Roundtable on Lowering Prescription Drug Costs

Well, good afternoon and thanks to everyone for joining us here today at the White House. Today's listening session is to explore additional ways to reduce the cost of drugs for Americans by focusing on the middlemen in the supply chain. (00:18) The cost of healthcare is unacceptably high for too many Americans, and President Biden has been fighting to bring down healthcare costs. The cost per person of healthcare in the US is double that in other advanced countries. As a result, on average, American households spend about 8% of their yearly income on healthcare, and for seniors that burden is about 15% of overall spending for healthcare alone. And of course, many households spend a great deal more than that. (00:53) The president fought for and won unprecedented legislation to lower healthcare costs on drugs and health insurance. This includes capping the cost of insulin for seniors at $35 per month down from $400. It also includes locking in savings on health insurance of $800 per year for 15 million Americans. And it includes major progress on Medicare drug prices that my colleague, the director of the Domestic Policy Council will talk about in a minute. But the administration's work to lower costs goes well beyond legislation. The president directed federal agencies to use every tool available to meaningfully bring healthcare costs down for American families. We've used rulemaking to increase access to affordable over-the-counter hearing aids, for example, and enforcement to lower the cost of asthma inhalers and EpiPens for families. (01:56) The work on lowering healthcare costs for Americans is just getting started. We see opportunities to unlock significant savings by increasing competition all along the pharmaceutical supply chain. While many companies want to do the right thing, there is evidence that some middlemen, some pharmacy benefit managers and group purchasing organizations are not passing along the savings they negotiate to patients, pharmacies, and payers. In order to lower costs by ensuring a fair and competitive market, we need to consider new business models, enforce transparency and accountability, and examine tactics like spread pricing, non-pass-through rebates and formulary discrimination. (02:42) And so we're looking forward to hearing from our speakers today who will highlight innovative steps and reforms that state governments and companies are taking to bring transparency to pharmaceutical supply chains and lower drug costs for patients. We're interested to from all of you on what reforms we should be looking at as the president looks for additional ways to bring down healthcare costs. (03:06) With that context, I want to turn it over to Neera Tanden, the President's Domestic Policy Advisor to discuss more of the important steps the administration is taking.

Thank you so much Lael, and as Chair of the National Economic Council, you are a fantastic partner on healthcare competition and healthcare at large, and really appreciate that great overview on the importance of increasing competition in the pharmacy benefit manager market, but I think we can just call them PBMs from here on in. (03:35) I'd like to extend my thanks to Governor Beshear and the organizations that have joined today and Secretary Becerra as a great partner on all the work we do on healthcare. Everyone at this table is demonstrating how states and other healthcare purchasers can take actions to fight back against anti-competitive and abusive practices in the healthcare market. (03:58) These efforts build on the Biden- Harris administration's incredible track record of lowering prescription drug prices. And I have to say, as outlined by Lael, we've taken a really comprehensive approach on healthcare costs across the spectrum and are really proud that this administration has really done more than any administration in history. (04:16) We know healthcare costs can be huge economic stress for families. Far too many Americans have to ration prescription drugs, cutting a pill in half, or taking a lower dose than they need because their drugs are too expensive. In fact, Americans pay two to three times more for prescription drugs than citizens in other developed countries. That's why we continue to use every tool in the toolkit to lower drug prices. (04:44) A year and a half ago, President Biden signed a law that finally gives Medicare the power to negotiate drug prices with big pharma. He did so after decades of opposition, and I'll say without a single Republican vote, that we are a very bipartisan group here, and the negotiation program allows Medicare to put money back in the pockets of American families. (05:05) As part of the negotiating process, last month, Medicare sent offers to the manufacturers of the 10 drugs selected in the first round of negotiation. Secretary Becerra's team and Secretary Becerra himself have been just phenomenal partners in leading this work. This is a first time Medicare has ever been able to stand up for a fair price for seniors. (05:25) Today, I am proud to announce that manufacturers for all 10 selected drugs will continue to participate in drug price negotiations. All manufacturers have submitted counter offers, which really means that we are on our way to lower drug prices for all Americans. And I know the secretary will speak a little bit more about this, but we imagine that we'll have particularly good news in September. (05:49) This announcement is a game-changer for the millions of people on Medicare who rely on these life-saving yet expensive drugs, drugs that treat arthritis, blood clots, cancer, diabetes, heart disease and more. And in 2022, 9 million seniors on Medicare were prescribed these 10 drugs. So this is a huge step forward. (06:10) The price of dozens more prescription drugs will be negotiated in the years to come, and the president really believes that this effort will reign in big pharma's exorbitant price gouging. (06:25) PBMs in this context can play an important role in negotiating lower drug prices. We have to remember that the original conception of PBMs is that they had the power to negotiate against big pharma. However, we have seen in current practices that that is a real challenge and that the issues around transparency and issues around essentially ensuring that the consumer is doing well at the end of the day is really what we have to drive towards. (06:57) So we are all interested in ensuring better transparency in the PBM market so that health plans and their patients can get the best deal possible at lower prescription drug costs. That is the significant focus of this administration and why we are really happy to have this panel of experts, leaders, and really practitioners who've been successful in driving prices down and why we look forward to this discussion. (07:24) And with that, I'll turn it over to Secretary Becerra who can talk to us a little bit about what the administration and particularly HHS is doing on this.

