About two years after launching an investigation into pharmacy benefit managers, the Federal Trade Commission has finally released some of its findings — and they don’t bode well for the prescription drug middlemen.
Last week’s interim report explains how concentrated the PBM market has become, allowing the companies to generate outsize profits while patients and independent pharmacies struggle. The six largest PBMs — CVS Caremark, Express Scripts, Optum Rx, Humana Pharmacy Solutions, MedImpact and Prime Therapeutics — manage nearly 95% of all prescriptions filled in the U.S.
“The FTC’s interim report lays out how dominant pharmacy benefit managers can hike the cost of drugs — including overcharging patients for cancer drugs,” said FTC Chair Lina M. Khan in a statement. “The report also details how PBMs can squeeze independent pharmacies that many Americans — especially those in rural communities — depend on for essential care. The FTC will continue to use all our tools and authorities to scrutinize dominant players across healthcare markets and ensure that Americans can access affordable healthcare.”
Shortly after the report was released, the Wall Street Journal reported that the FTC is preparing to sue CVS Caremark, Express Scripts and Optum Rx over insulin prices. The lawsuit is related to the rebates PBMs broker with drug manufacturers, and there have been concerns of PBMs making secret agreements to prioritize insulin products offering the highest rebates, rather than those that would cost patients the least. The FTC declined to comment on the rumors and whether the reported lawsuit is a result of the investigation.
However, it is important to note that the release of the report wasn’t unanimous. The FTC voted 4-1 to release the interim report, with Commissioner Melissa Holyoak voting no. In her dissenting statement, Holyoak said the report fails “to meet the standards of economic rigor expected of Commission reports more generally” and fails to examine “how PBM practices affect consumer prices.”
The FTC plans to release a final report but doesn’t have a set timeline. It noted that some of the PBMs haven’t fully complied with the investigation and haven’t completed their required submissions to the FTC. If they don’t comply, the FTC can take them to district court.
So what’s in store for PBMs? Experts and most affected groups want to see some sort of legislation that will promote transparency.
The ongoing investigation “could add to pressure on lawmakers in DC to come to consensus on various bills related to PBMs that have been discussed but have yet to get through both chambers of Congress,” said Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, a health policy research and news organization. These bills would require the disclosure of rebates and discounts negotiated with drug companies, ban PBMs from charging health plans more for a drug than what they reimburse pharmacies, and other actions, she said. Some examples of PBM bills with bipartisan support include the Pharmacy Benefit Manager Transparency Act and the Modernizing and Ensuring PBM Accountability Act.
Legislative action is an outcome that Patients for Affordable Drugs, an independent patient advocacy organization, certainly hopes for.
“I think [the interim report is] further evidence that change is needed at a time when we know that nine out of 10 voters want Congress to continue to prioritize lowering drug costs,” said Merith Basey, executive director of Patients for Affordable Drugs, in an interview. “So I think this will help contribute to that understanding of how the system works and what needs to be done to ensure that the practices are favoring patients as they were originally intended, and not corporate interests.”
Basey also noted that PBMs only exist in the U.S., so it’s “no surprise then that this is also the country with the highest drug prices in the world. It is logical that they’re contributing to those inflated prices.”
The National Community Pharmacists Association (NCPA), an advocacy organization representing community pharmacists, also hopes to see action taken against PBMs based on the results of the interim report.
“I hope that [the FTC issues] another report that Congress can use to write laws that will either enable the FTC to have more power to rein in the bad practices of the PBMs … or if it would educate Congress to actually pass more legislation to rein in the PBMs directly, without even involving regulators,” said Matthew Seiler, vice president and general counsel at NCPA, in an interview.
The report’s findings
PBMs were introduced in the late 1960s to serve as middlemen between pharmaceutical companies, insurers and pharmacies. They’re meant to negotiate drug pricing, manage formularies and establish a payer’s network of covered pharmacies.
“For a long time, the commonly held perception of PBMs has been that they were operating on the side of payers and patients engaged in the fight to drive down prescription drug costs by negotiating rebates with drug companies and helping payers manage drug costs through formulary design,” Cubanski said. “But I think that perception is changing as more evidence comes to light about business practices that appear to put corporate interests first and don’t always accrue to the benefit of patients or payers, many of which are highlighted in the new FTC report.”
The FTC’s report explained that after decades of mergers and acquisitions, the PBM space has become extremely concentrated. The report relied on data and documents obtained by the FTC and publicly available information.
It found that the top three PBMs — CVS Caremark, Cigna’s Express Scripts and UnitedHealth Group’s Optum Rx — processed about 80% of the 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023. Pharmacies affiliated with these three PBMs also account for about 70% of all specialty drug revenue.
The largest PBMs also have significant power over the drugs that are available to consumers, the price of the drugs and the pharmacies patients can access the drugs at. PBMs make these decisions “without transparency or accountability to the public,” the report said.
