New AMA report slams PBM industry for lack of competition

The American Medical Association (AMA) provided ammunition today to regulators, policymakers and legislators concerned about just what role pharmacy benefit managers play in the drug supply chain.

An AMA paper (PDF) argues that vertical and horizontal PBM consolidation leads to a decline in price competition that hurts insurers—at least those who don’t own, or are owned by, a PBM—self-insured employers and, ultimately, patients.

The AMA paper said that PBM concentration in local markets should be interpreted with some caution.

“On the one hand, the presence of certain PBMs in the market may not necessarily indicate they are viable options," according to the report. "Specifically, if PBMs are used exclusively by their affiliated insurer, they may not be viable options for other nonaffiliated insurers to contract with.”

Six of the 10 largest PBMs only contract with certain insurers, according to the AMA.

“Despite the number of PBMs available to choose from, once an insurer with a large share chooses a PBM to manage all its lives, that PBM will end up with a large share as well," the report said.

The Pharmaceutical Care Management Association (PCMA), the PBM industry's trade association, pushed back on the findings.

"It's important the AMA recognizes there is competition in the PBM marketplace. Specifically, the study shows robust competition among PBMs negotiating for rebates from drug companies," Greg Lopes, vice president of strategic communications at PCMA, told Fierce Healthcare in an email.

The AMA noted that while the Federal Trade Commission (FTC) changes its thinking around PBM drug rebates, legislators want the Government Accountability Office to take a closer look at just what role PBMs play in guiding a drug from manufacturers to consumers.

The FTC is also taking a deep dive into the business practices of the market's biggest firms.

“The findings in this paper may be helpful in shedding light on some of those inquiries,” the AMA paper said. “They also have antitrust implications, such as whether proposed mergers among PBMs and between insurers and PBMs should raise or should have raised antitrust concerns.

"For example, even though the largest health insurers nationally are vertically integrated with PBMs, there is still a significant portion of the market that remains not vertically integrated," the paper said.

The paper added that an analysis of the vertical and horizontal effects of the merger between Aetna and CVS could “yield interesting results.”

AMA President Jesse M. Ehrenfeld, M.D., said in a press release accompanying the unveiling of the research paper that “as momentum grows for PBM reform in Congress, the AMA continues to lend its support to bipartisan bills that help promote greater transparency and oversight of PBM policies and practices to ensure prescription drugs are affordable and accessible.”

AMA president
Jesse M. Ehrenfeld, M.D. (American Medical Association)

For his part, Lopes contends that PBMs offer employers the flexibility to design their pharmacy benefits coverage to suit the particular needs of their employees.

“In fact, a more complete perspective of the market, including Medicare, shows the market for pharmacy benefit companies is dynamic, diverse, and has only become more competitive, with 73 full-service pharmacy benefit companies operating in the U.S.,” said Lopes. “The number of competitors in the pharmacy benefit market has grown by 10% in the last two years alone.”

The AMA counters that “the four largest PBMs collectively have a 68% share of the national PBM commercial market,” and “the results show little difference in the shares and PBM rankings across functions” involving rebate negotiation, retail network management and claims adjudication, according to the AMA paper. Essentially, across each the of three product markets—rebate negotiation, retail network management and claims adjudication—the four largest PBMs had similar collective shares.

While commercial insurers rely on PBMs for rebate negotiation, retail network management and claims adjudication, health plans tend to handle formulary management and benefit design in-house.

The four largest PBMs are all affiliated with major insurers. Express Scripts is owned by Cigna, while Optum Rx is a sister company to UnitedHealthcare under UnitedHealth Group. CVS Health owns both Caremark and Aetna, and Prime Therapeutics is collectively owned by 19 Blue Cross and Blue Shield plans.

Express Scripts, Optum Rx and Caremark dominate 80% of the entire PBM market.

The AMA said their share of the national commercial market rose from 64% in 2020 to 68% in 2021.

“This was largely due to CVS Health acquiring Aetna, which owned its own PBM (Aetna Pharmacy Management) prior to the merger,” according to the AMA press release.

Health plans vertically integrated with a PBM covered 70% of individuals with commercial drug insurance in 2021. The AMA also noted wide variation in vertical integration across states and metropolitan areas. South Dakota had the smallest vertical integration share with 6%, and Utah had the highest at 97%, according to the AMA paper.