Well, Neera to you and Lael, thank you very much for the work that you're doing, to Chair Kahn and the work that the SEC is doing. We just have to say thank you for the great stuff that FTC is doing so far. I know you're involved in a number of cases that we hope bear some real success for all this work to try to help Americans afford their healthcare and certainly their drugs. (07:58) It is great to be with everyone. I think under President Biden's leadership, it can be said that for the first time, Americans are seeing not only more access to healthcare through health insurance of their own, but to better prices. No president before could say that under his or her watch, there have been more than 300 million Americans who have received coverage for healthcare. So they can take their child to a hospital and not worry about going bankrupt, having to pay for this stay because they now have health insurance. (08:31) More than 300 million Americans. That's never happened in the history of this country. And more than 21 million of those Americans who now have that health insurance got it through the Affordable Care Act through the marketplace. That's a record number. (08:44) When President Biden took office, there were about 12 million people who had health insurance through the marketplace. We're approaching doubling that number in just the President's three to four years so far. That is great progress, but that's what the American public needed. (08:59) So we are pleased to work with all the leadership at the White House and our partners throughout the federal government in trying to make healthcare more affordable and more accessible to more Americans. (09:10) One of the ways that we've done that both Lael and Neera mentioned, is through the Inflation Reduction Act. What I like to call often, at least for health and human services, is the lower cost prescription drug law, because that's what it did for so many people, it lowered the cost of prescription drugs. The $35 insulin per month price is certainly part of that, and millions of Americans who require insulin just to stay alive can vouch for that. (09:38) But it wasn't just insulin. Today, there are seniors on Medicare who don't have to pay a penny out of pocket for those vaccines, Covid, flu, and the one I hear about all the time, shingles, which could cost a pretty penny. And for many Americans who are on fixed incomes, it's not affordable. Today they don't have to worry about that. That is peace of mind that you cannot buy. And that's what the Inflation Reduction Act did. That's what President Biden and Vice President Harris have made possible. (10:07) But perhaps the most important element of this that we're beginning to see is that we're beginning to cap the overall cost of prescription drugs. So that today, if you are reaching those catastrophic limits within your insurance, meaning you need a lot of insurance coverage for your prescription drugs because you have cancer or some other malady that requires you to get very expensive drugs, once you hit that cap on your catastrophic limit, you pay no more. It used to be you'd have to pay everything out of pocket. That's changing. And by next year, the cap will be $2,000. That will be a godsend to so many people who are paying 10, $20,000 out of pocket. (10:48) And if everything goes well, and as director Tanden just mentioned, the 10 drugs that we have selected to be part of the first negotiation ever in this country have all now had their manufacturers submit a counter offer to our offer that we submitted a month ago. That's great news. That means they're working with us to come up with a good fair price. And by September, we will be announcing that price. And so every American will see what real negotiations means to get better prices for all Americans, so we don't have to pay the two to three times what other people pay in other countries for the very exact same drugs. (11:28) So we're very much looking forward to working with this administration to continue to lower costs, but we're just as interested in continuing those partnerships with great states like the state of Kentucky, where Governor Beshear has been taking real control of some of this on his own with the private sector as Mr. Cuban has been doing moving forward a proposal, which really takes out some of those middlemen. And at the end of the day, what you're doing is you're giving Americans some hope that they really will avoid having to pay those middlemen, all those dollars that really should go into their healthcare. (11:59) So we're in. We want in, and we will do everything we can to make sure that we can move forward for the American people. It is great to see that there is this momentum to try to tackle the issue of PBMs and how we go about providing transparency and better pricing. So we're thrilled at HHS to be part of this. Thank you, and I think I will hand it over right now to Chairwoman Kahn.

Great. Thanks so much, Secretary Becerra, and thanks so much to Directors Brainard and Tanden for their leadership. I'm so grateful for everything that the White House is doing to fight for Americans who face soaring drug prices. (12:36) Our mission at the FTC is to enforce the nation's antitrust and consumer protection laws so that American consumers, workers, and small businesses can thrive. I'd like to share a few words about the FTC's work to protect the public from powerful corporate middlemen in our healthcare system. (12:53) The FTC over the last few years has been flooded with stories suggesting that these middlemen engage in tactics that hike the price of drugs, deprive patients of access to certain medicines and drive community pharmacists out of business. (13:09) PBMs are supposed to help bring down drug costs, but all too often the stories that we hear from patients and healthcare workers instead describe PBMs as dominant gatekeepers who have outsized power to decide how people do or don't receive the life-saving prescription drugs that they need, and too often to price gouge them for those drugs. (13:31) As PBMs have consolidated and vertically integrated, we hear of a system where corporate red tape and bureaucracy all too often obstruct patients from getting their medications sometimes with devastating consequences. One doctor, for example, shared with us how delays created by a PBM led her patient to develop resistance to an otherwise effective treatment leading to the needless loss of that patient's eye. A third-generation pharmacist in West Virginia told us that when she needed critical medication during her pregnancy, her health insurer would only provide coverage if she got the medicine from the PBM-affiliated specialty pharmacy. A process rife with so many bureaucratic hurdles and delays that the woman almost lost her pregnancy. (14:22) The stakes of corporate monopolization are highest in healthcare. Despite the enormously consequential role that they play, PBMs often operate in complex and opaque ways that have let them fly under the radar. That's why the FTC launched an inquiry into the PBMs, ordering the largest PBMs to hand over documents on their business practices. (14:46) Critically, our probe builds not just on what we've heard from doctors and patients, but also on what we hear from community pharmacists who describe what may be unfair and potentially unlawful practices to squeeze them out