In addition, PBMs could be directing patients to their affiliated pharmacies rather than small, independent pharmacies. In other words, CVS Caremark may steer patients to the local CVS pharmacy or other larger pharmacy that they have a relationship with. This has enabled pharmacies associated with the three largest PBMs to maintain substantial dispensing revenue far exceeding their estimated drug acquisition expenses. Specifically, they accrued nearly $1.6 billion in additional revenue from just two cancer drugs in less than three years. And because of the increased concentration of PBMs, the middlemen are easily able to establish contractual relationships that put independent pharmacies at a disadvantage. Smaller pharmacies have less leverage to negotiate terms and rates with PBMs.
The effect of PBMs on independent pharmacies highlights a new angle in the discussions around pharmacy middlemen, Cubanski said.
“We’re hearing more and more about pharmacy closures, especially among independent pharmacies, creating so-called ‘pharmacy deserts,’ and the FTC’s report provides some evidence that connects the financial struggles of independent pharmacies with business practices of PBMs,” she stated.
In fact, about 10% of independent retail pharmacies in rural America closed between 2013 and 2022, according to the report.
The report also showed that PBMs and brand pharmaceutical manufacturers occasionally strike deals to exclude lower-cost competitor drugs from the PBM’s formulary in exchange for higher rebates from the manufacturers.
The response
Unsurprisingly, PBMs have decried the FTC’s interim report. The Pharmaceutical Care Management Association (PCMA), an advocacy organization for PBMs, said the report “falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market.”
In a statement, the group’s leader pointed out that the report was not unanimous.
“Members of the commission themselves disagree with the content of the report and the decision to release it,” said JC Scott, president and CEO of PCMA, in a statement. “This report is based on anecdotes and comments from anonymous sources and self-interested parties, and supported only by two cherry-picked case studies that are implied to be representative of the entire market. The report completely overlooks the volumes of data that demonstrate the value that PBMs provide to America’s health care system by reducing prescription drug costs and increasing access to medications.”
PCMA did not return requests for an interview.
Optum Rx told MedCity News that it has cooperated with the FTC and provided more than six years of data. But the agency “rushed to publish an incomplete report with flawed conclusions that do not follow from the data and information Optum Rx provided to the agency,” said Isaac Sorensen, corporate communications at Optum.
A spokesperson for CVS Caremark, David Whitrap, argued that policies that tamp down on PBM negotiating tools would “instead reward the pharmaceutical industry, leaving American businesses and patients at the mercy of the prices drugmakers set.”
Express Scripts also pointed fingers at the pharmaceutical industry, and noted that it provided “millions of lines of data and documents” to the FTC over the last couple of years.
“These biased conclusions will do nothing to address the rising prices of prescription medications driven by the pharmaceutical industry, nor will they help the employers, unions, and government clients that work with pharmacy benefit managers to help keep prescription benefits affordable for their members,” a spokesperson said.
Prime Therapeutics, however, argued that the company is different from other PBMs.
“Prime is not owned by or affiliated with any single national payer, private equity, nor publicly traded. Prime is an independent company owned by a consortium of 19 separate, mission-driven, not-for-profit Blue Cross Blue Shield plans located across the country, each with their own unique attributes, geographies and membership,” said Denise Lecher, director of public relations at the company.
MedImpact and Humana Pharmacy Solutions did not return requests for comment.
While several of the PBMs put the blame on pharmaceutical companies for rising prescription drug costs, one pharma advocacy organization sent the blame right back.
“The veil continues to lift, exposing the ugly truth that PBMs put profits before patients at every turn,” said Alex Schriver, PhRMA’s senior VP of public affairs, in a statement. “The FTC report makes it clear: PBMs have outsized control over what medicines people can get and the price they pay at the pharmacy counter.”
It’s important to note that pharmaceutical companies do not necessarily have clean hands when it comes to unnecessary price hikes. To rein them in, the Biden Administration created the Medicare Drug Price Negotiation Program, which will allow Medicare to negotiate directly with drug companies on some of the costliest brand name drugs. The first 10 drugs selected for negotiation were announced last year and the negotiated prices will go into effect in 2026.
‘A crisis that needs to be tackled’
The FTC’s findings come at a time when about 28% of Americans say they have difficulty affording the cost of their prescription medicine. And while PBMs are certainly a part of the problem, they’re not the only player to blame, according to Basey of Patients for Affordable Drugs. Pharmaceutical companies also incorporate practices that are harmful to patients, like pay-for-delay deals in which brand name drug makers pay potential generic competitors to prevent them from bringing their product to market.
Yet, there is a lot of “finger pointing between PBMs and pharma, both trying to distract from their roles in inflating drug costs,” she said.
Patients for Affordable Drugs is focused on pushing for reforms against both PBMs and pharmaceutical companies. A series of bills with bipartisan support have been introduced that target these companies.
“This is a crisis that needs to be tackled, and there is a great opportunity right now with this bipartisan momentum towards these bills that we hope will turn into action,” Basey said.
Photo: z_wei, Getty Images