Assembly Select Committee on Select Committee on Biotechnology

We are going to get started in about 15-20 seconds if you want to find your seats. Thank you and good morning. I'd like to call to order the Select Committee, Assembly Select Committee on Biotechnology for February 6, 2024. If there are any Committee Members or their staff listening, please make your way to Capitol Room 126.

We are here after a number of conversations over the fall as this Committee, this is our second Committee hearing this session in the Capitol, but we had a number of roundtable discussions across California during our fall recess. And one of the issues that has continued to come up as we've been meeting with the biotechnology industry sector, is discussion around pharmacy benefit management and the entire system and how that intersects with drug manufacturing and pricing to consumers. And so we wanted to use this opportunity.

We have the room until 11:00 so it's going to be a brief hearing, but just to kind of showcase an overview, PBMs and what they are, how they intersect with the healthcare system, and interplay with the industry and prescription drug manufacturers. Specifically, we hope to understand the origins of PBMs and how their business model has evolved.

And further, we hope that this hearing will help seek answers to questions on the changing nature of their relationship with manufacturers and what impact that is having on prescription drug access and pricing. Finally, and probably most importantly, we want to understand what is the impact that this changing relationship is between PBMs and drug manufacturers as it pertains to patients.

And so I'd like to invite up two of our panelists who will help to give us a broad overview on PBMs and their interplay with the biotechnology industry. First, if you want to approach the witness stand, we have Antonio Ciaccia, who is the President of Three Axis Advisors. And second, Dr. Erin Trish, the co-director with the University of Southern California, Schaeffer Center.

Thank you for traveling today, and we appreciate you being here and your testimony. And like I said, I know you have presentations that we'll try to key up as well. But we're hoping maybe each of you can take about 10 to 12 minutes to be able to provide some broad overview and look forward to some Q and A that that will generate great.

Thanks for having us. My name is Antonio Ciaccia from Columbus, Ohio. I started a consulting firm called 3 Axis Advisors after we learned about how opaque drug pricing was within the Ohio Medicaid Managed Care Program. My background is in pharmacy, and in Ohio, we discovered that while payments to pharmacies were declining within the Medicaid Managed Care Program, the costs of the state were not going down commensurate with that decline. So those two things didn't add up.

How could the underlying costs of medicines go down, but the cost of the state continue to go up? We found was that pharmacy benefit managers have a really crucial role in determining what the end price is that we all pay as patients or as plan sponsors.

Next slide. So I launched my consulting firm in 2019. We do work for Medicaid programs, Medicaid fraud control units, state auditors, plant sponsors, anybody who's impacted by the convoluted nature of drug pricing and I stress, it is convoluted. Next slide.

So in order to understand PBMs, let's first understand where they exist within the architecture of our drug supply chain. Drug manufacturers sell drugs to wholesalers like Cardinal Health, Amerisource Bergen, McKesson. Pharmacies buy their drugs from those wholesalers and they are compensated by PBMs on behalf of health insurance companies. Now, there's other layers of the drug channel, but let's just focus on these five.

Next slide. While we're going to talk about PBMs today, it's really impossible to think of them as standalone entities any longer. What we have here is a breakdown of the Fortune 50 list, and we basically created a color code that demonstrates which layers each one of these companies makes up. And as you can see with companies like UnitedHealth Group, CVS Health, and Cigna, you're looking at companies who represent four different layers of the drug distribution channel. Those are the primary ones, it's not including a lot of the other things that they do.

So while PBMs are certainly important, it's impossible to view them through the lens of just the PBM because they have become vertically integrated. And we're talking about Fortune 15 companies at this point.

Next slide. So while there's a lot of independent players at every layer of the drug distribution channel, let's, for the sake of this discussion, say market concentration at every layer of the drug supply chain is very concentrated within a small number of players. And those small number of players are publicly traded companies whose fiduciary obligation is to make more money today than they made yesterday. And so that's not exclusive to PBMs. It's every layer of the drug channel. So understanding their nature is really important to understanding, perhaps where things start to go awry when it comes to pricing.

Next slide. So PBMs started really back in the 1960's and 1970's. Pharmacy didn't used to be part of our health insurance benefits. It was considered optional. But understandably because medicines are so vital to our overall well being, it was understood that by integrating pharmacy benefits into our overall health insurance, medicines could be a great mechanism to control overall medical costs. So in the old days, we essentially had PBMs acting as essentially claims processors or Visa or MasterCard for your medicines.

Next slide. So it actually was started with the United Auto Workers. They were the first really to start bringing pharmacy benefits into their overall benefits packages. And so, as, again, PBMs acted like essentially a credit card to pay for those medicines.

Next slide. Then in the 1980s, the first mail order pharmacy started to arise, and PBMs started to use mail order pharmacies as a way of perhaps providing more competition when it came to buying the drugs from the pharmacies. In 1987, we started to get real time claims adjudication, meaning that rather than just collecting paper, we were actually facilitating the transaction electronically.

Next slide. So over time, our reliance on PBMs grew. Rather than just say, 'hey, PBM, go pay whatever the pharmacy charged', we started to say, 'hey, maybe the PBM could start negotiating on our behalf' as more medicines came to market, as they became more expensive. Understandably, unions, employers, government programs said, maybe we shouldn't just pay whatever we're invoiced. Maybe we could rely on that PBM, who's becoming increasingly involved in the transaction to act as a negotiator to essentially erode our cost exposure.

Next slide. Ultimately, a lot of things changed in 1990 during the Omnibus Reconciliation Act of 1990, which created the Medicaid Drug Rebate program. I want to focus on the word rebate because it's very important when we talk about PBMs. In the United States, we do not have the price of a medicine. There are prices for medicines. Manufacturers set a list price, and that list price is meant to be the starting point for their experience.

Medicaid programs are required by law to get the best negotiated discounts, which means Medicaid gets a better price than perhaps anybody else. So that was really the start of, I think, a significant disparity between who gets what drugs at what price. So when drugmakers started pricing medicines, they had to start considering the mandatory giveaways to Medicaid programs. So perhaps, rather than setting the price at a certain rate that they would in a traditional marketplace, they now had to factor in a mandatory giveaway to Medicaid programs.

PBMs eventually started negotiating their own rebates as well. So while manufacturers set their list prices, PBMs and other purchasers are getting a negotiated experience off those list prices.

Next slide. So in 1993, pharmaceutical marketplace really started to change. So when you ask, what is the interplay between manufacturers and PBMs? Understand, at one point, PBMs and manufacturers were one in the same company. You had manufacturers that started to buy PBMs. Why would they do that? Well, among the many things that PBMs do, PBMs are creating essentially a menu or a formulary of drugs that we as covered beneficiaries can get access to under our benefits plans.