... out of the market. Part of the FTC's mission is to protect opportunities for small businesses to compete on a level playing field. And few small businesses are as essential to communities as independent pharmacies, especially in rural America. Americans report trusting their local pharmacist for high quality and personalized care. (15:23) But despite their popularity with customers, independent pharmacists tell us that they're being squeezed and run out of business due to coercive contracts and punishing fees imposed by PBMs. As more communities pharmacies go under, and as patients continue to pay unacceptably high prices for prescription drugs, we are more determined than ever to understand how PBMs could be causing these problems in the drug supply chain. (15:49) That's exactly what our PBM inquiry is designed to do. So far, the PBMs have not fully complied with our orders to turn over documents and data. FTC orders are not suggestions, and we will not hesitate to use the full extent of our legal authorities to mandate compliance. We are undertaking this work with enormous urgency and focus, and if we find evidence of illegal tactics, we will not hesitate to act. (16:16) Thanks again to President Biden and leaders across the administration for fighting for Americans' access to affordable drugs, even when it means taking on powerful corporations. I'm grateful as well to state officials who've been key partners in these efforts, especially in scrutinizing PBMs. The FTC will continue to use all of our legal tools to deliver more affordable, accessible, and innovative healthcare for patients and enable independent pharmacies to thrive. Thanks so much for everybody for coming and really look forward to the conversation.

All right. Thank you very much, Chair Khan. Now, I'm going to start turning to our outside guests, and I want to start with Governor Beshear. I think you are well known for really taking on the cost of healthcare for residents of Kentucky, and taking bold action, in particular, on PBMs starting as attorney general. I'd like to hear very much from you about what you've done that has been effective in Kentucky on this front.

Well, thank you for having me. I'm happy to be here to discuss the innovative and ultimate effective changes we've made to our Pharmacy Benefit Managers program in Kentucky and the hundreds of millions of dollars that we have saved because of it. My faith teaches me that we are called upon to help one another and to love each other as ourself. That's why from day one, we've worked to make sure that every Kentuckian has access to high quality, affordable healthcare. I truly believe that healthcare is a basic human right. (17:55) In this tumultuous political climate, all too often, we see our policy get caught up in politics. I believe that that is wrong. When our families gather around their kitchen table at night, they're not thinking about what party they're in, they're not thinking about who's going to win another election. What they're worried about is if they can afford the next doctor's visit, the pharmaceuticals that they are ultimately going to need for their loved ones. That's where we've tried to act in my administration as governor, where people live every day, trying to make sure that every Kentuckian... I know we're here because we believe every American should be able to get the healthcare that they need and never have to choose between buying medication and putting food on the table. That happens all across the United States every day. (18:45) That's why from day one, we have made healthcare a priority. My first week in office, we were able to expand critical healthcare coverage for nearly a 100,000 Kentuckians by eliminating government roadblocks. Soon thereafter, we were able to restart our state healthcare exchange marketplace called kynect. We were able to cap the cost of insulin, and thank you to the administration for the efforts that you all have engaged in. We expanded Medicaid to our families for hearing, vision, and dental, because if we want somebody to go back to work, they got to be able to see well enough to drive to work, and we answered the vice president's call to provide more coverage for new moms and their babies to make sure that everyone gets off to the start in life that they deserve. (19:29) We also worked with our healthcare industry leaders, because after all we have been through, the pandemic and others. You can find healthcare heroes in all parts of this industry and in all areas of our states. In addition to addressing nursing shortages and healthcare deserts, we work to secure, what we're doing right now is we're building the first hospital in the west end of Louisville in 150 years, and we opened two autism clinics in Appalachian, Eastern Kentucky, because no one should ever have to drive two hours or take two buses to see their doctor, and no one should ever be told that the best thing they can do for their healthcare or their families is to move. Giving everyone access to affordable healthcare is more though than just making sure we have the facilities. It's making sure people can afford their prescription drugs. (20:19) My fight to give Kentuckians access to affordable healthcare started when I was our state's attorney general. There, I launched an investigation into our pharmacy benefit managers and learned our PBMs had overcharged Kentuckians for prescription drug, and they discriminated against our independent pharmacies who are important small businesses that lift up our communities. That is wrong. It was driving great businesses out of the market, and in the end, it was making our citizens decide between food on their table and their prescription drugs. We cannot allow something that prioritizes profits over our people continue in the way that it has. When I became governor, I tried to do more. In Kentucky, we have six managed care organizations for our Medicaid program, and each one had its own pharmacy benefit manager. After my investigation as AG, we took the bold and bipartisan step with a Democratic governor and a Republican supermajority of passing legislation that allowed us to implement a single prescription drug list and a single PBM serving the Medicaid population. That single PBM that answered to us and not to any other company has allowed Kentucky Medicaid to maximize drug rebates and have saved our Kentucky families about $300 million since we've done it. It allowed us to understand more about how to get the right price. That there are occasions with this web of pricing out there where we should be prioritizing a brand over a generic because of the rebate, but those are savings that the person, the family doesn't see unless we correctly control PBMs in the way that they currently operate. (22:04) I'm proud to say that these changes have made Kentucky a leader in healthcare for the United States, but the most important thing is it's made it more affordable and more accessible for our people. I mean, we lead with our faith and values when the outcome is the most important thing. When we stand up for small businesses and want to make sure that every child is getting the medication that they need, getting rejected for your child for something that they need in our healthcare system, it hurts. It's very personal, and just about every family has been through it. So, I'm convinced what we're doing today is not trying to move a country to the right or the left, but move it forward in a way that works for every single American. That's what Team Kentucky is all about, and proud to be here with this team today to see what else we can do.

