The Federal Trade Commission, under the leadership of Chair Lina Khan, has concluded a two-year investigation into the practices of pharmacy benefit managers (PBMs). The FTC’s inquiry has revealed concerning practices within the PBM industry that have contributed to higher pharmaceutical costs and a disadvantage for independent pharmacies. Despite calls for reform, concrete legislative actions have yet to be taken.
PBMs are crucial intermediaries in the complex U.S. pharmaceutical distribution chain, managing the prescription drug benefits of around 275 million Americans. Following a series of mergers and acquisitions, the three largest PBMs—OptumRx, Express Scripts, and CVS Caremark—now control 80% of the U.S. prescription drug market. Due to their size and vertical integration, PBMs wield significant control over drug availability, pricing, and patient access.
The FTC’s analysis of specialty generic drugs dispensed by the three largest PBMs revealed that prices were marked up well above acquisition costs, generating over $7.3 billion in revenue. Additionally, PBMs reimbursed their affiliated pharmacies at higher rates than unaffiliated pharmacies, further driving up costs for patients. The report highlighted the significant markups on medications for diseases such as HIV, hepatitis, cancer, and multiple sclerosis.
Rebates have been a key focus of policy discussions, with concerns raised about how they drive up list prices and patient cost-sharing. These payments from drug manufacturers to PBMs in exchange for preferred formulary placement can benefit both parties but do not directly benefit patients. Patients often face high out-of-pocket costs based on list prices rather than net prices.
PBMs defend their role as essential in negotiating lower prescription drug costs on behalf of employers and health plans. They argue that their practices have saved patients billions in out-of-pocket costs. The Pharmaceutical Care Management Association, a PBM trade group, also defends the use of their specialty pharmacies as cost-effective alternatives.
Historically, PBMs have shifted blame onto the pharmaceutical industry for high drug costs. However, the recent FTC reports have shed light on the practices within the PBM industry that contribute to rising pharmaceutical costs and challenges faced by independent pharmacies. As Lina Khan concludes her tenure at the FTC, the future of PBM regulation and reform remains uncertain amidst political divisions and ongoing industry practices. In response to the FTC report issued over the summer, the PCMA criticized the Commission’s analysis, stating that it lacked a definitive, fact-based assessment of PBMs and the prescription drug market. This criticism comes at a time when PBMs have been facing increasing scrutiny at the federal level for allegedly raising patient out-of-pocket costs and putting pressure on independent pharmacies.
Despite the ongoing debate and criticism, little action has been taken to regulate PBMs. Even with President Trump’s vocal disapproval of PBMs and his executive orders aimed at reining them in, the FTC allowed industry consolidation to take place in the late 2010s without significant changes to business practices.
However, there may be hope for change on the horizon. Bipartisan legislation introduced in December aims to bar companies that own PBMs and health insurers from also owning pharmacy businesses. This bipartisan effort, along with statements from Trump indicating potential reform, signals a shift in the political landscape regarding PBMs.
Nevertheless, the road to reform remains uncertain. A recent cut of legislation from the continuing resolution that would have implemented immediate PBM reforms highlights a lack of prioritization among lawmakers. These proposed reforms included measures to delink PBM revenue from drug list prices in Medicare, restrict rebate incentives that could lead to higher drug costs, and introduce transparency requirements for PBMs reporting to Medicare on drug pricing.
It is yet to be seen whether these reform measures will be passed as separate bills. The ongoing debate and scrutiny surrounding PBMs continue to shape the landscape of the prescription drug market, with stakeholders and policymakers alike grappling with how best to address the complexities of the industry.