As you might imagine, as PBMs grow in terms of size and stature, they can be the gatekeepers for the medicines that we demand as consumers or the medicines that essentially are sold through our benefits programs. Think of it from a manufacturer's perspective. If the PBM gets to choose which drugs are covered and which ones aren't, and we as consumers expect that our medicines will be covered, that means the PBM has a significant opportunity to grant market share to winners and losers within the pharmaceutical marketplace.

Usually, manufacturers recognize that meet the PBMs at their interest and pay them big rebates in exchange for coverage. As you might imagine, if one manufacturer buys a PBM, what does that do to the competitive landscape when other manufacturers are seeking to get on that formulary as well? So over time, the idea of manufacturers and PBMs being intertwined was an obvious conflict of interest, since a manufacturer that owned a PBM would love to favor its own medicines relative to their competitors. So over time, essentially, the manufacturers divorced their relationships from PBMs.

Next slide. Over time, you've seen varying degrees of scrutiny regarding the marketplace. And really by 2003, the manufacturers completely walked away from their PBM relationships.

Next slide. The Affordable Care Act was a really important milestone in shaping what this marketplace looks like for better or worse. The ACA impacted all aspects of healthcare, directly or indirectly. The ACA required PBMs to manage drug coverage under a contract with Medicare Part D plans. So it really brought about a more common use of pbms relative to where they were in the past. So I've broken down essentially some of the responsibilities.

I think the really important thing to remember about the ACA is that there's a double edged sword in the policy. Under the ACA, we're essentially mandating coverage, so everybody has to have insurance benefits at this point. Well, understand that as soon as you mandate that everybody have to have a certain product, meaning insurance, those insurance companies need to have some accountability in how they're spending those dollars. So the Obama Administration created what we call medical loss ratio.

The medical loss ratio requires that for every dollar that's invested in insurance premiums, a certain percentage has to go to the actual coverage of care. Well, again, if now insurance companies are essentially profit capped and told that they have to spend a certain proportion of their money that they get on care, well, now you see an impetus for vertical integration. If I'm a health insurance company, if I can control the PBM, I can start owning my own pharmacies, owning my own clinics.

I get to start paying myself for certain things that I'm covering under a benefits plan. PBMs have become a huge part of the strategy for health plans to manage and adhere to medical loss ratio requirements. And that can be a good thing and a bad thing, meaning that health plans may not have adequate incentives to control things when they're paying their subsidiary companies.

Next slide. So this is a look at horizontal consolidation. Today we have three PBMs that essentially make up about 80% to 85% of the marketplace. That's a national statistic. But understand, that's just one layer of these vertically integrated companies. You have express grips, that's part of Cigna Optimrx, that's part of UnitedHealthcare, and CVS caremark. That's part of CVS Health and Aetna.

Next slide.

Two minutes.

Yep. So I think the really important thing to understand here is that we have a system of bogus, inflated drug prices in the United States. As I said earlier, those list prices are the starting point for our experience. And Medicaid programs, now, Medicare, federal programs, state programs, all are supposed to get some negotiated experience off that list price. And the way that we experience price will be highly inequitable among purchasers.

So PBMs provide savings in this marketplace, but they provide savings relative to the bogus, inflated prices that in some ways both government and PBMs are responsible for.

The big challenge with PBMs, and I know Erin will get into this, is that while PBMs will act as a necessary friction against manufacturers, wholesalers and pharmacies because they now make money below the line or make money off the exact transaction they were hired to control, conflicts of interest have allowed them to gauge in a number of schemes that cause cost to balloon. They make money off rebates. They make money off practices like spread pricing.

They make money off their own specialty pharmacies and mail order pharmacies, and a litany of other ways that I'm sure we could get into question and answer. But I think it's really important to understand that PBMs are supposed to be a force for good. But the second that they make money off the transaction, their incentives become heavily skewed and start to contribute to the very problem they were hired to control.

Okay, thank you, Mr. Ciaccia and Dr. Trish. Look forward to your presentation.

Great. Thank you very much. And while we're getting up the slides, thank you, Antonio, for very helpful history and introduction of this very complicated market. So, I am Erin Trish. I'm a Professor at the USC Mann School of Pharmacy and the Co-Director of the Schaeffer Center for Health Policy and Economics. We're a research center that's based jointly in the school of Pharmacy and the School of Public Policy at USC.

And I have the good fortune that me and my colleagues have been studying the pharmaceutical supply chain and in particular, the role of PBMs for almost a decade now. So wanted to share some of the findings and interject some additional evidence into this conversation that we've been having. So, next slide, please. Next slide, please. And this one actually has. Perfect. Okay, so I'll put up a system of boxes and arrows about the pharmaceutical supply chain.

I will, first of all, just point out that this is actually a simplified version of this market. There's a lot of other things that could be up there, which I think speaks to just the complication of understanding what's going on here. And some of the things that have enabled the types of behaviors that Antonio was describing is really the complexity and the opacity of this market. So if you think about a patient showing up at a pharmacy to pick up their prescription, right.

This was a physical product, generally speaking, that was produced by a manufacturer distributed through a wholesaler to a pharmacy. And the patient goes and picks up that product. You know, thats kind of a normal flow of goods. But so what is the PBM doing here? They're really involved, primarily putting aside some exceptions of if they're involved in the mail order or specialty pharmacy, but otherwise, this blue box at the bottom, the PBM is really controlling primarily three important financial transactions or negotiations or contracts.

One is with the health plan. Right, they're negotiating the provision of drug benefits on behalf of the health plan or the employer. In turn, on behalf of their employees or enrollees. Two, they're turning around and negotiating with the drug manufacturer and engaging in this negotiation and basically saying, like Antonio was describing, there is a list price or a sticker price of the drug that is not, at the end of the day, how much the manufacturer is going to receive.

The PBM is there in large part to negotiate after the fact discounts or rebates, and basically say, if you give me a better price of that drug, I'll put you on a preferred tier in my formulary and encourage more patients to use your product relative to your competitors. Right, they're an important part of this negotiation. They're also an important part of the negotiation with pharmacies and actually how much pharmacies are going to get paid when a patient goes and fills that drug.

And so I think one thing that's important to note is that there's nothing that guarantees, for example, that the amount of money that the PBM is going to pay the pharmacy for the drug is the same price that they're going to charge the health insurer or the employer for the kind of pleasure of their enrollee filling that drug, right.

