Pharmacy benefit managers (PBMs) have a significant influence on the availability and affordability of prescription drugs. Scathing new report “These powerful middlemen may be profiting from inflating drug prices and squeezing Main Street pharmacies,” a Federal Trade Commission report concluded.
The report signals significantly increased scrutiny of the business practices of PBMs, the opaque intermediaries at the heart of the drug distribution system.
The interim staff report, part of an ongoing investigation the FTC began in 2022, details how increasing vertical integration and centralization have allowed the three largest PBMs — CVS Caremark Rx, Express Scripts and OptumRx — to control roughly 80% of the roughly 6.6 billion prescriptions filled in the United States.
According to the report, the six largest PBMs control approximately 95% of all prescriptions.
PBMs negotiate the terms under which hundreds of millions of Americans get prescription drugs: they negotiate prices with drug companies, make payments to pharmacies, and determine which drugs are available to patients and how much they cost.
As the industry has consolidated, critics say PBMs have increasingly exercised control over patients’ access to medicines. PBMs are vertically integrated, performing the roles of health plans and pharmacists. The largest PBMs are owned by insurance companies, which in turn own specialty, mail-order and retail pharmacies.
The report also found that pharmacies affiliated with the three major PBMs earned nearly $1.6 billion in excess revenue on just two cancer drugs in just three years by reimbursing their own pharmacies at rates much higher than non-affiliated pharmacies.
The report said PBMs “can exert significant influence over independent pharmacies by imposing unfair, arbitrary and harmful contract terms that can affect their ability to continue in business and serve their communities.”
FTC Chairman Lina Khan said in a statement that the report shows “how dominant pharmacy benefit managers are able to inflate the costs of medicines, including by overcharging patients for cancer drugs.”
Khan added that the FTC found evidence that “PBMs are able to stifle independent pharmacies that many Americans, especially those living in rural communities, rely on for essential health care.”
The interim report also looked at how middlemen strike deals aimed at thwarting competition in favour of one manufacturer’s products.
PBMs and branded drug manufacturers negotiate rebates — volume-based discounts for plans and pharmacies — which the PBMs then pass on to employers, but in exchange for restricting access to cheaper competitor drugs and pushing the manufacturer’s drugs onto patients instead.
“As a result, dominant PBMs often have significant control over which drugs are available, at what price, and which pharmacies patients can use to obtain their prescriptions,” the report said.
While the agency has not filed lawsuits or enforcement actions against individual benefit administrators, lawmakers have sharply criticized the industry’s business practices, and the report could spur congressional action as lawmakers seek to hold them accountable for rising prescription drug costs.
“I am proud that the FTC has opened a bipartisan investigation into these shadow middlemen, and their preliminary findings once again demonstrate that it is time to break up the PBM monopoly,” said Rep. Buddy Carter (R-Ga.), a pharmacist. “I urge the FTC to swiftly complete its investigations and initiate enforcement actions if illegal and anti-competitive PBM conduct is uncovered.”
Drug companies and PBMs blame each other for rising drug costs: Drug companies say they need to raise list prices because of high PBM kickbacks, while the middlemen say the kickbacks are passed on to health plan sponsors.
The Pharmaceutical Care Management Association, a PBM trade group, said in a statement that the FTC report was biased, “based on anecdotes and comments from anonymous sources and self-interested parties,” and that it included only two “cherry-picked case studies.”
PCMA President and CEO J.C. Scott said the agency’s leaders “have predetermined the conclusions they want to advance, regardless of facts or data, and this report demonstrates their intent to pursue their agenda regardless of the evidence.”
