacists is, ``I 
am paying $25 for this drug and that CVS or the hospital is 
paying $5 for it,'' or ``I am filling a prescription, and even 
before I consider my labor or my employees, I am filling it for 
less than--they are paying me less than it costs me.''
    What scale would they have to operate at to make money if 
they are paying more than they are getting reimbursed? Like is 
there any scale that that works? Dr. Van Nuys?
    Dr. Van Nuys. Well, no. What you have laid out, there is no 
scale. You don't make it up on volume. It is true that if you 
are larger, you can get better pricing from a wholesaler.
    Mr. Massie. That doesn't speak--that is not saying that the 
employees are not working as hard at the small pharmacy or that 
there is no scale at which when you are paying more than you 
are getting for the drug, there is no scale at which that 
works.
    So, there is something wrong there in the pricing. Maybe 
these small pharmacies are twice as efficient. Maybe the 
employees are more motivated. It is a scale thing, and that is 
a problem.
    Let's see, I recognize the gentlelady from Vermont now for 
five minutes.
    Ms. Balint. Thank you, Mr. Chair.
    I represent Vermont, and it is a very rural State. We are a 
collection of small, tight-knit communities, and in many towns 
and villages there are small businesses like independent 
pharmacies that are often the bedrock of communities.
    I can tell you I had the same independent pharmacy for 20 
years. It closed recently. I can tell you there were times when 
I went into my independent pharmacist. If things had gone 
haywire with my insurance, Frank would literally say to me--
because I have asthma,

        You know, I know you, you have been my person for 20 years, we 
        will get it straightened out, I know where you live, it is 
        going to be OK.

    They recently closed after decades of serving my community. 
They are not the only one, and I am very concerned. Mr. Bentz 
talked about this in Oregon as well, that we do see independent 
pharmacies closing, and it is a very serious concern, not just 
because of the level of care that you get from these 
pharmacies, but also, in a rural State, you have got to drive 
then farther to get that prescription or to get that counsel.
    We have an aging population, and you can just imagine, and 
it is snowy, and it is icy, and it is dirt roads, and so it 
does materially affect us when these independent pharmacies 
close.
    Now, the FTC conducted an in-depth study in PBM practices, 
and one part of their report really stood out to me. The FTC 
used a case study of two generic cancer drugs to find that non-
big three pharmacies--so those independent pharmacies like the 
ones that have closed in Vermont in the last few years--they 
pay 20-40 times the average national price for those drugs.
    So, it goes to what you were saying just now, Mr. Chair. On 
top of that, the retail chain outlets seem to be doing pretty 
well actually. So, the FTC found that pharmacies affiliated 
with the big three PBMs retain nearly $1.6 billion in 
dispensing revenue above the national average.
    So, I really appreciate you are all here. I am glad this is 
a bipartisan hearing where we are really trying to dig in.
    Ms. Van Nuys, I really would like to dig in a little bit on 
this piece of the independent pharmacies. Why are independent 
pharmacies at such a disadvantage, in particular, when it comes 
to the generic drugs? Or are they? What are the disadvantages 
that independent pharmacies come up against in pricing?
    Dr. Van Nuys. So, the report that I was referencing 
earlier, there is some evidence to suggest that the large PBMs 
who have integrated pharmacies are reclassifying drugs to then 
require them to be purchased at their mail-order pharmacy or at 
their specialty pharmacy. There is also, in that same report, 
evidence that they are doing that strategically in the sense 
that the more profitable prescriptions are more likely to be 
sent to the integrated pharmacy than they are to independent 
pharmacies. So, I think that is one element here.
    These sorts of behaviors--again, back to the FTC report--we 
would love to know more about how this is happening and what 
the aggregate results of these actions are.
    Ms. Balint. So, can you explain just to make it as clear to 
us as possible, we have heard a lot about the dangers of the 
vertical integration as it relates to consumers and being able 
to actually see any value from the PBMs, right?
    Can I just see that slide? Do we still have that slide 
available that was at--OK. So, this is bringing me back six 
years to when I was on the Finance Committee in my State 
Senate. OK? It is just as confusing now as it was then.