The PBM is sitting, controlling a lot of the information and controlling this triangulation of transactions, and that there's nothing that kind of directly ties any of these to necessarily be the same as each other. Antonio has done quite a bit of work highlighting the practices of spread pricing, which is what we call it when essentially the PBM is paying the pharmacy one price and turning around and paying the health plan or the Medicaid program a higher price and keeping that difference.

So if you could go to the next slide, please. Just to touch on this kind of these rebate negotiations with manufacturers. If you think about, I'm going to give some examples from the Medicare Part D program, the prescription drug program for our Medicare beneficiaries. There's some better data from this program relative to commercial markets, and it's an important part covering tens of millions of beneficiaries in this country.

If you think about, you may have seen pictures of the kind of standard benefit design which is intended to expose patients to 25% cost sharing. So they're supposed to pay about 25% of the cost of their drugs on the right is actually, in practice, these Part D plans don't actually have their patients generally pay 25% coinsurance. They go and negotiate these formularies and they say, give us a bigger rebate and we'll put you on a preferred tier. And if you could go to the next slide.

These rebates have actually become a huge part of, have become increasingly important in this segment. So it's a little hard to see the numbers maybe, but what you can see is that over the last decade, these rebates have grown to account for nearly a third of the total gross spending in the Medicare Part D program.

So what that means is the list prices of drugs that you see on the receipt at the pharmacy counter or that you see on the headlines in the news are off, on average, in the part D program by about 33% higher than they should be. Right. In terms of what the manufacturers are actually receiving for those products at the end of the day. And this has grown quite a bit over the last decade. If you could go to the next slide.

It is the case that PBMs have effectively been negotiating these rebates, right? I mean, you saw the slide. The numbers have increased quite a bit on the last slide. And a portion of those rebates are in turn being used to subsidize premiums for the market. They have been an important part of keeping the premiums of those plans relatively low and stable over the last decade or 15 years.

But that's come at the cost of increased out of pocket spending for the beneficiaries who are taking those highly rebated products. This is kind of the opposite of how we think insurance is supposed to work. Right? This has instead created a world where beneficiaries who are sick and need access to these medicines are paying more out of pocket at the pharmacy counter to subsidize insurance premiums for the market overall. So I can point to you, if you could go, actually, two slides ahead.

My colleagues at the Schaeffer center really wanted to look under the hood to understand what is it that's going on in the supply chain. And wrote kind of one of the seminal papers in this field several years back ago, where they studied the flow of dollars. And our nickname for it is the "Follow the Money" paper. It's gotten quite a bit of attention and interest.

And what they found at the time was that intermediaries in the pharmaceutical supply chain, including PBMs, actually, these data are a bit old at this point, but were capturing forty-one of every hundred dollars that we spent on prescription drugs in the US. Right. And so that alone should help you understand or realize that the list prices or drug prices that you hear about are quite distorted from the revenues that drug manufacturers and innovative companies are actually receiving at the end of the day.

If you could go to the next slide, my colleagues led by Karen Van Nuys and others at the Schaeffer center did a follow up study specifically digging in on insulin, which was really the poster child of a lot of these market distortions. Obviously, things have changed quite a bit with insulin in the last two years or so. But, back looking at data from 2014 to 2018, this underscores some of the kind of, we have many different prices here that Antonio was describing.

So the gray bars, what you can see is that the list price or the sticker price of insulin did increase quite notably over this five year period. So it was the case that the list prices of insulin were increasing over this time. But if you look at the blue bars on that chart, this is the net revenue that insulin manufacturers received for selling those insulin products into the market. And those prices, the net prices that manufacturers received, were actually declining over this time period.

So you have this increasing gap or increasing wedge where the list prices are going up, but the net prices are going down. Now, interestingly, these red bars in the middle, this is the kind of net expenditures on insulin.

So how much accounting not just for the drug, but all of the other kind of distortions in the supply chain or all of the other part of the spending that's going to entities in the supply chain. Which, at the end of the day, is what we care about, right? We care about how much are we spending to get this drug as a society, right? And that was actually pretty flat over this time period. So net spending was about flat.

And so if you go to the next slide. What that means is that over this time period, an increasing share of the spending on insulin was actually accruing, not to the manufacturers who were creating and producing that product, but rather to the intermediaries, including PBMs, in the supply chain. To the point where by the end of this study period in 2018, more than half of the total dollars that we were spending on insulin were not going to the drug manufacturer, but rather to these other players in the supply chain.

So I think that's an important kind of trend and distortion and kind of thing, or a phenomenon that's been going on that's important to understand and how it's impacting manufacturers revenues. I think, if you could go to the next slide, please. There's also been a really important aspect of this in terms of its impact on patients.

So when patients are paying cost sharing, that's tied to the list price of these drugs, if they're in a deductible or if they have coinsurance, then they're exposed to a percent of this list price. And that list price, as I was just saying, is increasingly distorted from the net price of the drug. So what does that mean is that they're paying more out of pocket at the pharmacy counter than they should be.

What's particularly, at the Schaeffer center, some of my colleagues did a study and showed that instead of paying on the order of roughly 25% of the cost of the drug in Medicare Part D, which is what they were supposed to be paying, relative to the net price, the net revenues that manufacturers were actually receiving out of pocket spending was ranging in certain kind of months of the year, beneficiaries were paying out of pocket up to two thirds or even 90% of the net price of the drug.

Right. So this is a huge overpayment from these beneficiaries that's going back to, in part, subsidized premiums for the market. But again, is creating this particular distortion where sicker beneficiaries are paying more at the point of sale because of these increasingly inflated list prices. What's particularly concerning from an economist point of view, is that the drug classes that are most competitive are the ones where this distortion is biggest. So there's the biggest rebates, the list prices are the most inflated.

Those are the ones where the beneficiaries are paying the highest out of pocket relative to what they should be paying for those drugs. So that's not the way we think markets should work, right? Generally speaking, markets improve prices and quality and outcomes for consumers. And this convoluted set of perverse incentives has created the opposite of that, where more competition is actually harming these patients through higher out of pocket spending.

I know we want to wrap it up for questions, so I'll just give a couple of last data points. If you could actually just skip forward two slides, please. We've been talking so far primarily about branded drugs, but I wanted to note that these overpayment issues exist for generic drugs as well. Right, generics are much more commonly dispensed. They're about 90% of prescriptions dispensed in the US.

And my colleagues and I did a study where we compared the prices that Medicare part D plans were paying for common generic drugs to the prices that Costco Members could purchase. Those same drugs are for cash paying prices. So bypassing the kind of PBM distribution model altogether.

And what we found was that in 2018, Medicare overpaid by about two and a half billion dollars for those common generic drugs relative to the prices that you could have gotten by just going to this and buying them at Costco instead. Right. And so I think this speaks to these issues of things like spread pricing and other types of distortions or added kind of fluff that's being added by the supply chain.