Thank you, Governor. Just one question. From your experience, are there lessons or steps that other states could take to have the same effects in terms of lowering healthcare costs, increasing access, and are there things that we could do at the federal level?

Well, in every state, you are one of the biggest ultimate clients of the healthcare industry. When you think about the number of people on Medicaid and expanded Medicaid, by the way, Attorney General Xavier Becerra and I were the two primary defenders of the Affordable Care Act. I'm glad we won. It was critical for the citizens of America. But given that you as the state are in that role, you ought to have one PBM for your state plan, one PBM for your Medicaid, and they ought to answer to you and not any of the other providers in it. You ought to see the savings. You ought to be able to pass them through. We have to act with openness and we should due to various open records acts and others that are out there. But by doing it, by us being able to be transparent and seeing all that information, we can make sure all those savings truly go to our people or the program that can provide them more access and more healthcare.

Thank you. I did want to now turn to this discussion of the effects on community pharmacies and particularly in rural areas. Dared, I wanted to turn to you to ask you to tell us your experience. You run your own pharmacy in Winfield, Kansas. As a community pharmacist, it would be great to hear what are the effects on your community, on the families that you serve?

Yeah, sure. Thank you so much, and I am so grateful and honored to be here today. Thank you for paying attention to this crazy world that we're living in with PBM gouging. I'm going to be wearing a couple of hats today, but I will talk about the pharmacy part first. I do own pharmacies in South Central Kansas and serve as a board member for the National Community Pharmacists Association. I also run a transparent pass-through PBM, named Oread Rx, so I can understand both sides of the PBM issue and I hope to provide a unique perspective here today. (25:13) First, for the pharmacy perspective, a recent study, a recent survey by NCPA shows that 32% of pharmacy owners across the country say they may close this year if PBM reform is not made. If we want to avoid leaving millions of Americans without a local pharmacist, then here are some solutions. We need to end take-it-or-leave-it PBM contracts and cutthroat reimbursements that we see today. Three PBMs control 80% of the marketplace. They don't have to negotiate with us, so they don't negotiate with us. They're putting us out of business with underwater reimbursements. Period. (25:59) As an example, in my seven rural pharmacies in Kansas, we did an analysis on the GLP-1 therapeutic category of drugs. These drugs are used in diabetics and can, most of the time, be life-altering for people. By filling these meds, my pharmacies were reimbursed $12,000 under my acquisition cost in January alone of this year. If you extrapolate that over a year, that's $170,000 loss for one class of medication in my small pharmacies in Kansas. Unfortunately, this is indicative of most brand and specialty reimbursements for community pharmacies today. (26:39) As a result, pharmacies are losing money on many of the prescriptions they fill, especially in the Medicare Part D space. In my business alone, 40% of the total of Medicare Part D prescriptions that I fill are paid below my cost. It's simple math. We can't stay in business being paid less than our cost. HHS and CMS can and must enforce regulations already in place regarding reasonable and relevant contract terms in the Medicare Part D space. We also need to end steering. Vertical integration has led to the conglomeration of PBMs, insurance plans, and pharmacies. Now, think about this. My biggest competitors get to set my prices. They get to cherry pick the most profitable drugs and move them to their own pharmacies, and then they encourage or require my patients to leave my pharmacy and use their own. Where's the free market in that? (27:42) Now, I'm going to take off that hat and put on the PBM hat and talk about Oread Rx. The transparent PBM I help lead. We serve municipalities, counties, school districts, and private businesses, and have saved millions of dollars throughout the Midwest. We've grown, but the barriers in this industry are significant to growth. Because of vertical integration, most employer health plans will not allow for PBM carve-outs. And when they do allow for carve-outs, the third party administrator often, owned by the PBM as well, charge monstrous fees, not uncommonly up to $50,000 each. This increases costs for employers and employees, and is the definition of anti-competitive. Fair payments to providers also aren't increasing premiums. I'll say that again. Fair payments to providers also aren't increasing premiums. States that have passed PBM reform, like Kentucky, that allow for fair payments to pharmacies have not seen higher costs. They've seen exactly the opposite. For example, Oread Rx helped save a local school district $450,000 annually when they switch from one of the big three PBMs. This was a decrease in their drug spend of 50%. With those savings, they were able to give all of their employees across the whole district two premium-free holidays that year. (29:17) This lie about if we pay pharmacies fairly, that is going to increase premiums, is a lie. We can do that because unlike the other big three PBMs, the rebate we receive, we pass on 100% of that rebate to the plan. We provide all of these savings while paying pharmacies in our network fairly. If PBMs were required to be transparent and work with local pharmacies instead of trying to kill us off, the healthcare industry would not only see real savings, but also better outcomes. Thank you so much.

