DOJ turns tables on Express Scripts, demands info on pharma deals

Earlier this month, calls rang out for congressional pharma critics to investigate pharmacy benefits managers. Turns out the U.S. Justice Department already had one of the industry’s largest under a microscope.

Express Scripts ($ESRX) disclosed this week that the U.S. Attorney’s offices in New York and Massachusetts had demanded information about two different issues: financial ties with pharma companies, and relationships among drugmakers, patient assistance programs and the specialty pharmacies that fill prescriptions

Specifically, the federal prosecutors in New York want information about money changing hands between Express Scripts and pharma companies. That would include rebates that drugmakers pay to win favorable reimbursement deals for their products.

Those rebates--and any cut PBMs might take--have come under new scrutiny lately, thanks to Mylan ($MYL) CEO Heather Bresch’s appearance before the House Committee on Oversight and Government reform. Bresch was called upon to explain her company’s outsize price increases on EpiPen, the epinephrine injector at the center of a public outcry--and she pointed to PBMs as one driver of higher drug costs.

During that hearing, Congress’ only pharmacist, Rep. Buddy Carter, spotlit PBMs and their proprietary rebates, and later, a national pharmacists’ association demanded that the committee investigate.

Express Scripts disclosed the Justice Department’s requests in a quarterly filing with the Securities & Exchange Commission. The company said it’s cooperating with the DOJ.

The newly disclosed Express Scripts probes aren’t the first DOJ demands for information about PBM-pharma relationships. In a series of financial filings in May, it became clear that the DOJ was looking for information across the industry. Johnson & Johnson ($JNJ), Merck & Co. ($MRK) and Endo International ($ENDP) all said they were being asked for info.

J&J’s Janssen unit received a civil investigative demand for info on its contractual relationships with PBMs in March. That demand covered Jan. 1, 2006 to the present and focused on "certain pharma products,” the company said in its May disclosure to the SEC.

And just three months later, Eli Lilly ($LLY) disclosed a similar demand for information on its contracts with and payments to PBMs. Both the J&J and Lilly requests came from the U.S. Attorney for the Southern District of New York, one of the offices demanding information from Express Scripts.

PBMs have been ratcheting up their demands for discounts in recent years, putting a crimp on pharma sales, particularly in competitive fields such as diabetes. Express Scripts and its fellow PBM behemoth CVS Health ($CVS) recently published new exclusions on their formularies, following up on their vows to pit drugmakers against one another to bring down costs.

The PBMs say they’re a positive force in the healthcare world because they’re playing a part in holding down drug spending. In a recent interview with Modern Healthcare, OptumRx CEO Mark Thierer said pharmas were using price hikes to fuel shareholder value, and PBMs negotiate “to try to talk sense to them.” 

For instance, the companies successfully pressed makers of pricey hepatitis C drugs--including Gilead Sciences ($GILD) and AbbVie ($ABBV)--to offer rebates of an estimated 40% to 45% in return for formulary spots and broader access for patients. And because of payer pressure, net price increases on most drugs have slowed considerably, despite big increases in list prices.

But Bresch told Congress that the discount demands create “perverse incentives” to raise prices, and Carter since called PBMs “the man behind the curtain” in drug pricing.

Indeed, PBMs keep their financial relationships with drugmakers--and the insurers and employer clients they serve--close to the vest, calling those deals proprietary.

That secrecy could be coming to an end. Politicians and patient advocates are calling for more transparency from PBMs and drugmakers alike, and obviously, the DOJ is doing the same.

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