    It makes no sense to the average person, to the average 
consumer, and certainly for those of us who are the eyes and 
ears for average consumers, you can't explain this stuff. We 
are not seeing the benefit from PBMs. Somebody is, but it is 
not us. So, can you also just tell me, how does vertical 
integration really impact negatively independent pharmacies and 
consumers from your perspective?
    Dr. Van Nuys. So, again, specifically, these vertically 
integrated PBMs are taking their profitable business and 
directing it toward other parts of their own organization 
rather than allowing the independents to benefit from it.
    Ms. Balint. So, basically, what we are saying is our 
independents just don't have a shot.
    Dr. Van Nuys. They are not on a playing field that they can 
compete on. They are up against a very formidable adversary.
    Ms. Balint. Appreciate it. Sorry for going over. I yield 
back.
    Mr. Massie. No problem. Thank you for yielding back.
    I now recognize the gentleman from New Jersey for five 
minutes.
    Mr. Van Drew. Thank you, Mr. Chair. Mr. Chair, thank you 
for having this hearing. It is valuable. It is worthwhile, and 
I know it is only the very, very rudimentary beginning, but it 
is still good. You have got to begin somewhere. Hopefully, we 
can get something done.
    I am a dentist. I was a practicing dentist for 30-some 
years, and I practiced through even being in the State Senate, 
State Assembly, and the Mayor of my town. I had a partner and 
was able to do it, and it is a wonderful profession.
    I will tell you; people assume because I am a dentist that 
I have the--I know it is where I am going to go with this--that 
I have the answers to healthcare. They go, ``Jeff, you are in 
Congress now.'' Of course, I sold my practice when I got in 
Congress. ``We need you to settle the healthcare program. I 
have a problem.''
    I have people that actually come up to me and say that all 
the time, we do have some other dentists and physicians, et 
cetera. I know of no problem, quite frankly, in general--and I 
know we are talking the specific subject now--but that is more 
difficult, more complex, and harder to solve at so many levels, 
because every time you do something there is a ripple effect 
somewhere else, and it is a really difficult issue.
    I am actually candid about it when I am in a debate or a 
discussion and people say, ``Well, what are you going to do 
about healthcare?'' I will talk about some ideas, don't get me 
wrong, and we all know the political talking points. We also 
know those aren't going to be the answers at the end of the 
day. This is a really difficult issue.
    So, thank you--all of you--for the work that you do.
    So, the first question I am going to ask is about the PBMs, 
the insurance companies, and the manufacturers. Again, you 
heard it today, and my colleagues asked excellent questions. 
Some folks think it is the manufacturers. Some think it is the 
PBMs. Some think it is insurance companies. It is probably all 
of them.
    I will start by picking on Dr. Mattingly. What would you 
do--I am going to ask this question a couple of times. You are 
king of the world, man. You are king of the country, and your 
one task in life is to fix this thing. I call you up. I am Jeff 
Van Drew. I want to write some bills. What should I do? You are 
in control. What should I do?
    Dr. Mattingly. Well, first, thank you for the promotion. 
One of the challenges that we have is we don't have a process 
to really value any of these things that you have listed out. 
Like we don't--we, I say ``we,'' like society, like we struggle 
to value, what is the value we should place on a brand-name 
pharmaceutical? What is the value we should place on a generic 
pharmaceutical?
    Mr. Van Drew. Do you mean the financial value?
    Dr. Mattingly. Economic value. No. What is it if an 
employer, it is important that your employees are healthy, so 
they come to work and they are productive. Right? So, that is 
why health insurance is valuable to an employer.
    For patients--so, we don't know what the--how do we truly 
come to an agreement on what a drug price should be? Some drug 
prices are too low. I keep hearing that it is all about drug 
prices being too high. Some generic prices have gone so low 
that we run into supply chain shortages. So, like, it is more 
complex on the other side, too.
    Mr. Van Drew. By the way, try to explain that to the 
public. Gee, this drug is too cheap, and it is hurting us. So, 
you know what? That is not easy. Go ahead.
    Dr. Mattingly. Yes. I am not the most popular sometimes in 
trying to explain these things. Also, then, when you flip to 
the side with the insurance or the PBM, what is the value that 
they are providing? So, I have heard a lot about vertical 
integration.