Well, thank you very much. I wanted to also ask

... Dr. Momah, if you could also talk a little bit about what you are seeing in Spring Pennsylvania, particularly for low income and uninsured patients. How does the current system affect your patients?

Thank you very much for having us here. My name is Chichi Ilonzo Momah. I'm a community pharmacist by profession and I have owned Springfield Pharmacy, located in Delaware County, Pennsylvania since 2012. I'm a member of the National Community Pharmacist Association and I'm also board on various pharmacy organizations, and very active in my state, advocating for my profession and also for my patients. I serve patients of all ages, socioeconomic statuses, insurance statuses, like you said, insured, uninsured, underinsured. I'm here today on behalf of my fellow independent pharmacy owners, the patients that we serve, and their loved ones as well. (31:05) Over the past year, over 300 independent pharmacies have closed due to rising costs, below cost prescription payments from PBMs. This result in increased care gaps, especially in our elderly population who are often the most vulnerable, and they make up 45% of the population that I serve. (31:28) Early on in my career, I noticed shrinking prescription reimbursement from PBMs when drug costs are increasing just like everything else is increasing, but the reimbursements kept shrinking over time, however, reimbursement continue to decline and now it's negative reimbursements, which is below the amount that I pay for the cost of the medication, and this just becomes common now in our pharmacies. (31:54) In addition, our patients are getting misleading letters from PBMs with vague, and I heard you say opaque and complex languages about where and how to fill their prescriptions. These misleading letters steer patients away from community pharmacies and force them to use mail order or large retail pharmacies owned by these PBMs. Now, I'm going to get a little bit personal because I care a lot about my patients. (32:23) I have patients who aren't getting what they need and I'm going to use one of my patients, let's call her Maggie. Maggie's an 84-year-old resident of an assisted living facility in need of a short-acting insulin to be added to her regimen, and this helps to control her diabetes, and for her to be able to eat short-acting is administered before each meal. (32:47) Her PBM rejected the prescription claim submitted by our pharmacy multiple times, and then we discovered that it needs a prior authorization for Maggie to be able to get her medication. We also noticed that short-acting insulins are not on the formulary for this PBM. And I'm going to pause a little bit because it doesn't make sense, and then the PBM told me to try a long acting injectable, which wouldn't have worked because she needs a short-acting to be able to eat. (33:23) In the meantime, Maggie has gone five days without her insulin until I finally gave it to her out of our pocket, until we figure out how to get her insurance company to pay for it. (33:38) Maggie's life is being left out of this equation because it's not about Maggie anymore. It's about the PBMs manipulating her prescription to put the most dollars and cents back in their own pockets. (33:52) I have another patient that has been on the same critical medication, it's actually a heart medication, but over time our reimbursement started shrinking, and now we are losing almost $100-plus per month on filling this life-sustaining heart medication. Our pharmacy wouldn't stay in business for long if we continue to fill prescription that costs more than what we actually paid for the drug. (34:17) If we go out business, if pharmacies like mine, community pharmacies go out of business, what option do these patients have? (34:27) Cost Plus reimbursement already exists in Medicaid fee for service, Medicaid and Medicare account for over half of all patient prescriptions here in the United States. I implore CMS to enforce fair, reasonable, and relevant contract terms in Medicare and Medicaid. Like Cost Plus model. This will save money. This will keep independent pharmacies in business, pharmacies like mine and Derek's, to continue to serve and love our patients the way they deserve. Thank you.

Well, thank you very much. I think that really brought it alive for all of us. Now what I want to do is turn to Mark Cuban and Alex Oshmyansky who have made a splash in the industry I would say, through Cost Plus Drugs, which you've also been very explicit about just how much drugs prices are getting marked up, so it would be really helpful if we could hear a little bit about your business model, how it's innovative and what the problems are that it is really trying to solve.

