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FTC criticizes PBM power over prescription drug market

The Federal Trade Commission on Tuesday released a long-awaited report criticizing the pharmacy benefit manager industry for manipulating the drug supply chain to profit at the expense of patients and independent pharmacists.

The report, which focuses on PBMs’ pharmacy practices, builds on research finding the companies are contributing to higher drug costs. It could increase pressure on Congress to curb business practices in the sector alleged to be anticompetitive, after momentum around PBM reform fizzled out late last year.

In the report, the FTC highlights how consolidation has created a market where the six largest PBMs control almost 95% of the prescriptions filed in the U.S., allowing them to influence which drugs are available — and at what price.

It stems from the agency’s ongoing inquiry into PBMs, and comes after a bipartisan group of senators urged the agency to release a status report on the investigation earlier this year.

The Pharmaceutical Care Management Association, the national PBM lobby, quickly attacked the report as one-sided. The companies have attempted to sidestep blame for problems in the U.S. drug supply chain by pointing to drugmakers, which set the list prices for medications.

The FTC’s investigation

PBMs negotiate drug prices with pharmaceutical companies in return for placement on health plans’ formularies and contract with pharmacies to dispense drugs.

The FTC launched its investigation of PBMs in 2022 to probe their role in the prices consumers pay for prescription drugs. Nearly one-third of Americans reported rationing or skipping doses of their medication due to cost last year.

As part of its investigation, the FTC requested documentation from six of the biggest PBMs in the U.S.: CVS Health’s Caremark, Cigna’s Express Scripts, UnitedHealth’s Optum Rx, Humana’s Pharmacy Solutions, Prime Therapeutics and MedImpact.

In 2023, the FTC also ordered information from three group purchasing organizations, which contract with PBMs to help them negotiate rebates with manufacturers: Zinc Health Services, Ascent Health Services and Emisar Pharma Services.

Several of the PBMs that were ordered to share information have not done so, hampering regulators’ ability to investigate the companies, according to the FTC. The FTC did not say which companies are delaying and a spokesperson declined to comment, but the agency said it could take them to court if they continued to not comply.

But based on the data obtained from their orders — and more than 1,200 public comments — the FTC found the market for PBM services has become highly concentrated after years of acquisitions, including vertical consolidation with health insurers and pharmacies.

Dominant PBMs are now part of giant healthcare companies that often include a health insurer, pharmacies and a GPO.

Leading PBMs are subsidiaries of massive healthcare conglomerates

PBM ownership and vertical integration

Caremark, Express Scripts and Optum Rx alone processed nearly 80% of the 6.6 billion prescriptions dispensed by U.S. pharmacies last year, according to the FTC.

That control gives the companies significant power over patients’ ability to access and afford drugs. PBMs leverage that control to steer patients to their own pharmacy subsidiaries instead of other local operators, including for mail-order medications and lucrative specialty drugs, the report says.

According to an FTC analysis, people in commercial health plans managed by two of the big three PBMs filled a significantly larger portion of their specialty prescriptions at PBM-affiliated pharmacies than people covered by Medicare’s prescription drug benefit, which requires plans to contract with any eligible pharmacy.

From 2017 to 2022, commercial members filled 69% of dispensing revenue at PBM-affiliated pharmacies, compared to 28% in Medicare Part D, the FTC found.

PBMs do this by creating narrow and preferred pharmacy networks that nudge consumers to their own pharmacies, and rely on marketing campaigns — often based on data obtained from their own in-house insurers — to urge patients switch to affiliated pharmacies.

PBMs also adjust their formularies in ways that trigger exclusivity provisions requiring members use their own specialty pharmacies to fill the expensive medications.

The number of drugs classified as specialty by the PBMs increased steadily from 2017 to 2021, outpacing the number of new specialty drugs brought to market, the FTC found.

Just three PBMs oversee almost 80% of the prescription drug market

Percent of U.S. prescription drug claims by PBM

FTC staff analyzed PBM pharmacy practices for two cancer drugs and found pharmacies affiliated with Caremark, Express Scripts and Optum Rx brought in nearly $1.6 billion in revenue from just those drugs alone from 2020 through part of 2022.

The PBMs managed this by paying their own pharmacies notably higher reimbursement rates than they paid others — sometimes 20 to 40 times a common measure of pharmacy acquisition costs, the FTC found.

According to the agency, in 2021 one PBM was billing payers almost 250 times its acquisition cost for one of the drugs: generic imatinib, which is used to treat leukemia.

“Although our findings are necessarily limited to the two case study drugs, they suggest that PBMs may very well be able to do the same for other drugs,” FTC staff wrote in the report.

Effect on independent pharmacies

The three leading PBMs’ outsized market power also gives the companies leverage to force independent pharmacies to agree to arbitrary and unfair contracts to have access to their combined 270 million members, according to the FTC’s report.

Those contracts include take-it-or-leave-it rates that often don’t clearly state pharmacists’ total payments, making it difficult for pharmacies to know how much they’ll be compensated for dispensing a drug, the FTC said.

Independent pharmacies have been closing across the U.S. but especially in rural areas due to increased financial pressures, including from PBMs. Currently, almost half of U.S. counties are considered pharmacy deserts as a result of the closures.

PBM’s contracting practices have led regulators to ask them to reconsider how they reimburse pharmacies and have sparked legal action. Caremark and Express Scripts are both currently facing lawsuits from independent pharmacies over their contracting practices.

In response to the criticism, PBMs have inked partnerships with independent pharmacy groups around care delivery.

FTC controversy

The FTC’s report mostly covers PBMs’ pharmacy practices, but also outlined how the drug middlemen enter agreements with drugmakers to exclude cheaper competitor drugs like biosimilars from their formulary in exchange for higher rebates. That limits patients’ ability to access affordable medication, according to the report.

Such practices could be illegal because they foreclose competition, according to the FTC’s report, which noted the agency will “prioritize bringing its full authority to bear” to stop unlawful business practices.

The PCMA lobby said the FTC ignored data showing that PBMs reduce prescription drug costs in issuing the report.

“Today’s interim FTC report falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market,” PCMA CEO JC Scott wrote in a statement Tuesday.

FTC commissioners voted 4-1 to issue the interim report. Republican Commissioner Melissa Holyoak dissented, arguing the report doesn’t meet the agency’s standard for publication.

The FTC isn’t the only group investigating PBMs. The House Oversight and Accountability Committee launched an inquiry into the industry last year. PBMs have also been sued by a number of states over their business practices, including California, Ohio and Arkansas.

Congress appeared poised to curb some PBM practices last year, including forcing the companies to disclose more information about their negotiation practices to their employer and health plan clients. The push failed to result in any passed legislation, though a number of committees have held hearings this year that discussed PBMs’ role in contributing to higher drug costs.

In February, dozens of state attorneys general urged Congress to act on PBM reform.