    Well, why would we vertically integrate? Like why would 
Apple build a $3 trillion company off the vertical integration 
with their software and hardware all under one roof? So, is 
there value from a vertically integrated chain or is the cost 
of the vertical integration problematic, like where it is 
anticompetitive?
    So, that is why--I struggle because I want to know, like, 
we can't agree on when the insurance company is doing us a good 
job and we should pay them, like managing a formulary or 
setting up a pharmacy network and evaluating the pharmacy 
network.
    Then, the pharmacists, we don't value--we don't have a good 
way of valuing the pharmacists' services. Again, with you as a 
dentist, you probably recognize there were things in your 
practice that you felt like, well, I did not get paid well for 
this, but I got paid well for that, and so sometimes it is mind 
blowing to think, as a provider, what do I need to do? Like 
what do you want me to do? How do you value what I do?
    Mr. Van Drew. OK. So, it would be exploratory in nature, 
and we are not even there to really determine, to factually try 
to find out the best route to go.
    Dentistry changed a lot for a lot of reasons, partly 
because of the debt of the students coming out now. So, you all 
have noticed, wherever you live, that you are seeing larger 
facilities that are corporate in nature. In my day, you went 
out, you put your shingle up, you started out, and you might 
have some debt from school, but it wasn't so overburdening that 
you couldn't also have more debt to start your practice.
    The same thing--and I want to associate with the remarks of 
my friend on the other side of the aisle from Vermont. I am in 
New Jersey, admittedly, the more rural part of New Jersey, down 
in the Southern half of the State. Nevertheless, people do--and 
I don't know what the answer to this is at all. Nobody does. We 
miss the independent pharmacy. There is nothing wrong with the 
CVSs, the Walgreens, et cetera.
    Dr. LoSasso, you said something about they are inefficient 
providers, and therefore they go. I get it. There is something 
to providing healthcare that is more than just being a Walmart. 
I know we can't define that fiscally, but it is a real issue.
    They are just going to go away, to be honest with you. 
There is nothing I am going to say at this hearing that is 
going to stop that.
    How much--I am going to ask you all really quickly on this, 
and then I will yield back. How much of the cost of all of it--
and I won't even say all of healthcare, but of pharmaceuticals, 
just like in healthcare, we can do surgeries and things we 
never ever could do before. Everybody is getting dental 
implants now. Years ago, man, nobody would ever spend that kind 
of money or get implants.
    In pharmaceuticals, how much is due to the new types of 
drug therapy that we can give people that is very, very 
expensive? When we inhibit that, if we put such price controls 
in, that it was no longer effective for companies to say, ``We 
want to pursue more new and innovative drugs''?
    I am going to start with you, Dr. Van Nuys. I love somebody 
that has got a ``Van'' in their name. Just go right down the 
row, and we have got to be quick, I know.
    Dr. Van Nuys. I don't have those numbers, but I do know 
that what we are overpaying on, like, the generic side of the 
market is not going to support that kind of innovation.
    Mr. Van Drew. Do you agree that some generics are too cheap 
or no?
    Dr. Van Nuys. Sure. I am sure there are some.
    Mr. Van Drew. OK.
    Dr. Van Nuys. In general, no.
    Mr. Van Drew. We are overpaying, you believe, in--
    Dr. Van Nuys. Medicare is, 21 percent.
    Mr. Van Drew. OK.
    Mr. Massie. The time has expired.
    Mr. Van Drew. I know. Can they just finish answering or no?
    Mr. Massie. We will let one more answer.
    Mr. Van Drew. OK. One more of you. We will go to you. You 
are next.
    Dr. Frank. I think that there is a balancing act here, and 
the--right now we pay too much for brand name prescription 
drugs some--a lot of times, particularly ones where there are 
multiple other drugs that do more or less the same thing for 
the same illness.
    There are certainly some places where paying a high price 
has been well worth the price. I think of the Hepatitis C 
drugs, for example. High price, good deal, and so the question 
is which ones--and that is going back to Dr. Mattingly's point, 
which spay for value. A lot of times we are not getting a lot 
of value.
    Mr. Van Drew. Thanks. Thank you for your answer.
    Mr. Chair, I yield back. Could you ask the question as 
Chair, is this worthy of antitrust action?