Sure. Again, thank you for allowing us to be here. I apologize in advance for being a little bit coarser than my fellow panelists, but duty calls. The question that we are really here to answer is simple, why does Cost Plus Drugs exist? In a world where three PBMs dominate, how can a company launched in January, 2022 even get to this table? The answer is simple. The dominant three PBMs put stock price over health. Here's a sample of their greatest hits. (36:15) Number one, zero transparency. The number one rule when contracting with PBMs is that you don't talk about the PBMs and their contracts, whether provider, manufacturer, employer, or non-affiliated pharmacy, they prevent making public or discussing their pricing terms or any aspect of their contracts, and if you do, they're happy to sue you. (36:38) Number two, magic names and specialty pharmacies. The PBMs have decided to take the drugs they can charge the most for and call them special. There's nothing special about most of these drugs. Many are generic small molecule drugs, nor is there anything unique about the captive pharmacies they call special, and as we've heard, force their customers to buy from. We've had patients tell us that they have been charged 100 times more for specialty drugs like Imatinib or Droxidopa than what they are their employers would pay on Cost Plus Drugs. (37:13) Number three, rebates to employers. I genuinely believe that CEOs do not understand how their healthcare costs work, particularly as it applies to the rebates they receive from their PBMs. They tend to look at rebates as cash paid by the drug manufacturers. Nothing could be further from the truth. The reality is that the rebates are not paid for by the drug manufacturers, the rebates are paid for by these company's sickest and oldest employees. These rebates could be used to reduce the employee deductibles, or to actually pay for the cost of medicines. Instead, they keep deductibles higher, forcing sick and older employees to pay more out of pocket using after-tax dollars. (37:58) And because of the pricing on specialty drugs, these deductible caps are likely to be reached, all while the employees still faces out-of-pocket monthly copays. For chronic illness medications. Rebates are a way that PBMs destroy and distort employer plans at the expense of their employees. (38:17) Number four, rebates determine formularies. Rebates are also the reason big PBMs often restrict the medications they allow to be filled. They'll often only reimburse for drugs that pay them significant rebates, excluding those that don't. Why leave out a Humira biosimilar like YUSIMRY that is available on Cost Plus Drugs for a true price of $594, when you can charge an employer more than $8,000 per month for Humira? The reality is that formulary should not exist. Doctors should decide what patients need access to, not the PBMs. (38:59) Number five, shitting on independent pharmacies. I couldn't find a better word, that is the appropriate word to describe the financial abuse that we've heard about from non-captive pharmacies. These pharmacies have zero leverage, so when the PBM say they must pay a DIR fee that is calculated on a whim by the PBM, they must pay it. If they decide to audit a pharmacy, they can invent issues knowing the pharmacy can't afford to fight it. (39:27) I just talked to an independent pharmacist that is facing $200,000 in fines that is going to put them out of business. Another spoke publicly about how they were fined if a patient doesn't pick up their medications within 30 days. But it gets worse, these pharmacies buy their brand medications, as we've heard, from distributors for a set price. When a patient brings in a prescription covered by insurance including Medicare Advantage, traditional Medicare and employer plans, the PBM, which adjudicate that claim, will not fully reimburse the pharmacy for that claim. (40:04) Literally, the pharmacy, after putting up cash for the inventory and taking sales risk, is expected to lose money on that script. What do you think we'd say about that on Shark Tank? It's gotten so bad that they are transferring brand scripts to the biggest chain, ending the long-term patient relationships, risking that patient's health, and losing front of the house sales as well. I can go on and on and on about the big three PBMs. They are everything that is wrong with this industry. (40:33) Here's the crazy part, the reality is there is a fix. Have The federal government, states, as we've seen with Governor Beshear in Kentucky have done, and self-insured employers stop doing business with the big three PBMs. There is not a single thing that those big three PBMs do that is unique or can't be replaced by Dr. Price's company or any other independent rebate-avoiding PBM, not a single thing. (41:05) It's insane when the people in this room, state and federal agencies and big companies could switch out from those big PBMs and use their competitors and change an entire industry in less than five years. Which brings us back to the original question, why is Cost Plus Drugs in business? It's simple as well. (41:24) Everything that I just read you has killed the trust that this country has in our healthcare system. Nobody trusts anything about it beyond their own doctor. At Cost Plus Drugs, our product is trust. We believe that trust comes with transparency. Our Cost Plus Drugs business model is amazingly simple, we buy drugs and we sell drugs. No rebates, no magic, no complications. We keep our business simple, which allows us to keep our pricing so low. (41:57) Here's how it works. When you go to Cost Plus Drugs and put in the name of your medication that your doctor prescribed, if it's one of the 2,500 we carry, and our goal is to carry every single one that we're legally able to, it will come up and we will show you our actual cost, what we truly pay for it, our markup of 15%, and the pharmacy fill and shipping fee of $10. (42:20) Or you can go and choose a pharmacy in our Team Cuban Card network for the same price, plus a fee that goes to the independent pharmacist so you can pick it up at a nearby location. All of it is completely transparent for anyone to see at any time. In fact, we will be happy to send anyone here or anyone anywhere are complete price list, so you can see what our prices are. Try asking that to one of the big three PBMs. (42:48) The biggest players do everything possible to hide and obfuscate everything they do. Simply by introducing transparency, real transparency, and working with government agencies and self-employed insurers to act in their own self-interest and to do what is the best for the wellness of their employees and patients, we can bring back trust and make our system one that we can once again be proud of. Thank you.