If you can go and purchase these at Costco for a considerable discount relative to what you're getting them for in the Medicare Part D program. I think coming back to the focus on biotechnology, I think this is important from an affordability perspective and for patients in our country.

But it's also important for the kind of grand bargain, that we as a country adopted through the Hatch-Waxman Act. Which was really this notion of protecting and investing in innovative medicines, through patents and those types of systems, with the expectation that once those patents were to expire, drugs would go generic and be widely available and accessible to Americans at very affordable prices.

And by distorting that kind of back end of the bargain, by inflating the costs of these drugs upon going generic, we're messing with that grand bargain. Right, and so it has these spillover concerns. There's a lot of real innovative benefits of the medicines that have been developed in the last decade or many decades. Right. It's incredible, remarkable biomedical advances in progress.

And so I think to be able to continue that investment as a country in sustaining the incentives and rewards for that type of innovation, it's important that we don't kind of mess with that balance through distortions created by the supply chain when these drugs do go generic. So I think if you want to quickly skip through about three slides, I'll show you just the visual. One more, yeah. There's, as Antonio mentioned, quite a bit of increasing consolidation and integration in this industry.

Again, a simplified example doesn't even include all of the specialty pharmacies and mail order pharmacies that are necessarily part of it. But next slide, please. We're at a point now where the big three PBMs are processing about 80% or more of the claims in the US. Next slide. With this increase in consolidation, we've seen quite a bit of increasing product exclusion, so limiting patients access to particular drugs.

And on the next slide, gross PBM profits have increased over time, and the sources of those profits are changing. As we start to kind of shine a light on one aspect or concerning behavior. As Antonio mentioned, there's a lot of scope and opportunity to shift where the dollars are going. And so if you can just go through two more slides of the summary, I'll just wrap it up with. Rebates have grown quite a bit over this time period.

I think this is really spilling through to impact patients affordability concerns and access to medicines. It's spilling back to create these important distortions between the list prices of drugs and the net prices that manufacturers actually receive for those drugs.

It's gained a lot of attention from policymakers like yourselves and from regulators, and also quite a bit of attention and market responses. We're starting to see now employers and insurers who are saying maybe I want to go with a different opportunity or a different business model in terms of serving my pharmacy benefits management. And I think really starting to realize that it's time for some significant change in this industry. So thank you very much and we'll look forward to your questions.

Well, thank you, Dr. Trish. I appreciate the overview. And I try know this is a complicated area when we're dealing with health insurance and health care. And ultimately the subset of that, as you sort of talked about with its origins, how would we deliver pharmacy benefits to consumers, to patients, I think is a critical integration.

And I appreciated the history there where originally we saw something that was meant to invoke competition and negotiation, and really good functions of something that should be a part of a healthy market and maybe over time in an already very complex system with pharmacies and with wholesalers and with manufacturers and health plans and everybody's sort of integrated here. Is there some distortions that have really percolated as unchecked?

And are there winners and losers here that are complicating ultimately the price that goes to consumers and the cost that goes to our overall healthcare systems? And I appreciate sort of teasing out that a little bit as well. I want to open it up for colleagues to see if they have any questions. I'm grateful that Dr. Weber and Ms. Waldron have been able to join us, two neighbors from San Diego. But I'll just start off maybe just by asking,

But I'll just start off maybe just by asking you know, what do you see as maybe some necessary traits that PBM sort of bring to this complex system that we have that are helpful and maintaining, I think, stabilization? And then where would you sort of summarize as you're talking, I think you've testified before Congress and you sort of looked at things that are going on with national trends, some areas of policy review that we may want to look at as well.

We've seen many instances over the last few years where there's drugs that I would consider to be, let's just say high value. They're drugs that could be very effective for a patient. Well, when that patent exclusivity runs out, sometimes you'll see what we call follow-on products that might have an additional benefit, but not necessarily commensurate with the new price relative to the generic of the one that got replaced. Well, a good PBM would say, look, you've priced this drug too high.

There's an alternative that has commensurate value, especially relative to its underlying cost. A well-aligned PBM would say, we're not covering this new follow-on product because it doesn't have, again, that increased value. We see that within smaller PBMs that have better incentive alignment. Right. In those who are more transparent, the larger PBMs will be more prone to favoring those high-priced alternatives because they're getting that big kickback or rebate from the manufacturer that entices their decision-making process.

So it's not to say PBMs are bad. The functionality of a lot of the things that they do, I think can be healthy from a system perspective. But again, if we're talking about publicly traded companies who can engage in the same arbitrage schemes as one end of the supply chain that we want to control, again, things start to become a little bit complicated.

If you hired me to go get you affordable coffee, okay, it sounds good, I could go out on the street and find you affordable coffee. But what happens when I start getting kickbacks from people that make coffee beans? My decision-making process is going to be very different. Does it mean that I shouldn't go out and find you affordable coffee? Absolutely not.

What it means is that perhaps the kickbacks that I'm getting from a coffee bean company are inappropriate and not aligned to actually getting you the best deal that you can get in the marketplace. A lot of the federal policies that are being promulgated are trying to attack those perverse incentives where a PBM can make more money off something that is not aligned with the patient or the end payer.

Thank you. Dr. Weber.

Good morning. Thank you, chair. Thank you so much for having this hearing today. I'm sure it might be one of many on PBMs because it's such a complicated issue. So I really appreciate you all for being here. I have, actually a couple of questions, but I do want to piggyback off of what you were just saying.

And during, I believe, your presentation, you were talking about how PBMs can have three different prices for the same drug, depending on whether or not they're dealing with the pharmacy or the manufacturer, fracture or the end use of the patient. And I'm just wondering, how can that possibly be?

It's a very complex and opaque system. And as Antonio was describing, I think there's a lot of potential benefits of improving transparency and policies or reforms that might improve that transparency.

But essentially, until, essentially, the Ohio Attorney General or state or Auditor report came out back in 2018, I don't think anybody had kind of realized that there could be, or fathomed that there could be a world where, on average, PBMs were paying pharmacies one price for medicines and turning around and charging the state Medicaid program about a 30% higher prices for those same drugs for those Medicaid patients.

And part of it was just nobody fathomed that that would be the case of what was going on, I think, until some of these reports started coming out. And it just really spoke to the lack of transparency and lack of insight into this market.

At the end of the day, we're talking about financial is when there's no such thing as the price for a drug. What that means is that price is ultimately a sliding scale. We can't just blame PBMs for that entirely. As I pointed out my slides, the Medicaid drug rebate program, mandated by law that Medicaid programs get the biggest discounts in the marketplace. Anytime anybody gets the best price, everybody else is getting a worst price.