    Mr. Massie. We may get to that, but now I need to recognize 
the gentlelady from Wisconsin for five minutes. Or, sorry, 
Wyoming.
    Ms. Hageman. Wisconsin?
    Mr. Massie. I am so sorry.
    [Laughter.]
    Mr. Massie. There is somebody on the Committee from 
Wisconsin.
    Ms. Hageman. Yes. They are both W.
    Mr. Massie. Just don't say I am from Tennessee, please.
    Ms. Hageman. PBMs may be the best example of the adage that 
the government is always trying to fix its last solution. Let 
that sink in for just a minute.
    Dr. Frank, in your testimony, you said that, quote,

        Retail pharmacies face an array of challenging economic 
        conditions threatening the survival of some of those operating 
        in rural America, yet much of what threatens those enterprises 
        is not tied to PBMs.

    Then, you highlight a number of potential contributing 
factors in your testimony, but I would like to seek some 
clarity on your conclusions as I am from Wyoming and I 
represent the least populated State in the Nation and the ninth 
largest land-wise. So, obviously, we have a lot of rural areas 
in Wyoming that need to be served by pharmacies.
    I want to discuss what the top contributing factors are. 
You even summarize your testimony by saying that, quote,

        There is little reason to believe that PBMs are the main 
        economic force creating these risks.

In your opinion, what factors contribute the most to rural 
America's problems with access to pharmaceuticals?
    Dr. Frank. I do think that--well, let me start by saying 
that the independent pharmacy issue is really different between 
rural areas, urban, and metropolitan areas. The point I was 
trying to make was this is a problem, because pharmacy deserts 
are growing in this country, and about half of all places--
rural areas are served primarily by independent pharmacy.
    So, there is a problem here. I am just not sure that the 
blame or the solution is PBMs. To me, there are other things 
that can be done in policy that, unfortunately, it doesn't 
relate to antitrust necessarily, but are important fixes for 
keeping rural places healthy.
    We do it in a variety of other parts of our public 
programs. We do it in Medicare for hospitals, we do it in just 
a whole variety of areas, and I think that there are lessons to 
be imported into--
    Ms. Hageman. Such as?
    Dr. Frank. Such as making payment adjustments for rural 
pharmacies. So, for example, again, you add a bump to an 
independent rural pharmacy when they are this little community 
provider, or something like that. So, I think there are 
policies like that this can preserve these things because even 
though there are potentially efficiency disadvantaged, as a 
community resource, they have an efficiency advantage in that 
they keep people healthy in important ways.
    Ms. Hageman. Right. I think that we only have a couple of 
Walgreens in the entire State of Wyoming. We have one Whole 
Foods in Jackson. We don't have the access to some of these 
chains that other places have.
    Dr. Frank. Right.
    Ms. Hageman. Dr. Van Nuys, turning to you quickly, you 
provide a number of policy recommendations, which include 
increasing transparency, reevaluating the rebate system, 
scrutinizing vertical integration, and better aligning PBM 
incentives with patient and payer interests. There have been 
efforts in recent years at the State level to make reforms to 
the PBM structure.
    Have any of these efforts been successful?
    Dr. Van Nuys. I know that the State legislation has been--
some of it has been relatively recently passed and is only now 
being implemented. I have not seen the data that lets us 
evaluate how that is working. I do know what they did in Ohio 
when they audited their PBM and fired them for that 31 percent 
spread pricing margin and hired a single PBM to administer 
their whole Medicaid managed care program, that has been saving 
them $150-$200 million a year.
    Ms. Hageman. So, there is one State that has successfully 
done some reform in this area.
    Dr. Van Nuys. Other States have done similar, I think.
    Ms. Hageman. OK. Do you think that this is something that 
could be accomplished at the State level? Or is it your 
conclusion that Congress needs to act as well?
    Dr. Van Nuys. I do think that some progress can be made at 
the State level. I do think because these are national 
organizations it is maybe more efficient to have them subject 
to a single set of rules. I don't know.
    Ms. Hageman. So, do you have any particular State that you 
would recommend that we look to what they have done to 
determine whether that is something that could be implemented 
on a national basis or that other States ought to be looking to 
for addressing this issue?
