FTC launches investigation into major pharmacy benefit managers' business practices

Amid growing pressure from Congress to take a closer look at their business practices, the Federal Trade Commission plans to probe six of the largest pharmacy benefit managers in the U.S.

The agency said it had sent compulsory orders to CVS Caremark, Express Scripts, Optum Rx, Humana, Prime Therapeutics and MedImpact Healthcare Systems, requiring them to submit information and records on their business practices.

Scrutiny on PBM has been mounting for several years. High-profile drug-price hikes—as well as steadily rising insulin prices—have cast a spotlight on PBM's role not only in what patients pay for drugs, but what pharma companies charge for them.

In most cases, that role can't be quantified, at least not for the public, because PBMs are secretive about their price negotiations with pharma companies. Independent pharmacies say the lack of transparency is hurting them, too.

“PBMs behave like monopolies. Their secretive, anticompetitive practices increase prescription drug prices, limit consumer choice, and stymie competition. They’ve escaped serious scrutiny for far too long, but this study will bring their dirty laundry out into the open," National Community Pharmacists Association CEO B. Douglas Hoey said after the investigation was announced.

And one industry trend will be a key focus of the investigation, the FTC said: The agency aims to figure out how vertical integration has affected access to prescription drugs and how much patients pay for them.

The PBM market is dominated by Caremark, Express Scripts and Optum, all of which are sister companies to large national health plans. Caremark was joined by Aetna under the CVS Health umbrella after CVS' buyout of the health plan in 2018. Cigna bought Express Scripts later that year, where it is now under the Evernorth brand.

Meanwhile, Optum Rx is owned by UnitedHealth Group, which also operates health insurance giant UnitedHealthcare.

There's health plan overlap beyond the three biggest players, too. Humana Pharmacy is a growing segment within that company, and Prime Therapeutics is owned collectively by 19 Blue Cross Blue Shield plans. MedImpact is the leading independent pharmacy benefit manager.

“Although many people have never heard of pharmacy benefit managers, these powerful middlemen have enormous influence over the U.S. prescription drug system,” said Federal Trade Commission Chair Lina M. Khan. “This study will shine a light on these companies’ practices and their impact on pharmacies, payers, doctors, and patients.”

The FTC noted that vertical integration means the largest PBMs are not only closely affiliated with major health plans, but have also been integrated with mail order and specialty pharmacies, giving them enormous reach in the pharmacy supply chain.

Much of the work PBMs do to negotiate drug prices and manage formularies and coverage is "opaque," the FTC said, which has been the leading criticism of these companies, particularly from pharmaceutical companies, as drug costs rise.

PBM operations are "difficult or impossible to understand for patients and independent businesses across the prescription drug system," the FTC said.

The probe aims to dig into industry practices that have been under the microscope for the last several years including:

  • Efforts to steer members to pharmacies owned by PBMs.
  • Clawbacks and fees charged to unaffiliated pharmacies.
  • Complicated methods of determining reimbursement.
  • Audits of independent pharmacies that may be unfair.
  • Prevalence of prior authorization and other administrative hurdles.
  • Specialty drug lists and related policies.
  • The impact of drug rebates on formulary placement and costs to payers and patients.

The FTC first launched a request for information on PBM business practices in late February and has received more than 24,000 public comments so far. The commission voted 5-0 to launch the PBM probe.

The Pharmaceutical Care Management Association, which represents PBMs, did not immediately return a request for comment on the probe. In a statement, the NCPA cheered the decision.

"NCPA has repeatedly called on the FTC to scrutinize PBM practices, and thousands of community pharmacy owners and their allies have shared with the FTC their examples of the impact health insurer-owned PBMs have on consumer costs and access to prescription drugs," Hoey added.

AHIP, which represents health insurers, said in comments on the FTC's request that drug companies use PBMs as a "distraction" from their role in driving up drug prices, and noted that the FTC has indicated the PBMs are pro-competition.

“The FTC should not give a free pass to drug manufacturers and others looking to scapegoat PBMs. Instead, the Commission should examine the entire drug distribution supply chain, including drug manufacturers, to better understand why drug prices are out of control," AHIP wrote.

PCMA has similarly called for a broader examination of the pharmaceutical supply chain.