Let me just ask, it sounds incredibly compelling, there must be some friction, some barriers for people being able to move to this model, so can you talk a little bit about what impediments there might be-

From a patient perspective to start using it, or from someone in similar business?

Generally speaking, whether it be a state government, or for individuals, why is it that not everybody has moved to this system?

So a couple reasons. We talk about regulatory capture, but there's also scale capture. The biggest three PBMs will make you think that they are so big if you don't work with them, everything will collapse, like Dr. Price, and nothing could be further from the truth. That's one. (43:57) Number two, if you try to move, like I tried to take my companies and just say, "Look, we want to add Cost Plus Drugs." They said no. Then when we tried to move, as I think Governor Beshear said, when we asked for copies of claims, just so we can see and compare costs, they wouldn't give them to us. They do everything possible to stop you from moving. (44:19) And three, in terms of adding, I mentioned we carry 2,500 medications and we have a few brands, but we want to add more, every single brand that we have talked to has told us that they were contacted almost immediately by the big three PBMs saying, "If you move, there are going to be consequences." And so they're not dumb, right? They're big for a reason, and they do everything possible to retain that size.

That's helpful. Alex, did you want to join?

Oh yeah. Well, first it is an honor and a privilege to be here today and yeah, I just want to add on to what Mark was saying with something that's not as talked about as much by the big

... like PBMs, which is how they actually contribute to pharmaceutical drug shortages as well. The PBM set up, so-called source programs in conjunction with the big pharmaceutical wholesalers. These source programs control 90% of drug purchasing in the United States. Since there are only three real buyers, that means if a generic pharmaceutical company doesn't have a source program contract, there's no reason for them to keep their supply lines working. So what you wind up with is generic companies shutting down their manufacturing lines. Further, since the main criteria to win a contract is price, the companies that win contracts often have to cut corners to get prices as low as they can. This leads to an extremely brittle supply chain. Only a few companies make a given drug and they're prone to either being shut down by the FDA for unsafe practices or having their manufacturing lines physically break. (45:52) The drive to lower cost also pushes drug manufacturing to China. It is estimated that China manufactures 90% of the active pharmaceutical ingredients for drugs in the United States and 100% of the active ingredients for the most common antibiotics. China could effectively stop the export of these products at any time, which is a huge geostrategic vulnerability. And drugs which are in shortage can be extraordinarily priced, particularly when there are specialized requirements for drug manufacturing. At the moment, a single vial of penicillin G benzathine, penicillin costs $600. Penicillin based antibiotics are required to be made in dedicated plants by the FDA, which makes it more difficult to set up alternative manufacturing in times of shortage. As a side note, we at cost plus are aiming to work with the FDA to import penicillin G benzine at a price of about $3 a vial. And as of this week, the cost plus drug company is starting to manufacture its own drugs. (46:54) Cost plus drugs is proudly bringing pharmaceutical manufacturing back to the US with advanced robotic and AI computer vision technology that allows us to pivot from making one drug type to another very rapidly in principle, within four hours. That way, whatever product is in shortage, we can start making that product. Our pilot facility near downtown Dallas just finished construction qualification and validation, and I'm very proud to announce we'll start making its first commercial batches of product this week, starting with epinephrine and norepinephrine for patients in the intensive care unit. And we'll shortly after that, be making pediatric chemotherapy limited only by our capacity to make these products. (47:33) And just as important as the technology we are introducing, bypassing the PBMs and the source programs allows us to directly sell our products in times of need without being blocked by middlemen. We are pledging to be transparent in our pricing, publishing our true manufacturing costs of operating and adding a flat markup. That way, we are profitable and sustainable, but never extortionate. No parent should be told the chemotherapy their child needs is not available. Nobody should not get the lifesaving ICU medications they need or have to postpone their surgery because the common cheap medications are just not available in the United States in the year 2024. These shortages are driven by the PBMs and the wholesalers and our dysfunctional model of drug distribution. Together, we can put an end to it.

Thank you. So finally, I want to turn to Sandra Clarke to talk about the pretty dramatic action that Blue Shield of California has taken to overhaul the pharmacy care system and create a transparent pricing model that better serves your patients and employers. So I'd be interested in hearing from you how you did that and what kinds of results you're seeing.

