Firms that act as middlemen to negotiate and control access to prescription drugs in the US “wield enormous power”, mostly with “extremely shady” business practices, and can “inflate drug costs and squeeze High Street pharmacies” for profit, according to a report. Interim report released Tuesday by the Federal Trade Commission.
Amid a national focus on America’s uniquely astronomical drug costs, the FTC is targeting firms that work mostly deep in the nation’s labyrinthine health care system, well hidden from public understanding and scrutiny: pharmacy benefit managers (PBMs).
PBMs were originally hired by various payers—employers, health insurance companies, government health plans, and others—to manage prescription drug benefits through various plans. But PBMs have evolved over the years to also negotiate discounts from drug manufacturers, set reimbursements for dispensing pharmacies, and develop drug formularies (the list of drugs a health plan covers.) While these functions alone give them PBMs have been given a large amount of power, consolidation and integration over the past few years has concentrated that power in troubling ways, according to the FTC report.
The top three PBMs in the country today—CVS Caremark, Express Scripts and Optum Rx—processed nearly 80 percent of the nearly 6.6 billion prescriptions dispensed in 2023. But these large PBMs are not standalone companies; they are integrated into massive corporate conglomerates that include some of the nation’s largest health insurance providers and also pharmacies, including specialty pharmacies, mail-order pharmacies and, in the case of Caremark, one of the largest chain of retail pharmacies in the country. Recently, these large conglomerates have even moved into the private label drug business, partnering with drug manufacturers to distribute the drugs themselves under different brand names.
Gross income
In the FTC’s investigation so far, the commission has found evidence that PBMs are directing people to their affiliated pharmacies — hurting small, independent pharmacies — and allowing their affiliated pharmacies to collect “gross” payments. above” average drug costs. For example, for two generic cancer drugs (one for prostate cancer and the other for leukemia), the pharmacies affiliated with the top three PBMs collectively generated about $1.8 billion in revenue from 2020 to 2022. This represents an excess of revenues of 1.6 billion dollars. above the national average cost for drugs. In other words, pharmacies not affiliated with major PBMs would have seen revenues below $200 million for the same distribution of drugs.
Further, the FTC found evidence that large PBMs and big brand pharmaceutical companies collude to exclude cheaper drugs made by a rival manufacturer from a PBM’s drug formulary in exchange for certain prices and discounts.
“The FTC’s interim report lays out how dominant pharmacy benefit managers can drive up the cost of drugs — including overcharging patients for cancer drugs,” FTC Chair Lina Khan said in a statement. “The report also details how PBMs can squeeze the independent pharmacies that many Americans — especially those in rural communities — depend on for essential care. The FTC will continue to use all of our tools and authorities to scrutinize the dominant players in health care markets and to ensure that Americans can access affordable health care.”
The commission released the report on a 4-1 vote. The two Republican commissioners issued statements expressing concern that the interim report was based on limited data and evidence. The FTC report noted that some of the PBMs still have not fully responded to orders from the commission two years ago. The FTC said, however, that if PBMs do not comply or continue to delay, the commission will take them to court.
In a response to The New York Times, Justine Sessions, a spokeswoman for PBM Express Scripts, disputed the FTC’s report. “These one-sided conclusions will do nothing to address the rising prices of prescription drugs driven by the pharmaceutical industry,” she said.