    Dr. Van Nuys. So, most of the State legislation that I have 
seen is kind of piecemeal, right? They go after spread pricing, 
or they go after registration or something like that. So, I 
don't think there is any State that has accomplished the big--
    Ms. Hageman. What about the rest of you? Do you have any 
examples of where there are States or areas that they have 
successfully addressed the PBM issue?
    Dr. LoSasso. Well, I can speak to at least one situation 
that I studied is probably more of an example of what not to 
do, and that was the comparison of Michigan and Illinois, where 
Michigan thought that it could carve out specialty and 
specifically carve out those aforementioned curative therapies 
for Hep C, Sovaldi, and so forth, back in 2012.
    What happened was that Illinois kept PBM model in place. 
The market evolved. The market changed. Sovaldi and other drugs 
went off patent. Cheaper generics came available. The lack of a 
PBM in Michigan's context meant that they were not nimble 
enough to move toward the cheaper generics that became 
available and cheaper substitutes that were available from 
other manufacturers. They wound up spending about $50 million 
more than they otherwise would have compared to Illinois.
    Ms. Hageman. OK. Thank you.
    I yield back.
    Mr. Massie. I thank the gentlelady from Wyoming.
    I now recognize the gentleman from Texas for five minutes.
    Mr. Moran. Thank you, Mr. Chair. Chair, thank you for 
holding this hearing today, and thank you to the witnesses for 
taking time to testify.
    One of the really great things I like about this hearing is 
I feel like we are hearing a very balanced testimony on both 
sides of this issue. It is very complicated, so thank you for 
truly an informative gathering opportunity today for those of 
us that are still forming our opinions about the PBM issue and 
what we need to do legislatively, if anything, to fix the 
rising cost for drugs for Americans today.
    Mr. Chair, I would ask unanimous consent to introduce the 
dissenting statement of Commissioner Melissa Holyoak in the 
matter of the Pharmacy Benefit Managers Report, July 9, 2024, 
into the record.
    Mr. Massie. Without objection.
    Mr. Moran. All right. I want to play devil's advocate for a 
couple of you here today on some of the things you have talked 
about. Dr. LoSasso, if I got that correct, I want to come to 
you and ask you, first, so Dr. Frank, just a second ago, 
mentioned about pharmacy deserts. I am in a very rural area, 
just like Ms. Hageman is. I represent Northeast Texas, 17 
counties, larger than the State of New Jersey, the entire State 
of New Jersey, Mr.--yes.
    [Laughter.]
    Mr. Moran. I know. You can fact check that if you would 
like to.
    The point is, I have got some counties that don't even have 
a pharmacy at all in my county--in my district. So, there is 
pharmacy desert there.
    As a county judge before I came here, I actually saw the 
benefit of Pharmacy Benefit Managers. I hired one in our county 
that came in and said,

        Hey, here is what you can do in your self-insured plan to 
        replace the higher cost drugs with more generics. We have saved 
        a lot of money for our employees. We kept the benefit to their 
        health high in the process.

    Then, as I visited with my independent pharmacies around 
the district, in particular, I found that they were struggling 
because of, really, the vertical integration issue of the PBM. 
So, I don't think that this is a widespread ``all PBMs are 
bad'' situation. It is just there are some unintended 
consequences here that I think are devastating to rural 
communities in particular. So, I want to go back to you, Mr. 
LoSasso, and ask, there was a proposed fix over here by Dr. 
Frank. He said payment adjustments for rural pharmacies. What 
do you think about that?
    Dr. LoSasso. Well, it is certainly a very interesting and 
potentially beneficial solution to the problem that has been 
brought up. I would never contradict Dr. Frank. So, it will 
probably be gamed, like all these types of adjustments and set-
asides and add-ons invariably result in.
    Again, like you actually gave a great example there. You 
were in a situation where you wanted to save some money, you 
brought it into a PBM. They were aggressive. They gave you the 
savings you wanted. So, you got what you wanted.
    However, then you realized that there were these--what you 
viewed as spillover effects that impacted the pharmacists, the 
local pharmacies. So, I wonder if you could have it both ways.