We've done a lot of analyses on behalf of plan sponsors, where we can see a very disparate experience and a very inequitable experience, where the largest, most sophisticated purchasers are getting some of the best-negotiated deals. And the smaller businesses and the smaller plan sponsors, or especially the patients that are paying out of pocket, as she alluded to, are getting stuck paying a disproportionately high percentage or the full amount of the list price of a medicine. It is inherently inequitable.

We talk about drug pricing as if it's a black box. And it is because the second that you open it up to this concept of a negotiated experience, well, that negotiation is proprietary. Without saying whether negotiation is inherently wrong or not, anytime that you are allowing that negotiated experience to be kept within a proprietary black box, you're creating mystery. You're creating an elusive price. In my experience, anytime there is mystery, there's great opportunity for margin.

Because PBMs get to set the prices on both ends of the spectrum. They are in the best position to engage in arbitrage, buy low, sell high, without letting either side understand what's happening on either end of the transaction.

Yeah, it really just kind of boggles my mind that we would allow a system like this to be set up when we're talking about health care. And years ago, many years ago, physicians could give out sample prescriptions, right? And then they no longer allow us to do that because there was this thought that we would be more biased towards whatever pharmaceutical company was coming to give us samples.

So the thought that you can negotiate based on whatever kind of rebates, and that's the kind of drug that you would put on that particular formulary. I'm just a little disappointed that we would allow for a system like that to be established here in the United States. So who is overseeing this?

I'll start. I mean, the answer is kind of nobody relevant at this point. PBMs have enjoyed a great anonymity over the last few years. The first time that I think PBMs got any sort of public profile meaningfully was in 2016. Congress had hearings regarding EpiPen pricing, and the then CEO of Mylan, Heather Bresh, was hauled before Congress, and they said, what are you doing with these outrageous prices?

And she was really the first one to say, look, you could be mad at the prices all you want, but what if I told you the full value of those prices are not accruing to us? And she started to kind of let the secret of the industry out is that she wants to sell drugs to patients. Well, we don't sell drugs to patients anymore. We sell drugs to PBMs. Right? We sell drugs to health benefit plans.

And so a lot of times when I'm asked, like, why is this marketplace out of control? One of the first things I say is that we think that the system should yield lower prices. We, as patients, demand more affordable options. The employers that I work with, they want lower prices. But at the end of the day, we're not setting prices to sell as is. We're setting prices as a starting point for a negotiated experience. Increased rebates and discounts.

So manufacturers are calibrating their prices based upon the interests and demands of their clients. Government programs in PBMs and health insurance companies have not asked for lower prices. They've asked for bigger concessions or discounts off those list prices.

And I'll just add to that. I mean, I think you are starting, especially in the last few years, to have increasing interest. The FTC opened a six b study that we're kind of anxiously awaiting the results of.

The House oversight Committee in Washington, DC, has done some know, and I credit a lot of that interest also with coming from, we didn't talk as much today about the impact that PBMs have had on pharmacy reimbursement and the way that they've impacted, particularly community pharmacies and increasing DIR fees or kind of after the fact discounts that they're taking back from pharmacies as well. And so there's kind of pockets in many ways.

But I think the impact of these behaviors on pharmacy closures and the provision of care in communities has really helped elevate the interest in this issue as well and realize how kind of intertwined and entangled all of these issues are. I think there's this interest in figuring out it's a complicated market because it's evolving. And in some cases, it's been likened to a game of whack-a-mole. Right.

And so you kind of shine a light on one thing and then, okay, fine, we'll stop doing that, but we're going to start doing something next. And there just become more and more players, and it's kind of spiraling and opening of offshore agencies to kind of shift rebates over there. It becomes a complicated system. And even as you try to shine a light in one area, you realize that light needs to be bigger and evolving.

Yeah, thank you. And on the subject of the House Oversight Committee, could you comment on the finding in 2021 that said that their report concluded that rebates, excuse me, were not correlated with increase in the drug prices?

I could start on that. So context is everything within any analysis regarding prescription drugs. One of the things that we've seen is that there are, for simplicity's sake, let's say there's two different types of brand name drugs. There are drugs that are true innovators and a class of one, meaning that there's no material alternative therapy available. The drug maker, in that instance, has done what the marketplace is supposed to yield.

We've given them a patent exclusivity incentive, so they bring something to market that didn't exist before. So hooray us. We got a new treatment. The trade-off there is that the manufacturer has a marketplace, really to itself, and they can really set a price without any sort of meaningful competition dictating or calibrating that price that they're setting.

Now, I don't know enough about how manufacturers are setting those prices, but for simplicity's sake, let's just say the manufacturer has a great amount of latitude relative to other drugs to set prices and really, quote, own the market. But then there's another category of brand name drugs, those that have other competitors who can lend themselves to more competition. As Aaron pointed out, those are the drugs that are most conducive to arbitrage and rebate harvesting from PBMs.

Competition among those drugs creates inflated prices and a lower net experience. So when viewed in aggregate, you could say brand drugs have, there's no real correlation between list prices and net prices. Well, the truth is that there is tremendous correlation between list price growth and net price deflation among drugs that are in competitive classes. That will not be the case for drugs that do not have meaningful competition available to them.

Just to add to that, another study that we've done at the Schaeffer Center shows exactly that point that Antonio was just making, which is that growth in list prices among drugs and competitive classes is highly correlated with growth in rebates and price concessions for those drugs and that that growth is actually explained the bulk of the growth in list prices over that time.

Thank you for that. And my final question, I'm sorry I've asked so many questions, but the issue of patent thickets, do you have any concern that that is also leading to increased cost within our healthcare system?

So I do, yes. I think that patent thickets are a way for manufacturers to essentially squeeze more juice out of the deal, essentially, that we've been able to create for them. I do want to stress, though, that not every patent that's a follow on is what I would consider to be wasteful.

We've seen a lot of instances where some of the constitution of that thicket, if you will, is what I would constitute as not necessarily in keeping with the deal that's supposed to be proffered by Hacks Waxman there are other patents that are going to be part of those tickets that I think could be construed as maybe more material in nature, meaning that maybe the manufacturer has a more legitimate case for that patent that maybe you or I may think of.

I think the key is that I think we need a more objective approach to patent exclusivity, one that doesn't lend itself to that type of know manipulation, if you will. But I think that one of the important things to consider, though, is that, as Aaron alluded to, we rely on that patent cliff significantly to create a balance. We overpay.

Overpay, if you will, for innovative brand drugs to come to market with the idea that there's a trade-off, that once that exclusivity runs out, essentially we're creating a hole at the bottom of the bucket and we are pouring more water in with new brand drugs, but we rely on the water coming out of the bottom in order to work.