Thank you, Director Brainer, and thank you for allowing us to participate today. I appreciate the opportunity to be here to discuss the needs to increase competition among pharmacy benefit managers to lower drug costs. Blue Shield of California is a nonprofit health plan with a mission to provide access to sustainably affordable healthcare. We pay billions of dollars for prescription drugs every year, and even as sophisticated a purchaser as we are, we in the same place as most Americans questioning whether we get good value for our money. For that reason, Blue Shield of California recently announced a new pharmacy care model designed to fix the problems in today's broken system. We are working with like-minded partners to create a more transparent model that gets the right drugs to the right people at the right time at a sustainably lower price. While we are focused today on pharmacy benefit managers, we should not lose sight of the fact that pharmaceutical manufacturers set the price of the drugs, and that price is too often unrelated to the clinical value. (49:54) However, policymakers and consumers should also understand the complex and opaque supply chain unnecessarily drives up the cost of these drugs. I want to provide a few examples illustrating why policymakers need to act to restore meaningful competition, which the market currently lacks. For example, in a functioning market, a pharmacy benefit manager wouldn't block access to a lower price drug. Much as Mark and Alex were describing, that is not the case today. Four years ago, Blue Shield led an effort to create CivicaScript, a public benefit drug company designed to tackle failures in the market for generic drugs. The first drug we brought to market was abiraterone, which is a generic specialty drug that is still commonly used to treat prostate cancer. The price for abiraterone to Blue Shield and to Medicare was over $3,000 a month. CivicaScript brought the drug to market for a transparent non rebated price of $160 a month, a significant savings to our members. But when we brought the CivicaScript drug to our pharmacy benefit manager, they said no. To date only one of the three largest pharmacy benefit owned specialty pharmacies has purchased or dispensed CivicaScript abiraterone, and then only in small quantities. We had to go outside the system. In a functioning market, as another example, biosimilars would gain market share to lower spending. Again, that is not the case today. Before COVID vaccines, Humira was the bestselling drug in American history with over $200 billion in revenue. Even though there are now 14 biosimilar versions of Humira on the market, [inaudible 00:51:45] the major pharmacy benefit managers have continued to the higher cost branded drug. As a result, [inaudible 00:51:53] competitors would respond to unfair pricing to gain a commercial advantage, meaning they would bring a lower price drug and gain market share. But that is not the case today. (52:29) We know that unjustified markups on specialty generic medications up to 100 times the cost are widespread. Among the major pharmacy benefit managers, the same companies that are supposed to keep costs down are marking them up. This includes the cancer drug Gleevec, which can sell for over $6,000 through a pharmacy benefit manager, but it is available for $39 plus shipping from the cost plus drug company. So what Blue Shield is doing about it is announcing a new pharmacy care re-imagined initiative to bring more competition to a market that spends more than $600 billion annually on drugs. We are also advocating for policy changes and think congress needs to do more, particularly in the commercial market. (53:18) Right now, the supply chain is typically paid based on a list price that nobody pays except for the uninsured. That means that intermediaries are paid more when the list price is higher. That is why we support policies that increase the transparency into the payments that make up the cost of drugs, including rebates, fees, and discounts for both Medicare and the commercial markets. Ultimately, the current PBM market is missing a simple but critical data point, and that's the net price that pharmaceutical companies charge absent the rebates and fees when the middlemen take their cut. Once payers and policymakers know this simple data point, it will be apparent that the supply chain is unfairly marking up the cost in the ways we have described. So we look forward to working with you to make sure Americans are getting a better deal on prescription drugs. Thanks.

Can I jump in a little with a question? Can I really appreciate the discussion on generic drugs and supply, and I would love to ask you, Alex, if you could tell us what's your plans on additional generic drug production and why do you think there are challenges to more production, big except of Sarah, we all work and you see, we all work on this issue and we welcome additional production and I'd like to understand from you why we have hurdles to that production and what you can do and how far you can go?

Absolutely. So part of the hurdles are technologically challenging. We're making sterile injectable products to make those well, it's hard. The final test of what we were doing to get our facility up and running media fill studies, we literally fill vials with tens of thousands of vials with Petri dish solution. And if even a single bacteria gets in any of those bottles, we have to close down our factory. So it's a legitimate chemical engineering challenge to get this up and running. And when you have this real drive to the bottom of the market because there's basically an oligopoly or a monopoly at the level of the buyers. You have a monopoly at the level of the buyers but there is also a monopoly at the PBM source program level to the sellers. So they can buy for an extremely low price, but they have no obligation to pass those savings along.

And also I think buyers have to be responsible for sufficient supply but if you wanted to-

Yeah. I just want to add that additionally we'll do one to 2 million vials of the sterile injectables, but because we've designed it to be robotically driven.

Our biggest impediment to curing all the injectable shortages is just capital. I mean, I can afford a lot of things, but that's a big one. So we could scale, it's designed to scale so that effectively it might take a few years to build it, but we could stop the shortages for pediatric cancer injectables, et cetera.

But I'm asking if there's structures in the market that impede you. No. Okay, great. That's helpful.

Yeah. And part of that is those monopolies. So we are going around them and directly contracting with hospitals, which is unusual. A generic company will typically contract with a GPO or a wholesaler.

But I think that's an important innovation, just to be clear, and I'd say this for everyone, that hospitals should be responsible for trying to ensure that they have sufficient supply by reaching out beyond possibly GPOs to do their purchasing. That's helpful. Thank you.

All right. I'm cognizant that we need to wrap up for our online audience. Really appreciate the incredible work that all of you are doing. I think the president is absolutely committed to bringing healthcare costs down all along the supply chain, and really appreciate some of the innovative models out there that you are pioneering and the suggestions for what more we can do as well. So thank you.

And if I could just add, I think one thing we welcome as ideas across the board of how we ensure that we have incentives for driving price down in a way that's sustainable. Because as we all know, this is an infrastructure that grew up in the beginning to take on brand name generics, and obviously we have challenges, so we need to make sure we have those incentives. So always welcome your ideas.

Thank you.