    Mr. Moran. Yes. I don't know, because I know the pendulum 
swings, and the reason I am concerned about it is because, in 
some circumstances, you mentioned about the inefficiencies of 
smaller pharmacies. If they can't basically live up to a 
certain quantity of drugs that they are going to actually 
dispense, and maybe they can't be part of the PBM network, 
well, that becomes problematic because now my people in East 
Texas don't have access to that because there is not a large 
enough population base in certain areas to have a CVS or a 
Walgreens.
    So, now they are not taking their drugs. They are not 
following up the way they should, and now they have bigger, 
worse outcomes, health outcomes, that we are all going to have 
to pay for. We don't want to have to do that.
    So, there is a real benefit to having the smaller 
independent pharmacies in all these markets, and we are seeing 
them disappear. We are also seeing a lot of our consumers 
driven to pharmacies they don't want to necessarily have.
    So, I would love to find a solution that works for the 
consumer but still stays true to free market principles, 
because, quite frankly, I am always starting in that stance to 
say, ``I am a free market guy. Let the market work it out.''
    We have screwed this market up already, and so there is the 
other pushback I would have on both sides of the argument is we 
are already, as a government, intruding on the free market 
here. Because we have screwed it up, so how do we fix it a 
little bit better without further intruding on the free market? 
In the last 30 seconds, am I off base in my comments here? Does 
anybody disagree? Dr. Van Nuys?
    Dr. Van Nuys. I don't disagree.
    Mr. Moran. OK. Dr. Frank?
    Dr. Frank. Yes. I don't think we should blame ourselves 
quite as much. The whole pharmaceutical supply chain is a 
creation of nature of man, of government, an patents, FDA, 
Medicare, just all the way down the line, and to not have any 
consequences from having built something from the ground up, so 
go easy on yourself.
    Mr. Moran. I have got--well, thank you. You are the only 
one in America that is going to tell me that, by the way.
    I have got a lot more questions, and I won't ask them, but 
I do want to say I think there is space for us to have 
discussion on the patent reform as well, in particular, as it 
regard pharmaceuticals, because I think that could be a driving 
factor to bring down costs as well.
    So, thank you all for your testimony today. Very important, 
very difficult. We need to work together, both ends of this 
spectrum, to find a good solution for the consumers and the 
United States and preserve the free market.
    Thank you. I yield back.
    Mr. Massie. Thank you, Mr. Moran.
    We are up against votes, so if anybody leaves and doesn't 
hear my questions, I won't be offended. I have five minutes 
remaining. I saved it for the end to try and cover things that 
haven't been covered.
    Dr. LoSasso, what is the radical free market solution to 
this? Just clear out all the underbrush, and what would get rid 
of all the history? How do we fix this? You have got like a 
minute to solve it all.
    Dr. LoSasso. Oh, that is all. Yes.
    Mr. Massie. From scratch.
    Dr. LoSasso. Yes. Well, boy, geez. If we just didn't--if we 
are just in the PBM--I guess--
    Mr. Massie. I was told you are a free market guy.
    Dr. LoSasso. Right. So, of course, the original sin was 
allowing for no tax on employer-sponsored health insurance 
benefits. So, that weakens the--
    Mr. Massie. I agree with you there.
    Dr. LoSasso. That weakens that the pay--the incentives that 
the payers have to even really think about in pushback, because 
a lot of what we talked about here today that I think troubles 
me is that we tend to be ignoring the role of the payers. The 
payers are the ones sitting there looking at the proposals from 
multiple insurance companies, vertically integrated or not. 
They still have choice. If I don't like T-Mobile, I will go to 
AT&T. Right?
    So, I can't really be ripped off that much, right? Even 
with the 80 percent that the three vertically integrated 
insurance chains--
    Mr. Massie. What if Apple owned AT&T?
    Dr. LoSasso. Sorry?
    Mr. Massie. What if Apple owned AT&T? That is my concern. 
That might be a better analogy.
    Dr. LoSasso. Well, yes. Then I could still go back to T-
Mobile.
    Mr. Massie. OK.
    Dr. LoSasso. Yes.
    Mr. Massie. With an Android.
    Dr. LoSasso. So, OK, I don't want to monopolize your time 
here. If you want to just, it is--
    Mr. Massie. OK.