If PBMs have the ability to kind of tighten that, it's not just a patent thicket that can give a manufacturer more market share beyond the time that they're supposed to have it lapse. The manufacturer can engage in rebate practices and kickbacks back to PBMs that also kind of prolong that life. So I do think that perhaps a better approach to patents is necessary, without question.

But I think it's really important to understand that the savings that the competitive marketplace is generating don't work as it's supposed to either. So the thickets aren't essentially the only thing standing in the way of more affordable medicines.

I think that was a nice, comprehensive answer so, yes.

Thank you.

Thank you, Dr. Webber, Ms. Waldron.

Thank you. So, in the essence of time, you each asked one of the questions I was going to ask, so I don't have to repeat those. But regarding some of the things that we could do as a legislature, I was just looking at my notes, and the California Health Benefit Review program noted that in 2000 and 2021, 7 states had introduced legislation related to this topic.

Proposals vary from diverting 51% up to 100% of the rebate dollars to the enrollee or to the plan sponsor, with calculations occurring at the point of sale. They go on to talk about West Virginia, which was enacted requiring enrollee cost sharing to be calculated point of sale based on a price reduced by at least 100% of the rebates. We don't know how that's working yet, I guess because it's pretty recent. But any rebate exceeding this must be passed on to the health plan to reduce premiums.

And it goes on and on about Oklahoma doing a similar thing and other states, Georgia. We see these bills pretty much on a regular basis now. I've been on Health Committee a few years. We had SB 873 last year. Senator Bradford and the goal was as far as the authority overseeing trying to get the Department of Managed Healthcare as well as the California Department of Insurance to look at and submit a report to the legislature on all of these topics.

If this bill would work, requiring an enrollee or insured defined cost sharing for each prescription drug to be calculated at the point of sale based on a price reduced by an amount equal to at least 90% of all rebates received. That's what we had tried to do here and then requires the health plan to pass through to each enrollee or insured at the point of sale. A good faith estimate of the enrollee or insured's decreased cost sharing required pursuant to this bill.

And the question that was asked about is there still a place for PBMs? Or how can this be fixed? What would you recommend to us, based on what we've seen across the country, your knowledge of this aspect of our health system and pharmaceutical distribution system? How can we make this more efficient, more effective for the patient saving dollars, if it's even possible in this healthcare environment we're in?

But based on what we've tried to do, what other states have tried to do, what should we be looking at as far as what we can do?

I think there's some key principles that really one is ensuring that patients are benefiting from these discounts or rebates in terms of the cost sharing that they face. Right. There's nothing actually like, PBMs are an important part of negotiating with drug manufacturers over prices. That's not in principle that dissimilar from what insurers do when they negotiate and create networks of providers of physicians and hospitals. Right.

We do see that the prices that those in network physicians and hospitals agree to are big discounts off of their billed charges typically. The big difference here is that your deductible or coinsurance as a patient at the hospital is based off that discounted price. And that is generally not the case if you're paying coinsurance or in a deductible phase on these drug prices, where these discounts happen after the fact.

And so that ends up creating a very perverse or kind of harmful set of conditions for the patient who's instead now paying an inflated price at the pharmacy counter. It's also one of the most common interactions with the healthcare system is your patient going and picking up or filling your prescription drug. And so you're reminded over and over again about this affordability challenge that's created by the fact that you're not sharing in these discounts at that transaction.

I think just at a high level, we've talked a lot about the complexity in any type of policy. Moving toward increased transparency, I think is another important principle here. We've seen even in, for example, the commercial market and the employer space, that there's pharmacy benefits consultants who are supposed to be kind of helping or providing consulting services for employers as they're picking a PBM or picking between competing PBMs.

You're starting to now get concerns about to what extent are they being compensated by the PBMs as well, and just kind of these increasing layers there. And so I think that's just another example where in order to make this market function better, we need more transparency to understand what's actually going on.

Yeah, just to piggyback off that, a lot of the problems go back to the 1990s, where in 1987 President Ronald Reagan signed the federal anti-kickback laws that hit all marketplaces. In the 90s, drug makers and PBMs and other intermediaries got exemptions to those federal anti-kickback laws that allows them to engage in this pay-to-play.

In traditional marketplaces, if you or I were to walk into an appliance store to buy a washing machine or a dishwasher, there's a price and then there might be a rebate. We walk up to the cashier, we pay the inflated price. Then when we do the necessary, fill out the form and get the rebate, that comes back to us as consumers. That doesn't happen in the prescription drug supply chain. It is very unique in that A, we have a system that incentivizes higher prices in the face of competition.

And then we have patients who are saddled with the overpriced medicines at the pharmacy counter generating rebates that will go back to PBMs, health insurance companies and plan sponsors that lower premiums in many instances, not all entirely for other healthier individuals who aren't sick and needing medicine. So I do think that it is immoral and unethical to take sick patients and require them to overpay for medicines to generate rebates to go to other people who aren't sick.

So I think that there is work that can be done to erode patient cost sharing there. The other thing that I'll add to it is that, look, as somebody who has audited PBMs, investigated PBMs, I have learned that transparency is the best in disinfectant. I have caught a lot of metaphorical cockroaches with my flashlight looking at drug pricing Excel sheets. When PBMs are required to provide an itemized accounting of the supposed deal that they're providing to patients and plan sponsors, they are in a much better position to be held accountable as publicly traded companies whose fiduciary obligation is to shareholders and not the end client.

So any sort of policy, whether it be contractually in a plan sponsor contract or mandated by a State Legislature or Federal Government, that requires an uncomfortable amount of transparency, is the best way to not only right size prescription drug costs, but to better isolate where perverse incentives might be working against the interests of the plan sponsor.

Just as a follow up to that, because part of what was attempted in SB 873 was requiring some of those reportings, where is it that it would be shown at end of calendar year reconciliation for any cost-sharing reductions owed to the enrollee or insured pursuant to the regulations that were not passed on to the enrollee or insured, and that it would do some of that accountability.

And it almost goes back to the question that I was going to ask that was asked about the authority to oversee PBMs. In order to have this transparency, we need to have some entity that is like, we have the Department of Insurance. If a person is having a problem with an insurance company, they can file a complaint with the Department of Insurance and it can be resolved. And I know because I've done that, so I know it's available.

But is there a way that creating an oversight or some kind of entity could help with the transparency issue? Because right now, it seems like they're kind of just doing what they do, and each drug has its own issue.