    Dr. LoSasso. You get the idea.
    Mr. Massie. The original sin was telling employers that 
they should provide this, and then giving them the government 
benefit to make and then not extending that same benefit to 
individuals who tried to go out and buy healthcare. So, I agree 
with you on that.
    Dr. Frank, or maybe it was Dr. Mattingly--I don't know--one 
of you was asked about antitrust action, and it didn't seem 
like there was a clear-cut case here, given the existing laws. 
So, I don't want to relitigate that question.
    I want to ask a question. Is there one piece of law that we 
could pass? Since the existing law doesn't seem to be 
actionable or clearly actionable in this situation, is there a 
rule that we could pass that would fix this, the 
anticompetitive nature of it?
    Dr. Frank. Well, I have at least an idea about how you 
could get rid of some of the--attenuate some for the game 
playing, the regulatory avoidance. So, what you might do there 
is sort of handle it the way we handle multinationals, which is 
insist on transfer pricing, that you have transfer pricing 
rules that somehow reflect something close to fair market 
value, because right now Dr. Van Nuys and I both made the point 
that there is a lot of game playing that can be done within 
that vertical structure to avoid regulations, to avoid--
    Mr. Massie. What is transfer pricing? What do you mean by 
that?
    Dr. Frank. So, transfer pricing is--I am a PBM, and I sell 
services to the insurance company. Well, if my insurance 
company has their profits regulated, then I am going to charge 
them a lot, because that is on the books as a cost. Even though 
it is revenue to the PBM, that goes back to the parent company. 
So, those second set of revenues are not regulated. They are 
not subject to margin regulation in health insurance.
    So, by doing transfer prices, which insists on constraining 
what can be done in terms of who can charge the other one what, 
you eliminate or you reduce the ability to play games to avoid 
regulation, taxes, and things like that.
    Mr. Massie. OK. One minute remaining. Dr. Van Nuys, you had 
four suggestions. If you could implement just one of those in 
legislation, what would it be?
    Dr. Van Nuys. Transparency.
    Mr. Massie. What would that look like, transparency? How 
would we impose it?
    Mr. Massie. In pricing?
    Dr. Van Nuys. So, what I want is aggregate benchmarks, 
average prices at different points in the transaction system. 
So, CMS already publishes a series called the National Average 
Drug Acquisition Cost, NADAC. They collect with surveys, and 
they aggregate it, and they publish it monthly, and anybody can 
get it. I can get it. You can get it.
    That gives us a benchmark to evaluate one particular 
transaction. That is the transaction between the--sorry, the 
pharmacy and the wholesaler, the prices between the pharmacy 
and the wholesaler. I want something like that at the different 
transactions in the chain. So, I want to know what PBMs are 
charging health plans to settle a claim, what PBMs are paying 
pharmacies to settle a claim, what PBMs are negotiating with 
manufacturers. I want an average benchmark like NADAC, high 
quality, net--
    Mr. Massie. What would you do with that information? Who 
would use it?
    Dr. Van Nuys. I think market participants would use it to 
understand whether the prices that they are being offered by 
whoever their counterparty is, the PBM, are fair, and are 
reasonable. Right? So, any of those market participants could 
use that benchmark. They don't have anything like that now.
    Mr. Massie. All right. Thank you very much.
    My time has expired, and that means we are done with the 
hearing. I appreciate the indulgence of the Ranking Member 
here. Did you want to say anything before we close?
    Mr. Correa. Just, Mr. Chair, I want to thank you very much 
for handling this--handling this Committee hearing in a 
nonpartisan way. America is much better off with the 
information we got today. Barely scratched the surface, but we 
have some work to do, and I want to thank our witnesses for 
your good testimony today. Much appreciate you all.
    Mr. Massie. That concludes today's hearing. We thank our 
witnesses very much for appearing before the Committee.
    Without objection, all Members will have five legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record.
    Without objection, the hearing is adjourned.
    [Whereupon, at 4:39 p.m., the Subcommittee was adjourned.]

    All materials submitted for the record by Members of the 
Subcommittee on the Administrative State, Regulatory Reform, 
and Antitrust can be found at: https://docs.house.gov/
Committee/Calendar/ByEvent.aspx?EventID=117633.

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