Without understanding what the architecture of an intended sort of oversight would be from a government perspective, I can only speak philosophically and say, look, a lot of states have allowed PBMs complete ability to do as they please. They don't answer to anybody. So states like Ohio have required licensure within the State Department of Insurance, and then when they pass policies, ultimately you have somebody to act as an enforcer. I'm not here to say that's perfect or the right way to go.

I'm here to say that, look, if you don't have any sort of enforcement authority over PBMs, good luck actually getting what you intend through policy.

Enforcement authority. Okay, because when you mentioned the anti-kickback statutes, the Office of Inspector General, I think it was like five years ago, had tried to propose safe harbor changes to that statute, that they would decide which rebate arrangements were harmful and which ones were not. And it kind of went by the wayside because there was so much debate over mean, would looking at that again at the federal level be something that would be helpful or not? Or was that a little bit

The Federal Trade Commission is doing that as part of their investigation. I think in general, the spirit of what you're asking is something that's necessary, is that, look, every PBM that if you ask any PBM after this hearing, are you transparent? They'll say, absolutely. Transparency is not black and white. It is a spectrum of experience. In my experience, there is no such thing as a fully aligned, transparent PBM. It is just degrees of transparency.

And so to me, ensuring that the people that end up paying the bill at the end have the most actionable information possible to assess whether or not they're getting a good deal and whether their PBM is adequately incentivized to do so, to me, that is very important, regardless of how you enforce that outcome.

Thank you.

Great. Thank you. We're at this time going to move to public comment. We obviously have probably a lot of questions that we heard other committees that would be interested in covering this conversation as well. But I didn't want to take away from those that have been able to join us here today to provide additional perspective. And I'm going to ask public commenters to be roughly around two minutes apiece, if that's enough to be able to get some material on the record for our consideration.

And then I'm going to give the gavel over to Dr. Weber so I can take a quick little meeting, but be back to join you for closing comments as well. Thank you. Whoever wants to begin?

Sorry, Bill Head with PCMA with the National PBM Trade Association, and just want to make a couple of comments. One is every single state employee program hires PBM, including CalPERS. Virtually every state Medicaid program hires a PBM, including Medi-Cal. Medi-Cal carved out a couple years ago, as you may recall, and they hired a PBM manager. So we must be doing something right.

I do take issues with a few of the things that have been said, and I hope at some future date, because our time is limited, obviously, is that we can actually have a PBM 101 by PBMs and give more detailed background about how we operate and how we interact with the system. Dr. Trish, I think would even acknowledge there are colleagues at the Schaeffer School who have a difference of opinion in terms of the impact of the system and such have you.

I do want a couple corrections. PBMs do not decide what goes on formulary. They work with the plan. The health plan. The health plan is just a health plan's formulary. The PBM certainly assists in creating that formulary and works with the plan. At the end of the day, the PBM is contracted to provide the lowest net cost to the payer. That is what it is contracted to do. And the notion that PBMs are self-serving, that they're paying themselves more, this defies economic logic.

Because if a PBM is responding to an RFP and tells CalPERS we're going to actually pay our own affiliated pharmacies a little bit more, they wouldn't get the contract. It just defies economic sense. In respect to transparency, I would urge you to look at AB 315. That was passed a few years ago. It requires PBMs to be licensed in the state to do business. It also requires PBMs to be very transparent to the client. So that includes rebates, reimbursements, payments, all these other things.

So there is this auditing and it has to be quarterly, and you can't contract it away, you can't deny it to the client. It is current law and it is enforced through the plan, through the MHC. So there is enforcement and there is transparency. So again, I would just respectfully request that we begin the opportunity to sort of have equal time. I think, as Mr. Ciaccia said, it is a very complex issue. And as he mentioned, too, everybody in the supply chain is profit-driven.

And I would encourage you to look at independent sources of where the dollar actually goes. PBM's profit margins are in the two to 4% range. So we're not the ones raking in the money. It is a lot of money in the grand scheme of things and big picture-wise, but it cascades from the manufacturer down. We don't buy or sell drugs and we reimburse. So thank you very much for your time and look forward to engaging more.

Thank you.

Thank you so much. Susan Bonilla, CEO of the California Pharmacist Association. We have over 50,000 licensed pharmacists in the State of California and over 60,000 pharmacy technicians. About 4000 community pharmacies in the state. 2000 chained, 2000 independent. So it's a really integral part of our healthcare system and it's under threat right now. I'm sure you've seen it. I'm sure you've heard about it. What is happening with all this information?

We've heard for your constituents, the patients at the counter, in the pharmacy, in front of their most accessible healthcare provider, the pharmacist. And what's happening there, and you've seen it is really a brewing crisis. And that is meaning that we have our patients, our constituents, who are not able to get the medications in a timely manner, or even the medications at their local closest pharmacy that they have been prescribed. What's going on in this system?

If you can imagine an independent small business pharmacy, family-owned, trying to sign a contract with one of these three large pbms. And I want to clarify, too. It's the practices, the bad practices that we want transparency around. We understand the role of the PBM. We just want there to be accountability and transparency so the bad practices will stop so that patients can actually get their prescriptions at a reasonable price. And also, one small correction there. PBMs are not required to be licensed in California.

They just register with the Department of Managed Healthcare. And there is very, very limited enforcement. So that is the reality today here in California. But going back to what is the experience for your constituent, yourself or your family member when they walk into the pharmacy and they want to have their prescription filled? Currently, what's happening is that the pharmacy is being charged one price to stock a medication, and then they are getting reimbursed at a much lower price when that medication is sold.

You can't believe it. No one could run a business this way. No one could say that you're going to have to pay $10 to get something, and then the only reimbursement you're going to get is $8. But this is happening on a massive scale within all of our community pharmacies right now, where they are losing money on every prescription they are selling to a patient that is coming there. What is the risk here? The risk here is to access, and it's to equity.

It means that our most vulnerable populations, as pharmacies close, will have restricted access to the most important point of health care, which is early intervention and prevention. If we're ever going to have affordable health care, we must have a robust pharmacy infrastructure. In our state right now, independent pharmacy is the canary in the coal mine. It's under threat. I'm glad you have a flashlight. But what California needs is a spotlight.

We've got to shine it on this, and we've got to change it before it's too late. Thank you so much.

Thank you.

All right, good morning. Richardson Davis, representing the California Access Coalition. Our diverse coalition is committed to ensuring patient access for treatment, medication, and reducing barriers. And we support sunshine and clarity on the practices of PBMs and the entities that they contract. With continued support to ensure transparency. Thank you.

Thank you.

Can you hear me okay?

Yes.

Good morning. I'm Liz Helms. Thank you, Mr. Chair and the Committee for having this hearing. It's really important to hear what everybody has to say on this issue. I'm Liz Helms. I'm the President and CEO of the California Chronic Care Coalition. We've been working on PBM issues for longer than I'd like to think, starting with putting a spotlight on them several years ago on gag orders and things they were doing in contracts to hurt pharmacists and hurt patients.

It's important to remember that behind all these discussions that we're all human beings, people who are ill and need medications. They're paying the price for the greed of some PBMs. Some PBMs. It's becoming increasingly difficult for patients to get their medications for many reasons. Here's a few. Their community pharmacists are closing. The cost of their medication continues to increase. Their pharmacists can't afford to stock certain medications because they are losing, in some cases, hundreds of dollars every time they dispense them.

The Chronic Care Coalition represents patients with chronic conditions and in some cases, severe illnesses. They rely on their community pharmacists to help them manage their medications. So vitally important. Patients don't know that the most important components of their health care is systematically being destroyed by for-profit, unregulated corporations. All they know is that they need their medications and don't understand why they're having difficulty getting them.

Our patients need to have access to their medications at the pharmacies of their choosing, and it's time for the state to act, and we're asking you to act. So thank you very much for your time.

Thank you.

Mr. Chair and members. John Winger. On behalf of America's Health Insurance Plans, we're the National Trade Association for Health Plans. And notes are a little all over the place, but I'll try to be succinct. So what Mr. Head said was accurate health plans, labor trust, public employee benefit plans all contract with PBMs for the sole purpose of lowering drug prices. I don't think these sophisticated purchasers would enter into these agreements if it wasn't to lower the drug prices.

I would say AB 315 does shine a light, does provide transparency. And the reason why we went to registration in that bill is because it was determined that DMHC and CDI already regulate the clients of PBMs, and so you would not need that dual regulation when it's already being overseed, because the PBM has the obligation to the plan and to their clients. And those clients are the ones that are regulated.

You also have the Office of Healthcare Affordability to oversee the entire drug market or the entire healthcare market. So that'd be another form of oversight, I would say, on the formulary tiering. That is really the only tool in the toolbox for plans to lower drug prices, because you can't say no to a pharmaceutical manufacturer, right. You have to give that patient the drug. And so creating that competition is really the only way to drive down the price. The majority of models are 100% pass-through models.

So that rebate is going back to the plan, going back to the union trust, which is, as it was said, it goes back to the overall premium impact. And so I would contend that it's not kickback to the PBM. And then just finally, on the US House Oversight Committee report, which was answered, I'm sorry, I'm forgetting your last name, but I would note that they also found that PBM secured contractual provisions that disincentivize drug companies from raising list prices.

So that was one of their findings as well. So we would contend that it is still true that list prices continue to go up on rebated and unrebated drugs. Thank you.

Thank you. See nobody else wishing to speak for public comment. Thank you again for presentations and for everybody else that provided a little bit of overview to highlight some of the issues that need to be discussed as we're managing.

I think as other states are looking at this sector, this part of the industry, that ultimately, when you look at all the players, are at risk of collapse, and ultimately, patients would be at risk for not receiving the benefit and the support that they need for their care. I guess as a matter of closing comments, I wanted to turn to Dr. Weber, Ms. Waldron and I have a few of my own. And thank you again for being here today.

Thank you, Chair. Before I say any closing comments, I did have one further question, just kind of piggybacking off of what Assemblymember Waldron was stating. A few of the public comments mentioned AB 315. However, my question to you is, where do you see the Office of Health Care Affordability that we have established here in California playing an oversight role? And I had a bill, excuse me, last year that dealt with rebates.

And I was told that the Office of Healthcare Affordability would essentially fix and uncover the issues in terms of patients not actually getting those rebates themselves. I'm just wondering what your thoughts are.

I think there's a number one of the things that we haven't really talked about in this hearing, and is probably ripe for a whole nother hearing, is how do we measure and conceptualize value, and what does that mean? What are the types of parameters that the Office of Healthcare Affordability should be considering as they measure and assess value to our healthcare system and value to society of different interventions, including prescription drugs?

And so I think there's sort of a bigger question of what is the appropriate approach to be targeting value versus affordability, versus budget constraints and those types of things. And I think part of that is going to potentially be unpacking, where are those dollars going? And is there a better way to get more value out of them, including addressing issues or inefficiencies in the supply chain?

And without knowing enough about the statutory charge of the affordability board, I would say I always kind of laugh a little bit when I hear the word drug affordability, because I always ask affordability for who? In a system that incentivizes higher prices, it doesn't have competition work to actually lower them. And we have this negotiated experience, as we've talked about, patients will often overpay for a medicine relative to the net price, generating a rebate that goes somewhere else.

Well, the people who are somewhere else are very happy with the system of affordability because it's creating value for them at the expense of somebody else. As I mentioned earlier, Medicaid gets the best prices, the best-negotiated prices, off of list prices. So we have this system where it is explicitly designed to create this disparate net price experience from payer to payer. Oftentimes, it is creating value that comes from one, somebody overpays to generate a value for somebody else.

So oftentimes are we talking about affordability for an employer, affordability for a government program, affordability for a patient. Oftentimes, even that fundamental question isn't defined with a lot of the prescription drug affordability boards I've seen across the country. And so when asked, how do we make drugs more affordable? I say, well, whose interest are we trying to look out for here? And who do we want to make drugs affordable to?

Because the second you answer that question, it's going to be a very different answer depending on who you want to ultimately serve.

Thank you for that. And again, thank you, Chair and our panelists and members of the audience who were here. This has been, like I said, PBMs and just drug pricing. And it's very complicated.

And I look forward to continuing conversations to not only include the voices that we've heard today, but also, as we heard, some of the pharmacies in our communities, both the large retail chains and some of the smaller, independent ones, along with the voices of those who actually represent the PBMs, to get a more well-rounded picture of the situation that we as state legislators grapple with, and also as we interact and lobby our federal counterparts to really help change some of these things on a national level, this can really help us better understand what we're dealing with.

So thank you so very much.

Thank you.

Thank you and again, I think I'll just align my comments with Dr. Weber. I very much appreciate your testimony here today and your travel. And the Select Committee on Biotechnology will now adjourn. We will announce our next hearing at a time to be determined in the near future and appreciate everybody's testimony. Obviously, this is a conversation. This is a subject area that I think is gaining a lot of closer attention.

And so I appreciate the work of colleagues, community members, and everybody else that's going to help us figure out ways to be able to look for any appropriate governmental response. And, of course, mindful that we have a lot of intersecting issues within the healthcare systems that are at play here as well. So I look forward to those continued conversations. Thank you all for your time and attention today.

Thank you for having us.