FTC: PBMs may 'urgently' require 'potential regulation'

Pharmacy benefit managers (PBMs) have vast power and scale that disadvantages consumers and independent pharmacies, a new report from the Federal Trade Commission argues.

The report detailed how consolidation and vertical integration negatively affect prescription drug prices and accessibility for the average consumer. Although the findings fall short of recommending breaking up the PBMs, it notes certain business practices should “warrant further scrutiny and potential regulation.”

“The FTC’s interim report lays out how dominant pharmacy benefit managers can hike the cost of drugs—including overcharging patients for cancer drugs,” said FTC Chair Lina Khan in a statement.

Six PBMs—Caremark Rx, Express Scripts, OptumRx, Humana Pharmacy Solutions, Prime Therapeutics and MedImpact Healthcare Systems—were called to submit data to the FTC in 2022. Rep. Buddy Carter, R-Georgia, led the charge from Congress to ask the FTC to investigate major PBMs’ business practices more than two years ago.

“Since day one in Congress, I’ve been calling on the FTC to investigate PBMs, which use deceptive and anti-competitive practices to line their own pockets while reducing patients’ access to affordable, quality health care,” he said in a statement. “I’m proud that the FTC launched a bipartisan investigation into these shadowy middlemen, and its preliminary findings prove yet again that it’s time to bust up the PBM monopoly. I am calling on the FTC to promptly complete its investigation and begin enforcement actions if—and when—it uncovers illegal and anti-competitive PBM practices.”

Some PBMs have yet to fully comply with the agency’s request, and the FTC warned it may take the companies to court if inaction continues. The FTC also received more than 600 public comments comments.

The commission's report details how PBMs likely steer uncompetitive behavior in the market. It outlines how almost 80% of the 6.6 billion prescriptions processed are from at the hands of just three PBMs—CVS Caremark, Express Scripts and OptumRx—though the top six are all vertically integrated. This integration incentivizes PBMs to direct patients to affiliated pharmacies, often resulting in higher reimbursement rates than unaffiliated pharmacies.

“The result is that the dominant PBMs can often exercise significant control over which drugs are available, at what price, and which pharmacies patients can use to access their prescribed medications,” the report reads.

CVS Caremark pushed back against some of the report’s claims and said the company has complied with the agency’s requests for information by sending terabytes of data.

“Our efforts have resulted in members on average paying less than $8 per 30-day supply of medication,” said a CVS Caremark spokesperson. ”Independent analyses show net brand drug prices have declined six years in a row despite significant inflation across the U.S. economy and egregious list price increases from drug makers. The FTC was created to protect consumers. Any suggestions from the FTC about policies that limit the use of PBM negotiating tools would instead reward the pharmaceutical industry, leaving American businesses and patients at the mercy of the prices drugmakers set.”

The company shared internal analysis showing its pass-through rate for rebates has been above 98% from 2018 to 2022, and members pay less than $25 on average for insulin.

As the space becomes more consolidated, independent pharmacies face existential threats and may be forced into unfair contract terms to stay in a PBM’s network. The FTC also wants to investigate whether PBMs explicitly exclude generic drugs and biosimilars from certain formularies to obtain greater rebates from manufacturers. CVS says 90% of prescriptions are generics or biosimilars, and the number of independent pharmacies in the U.S. outnumber Starbucks or McDonald’s locations.

The Pharmaceutical Care Management Association (PCMA) accused the FTC of pre-determining PBMs’ business practices are bad by relying on limited data and examples.

“Today’s interim FTC report falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market,” said PCMA President and CEO JC Scott in a statement. “This report is based on anecdotes and comments from anonymous sources and self-interested parties, and supported only by two cherry-picked case studies that are implied to be representative of the entire market. Nothing can change the fact that PBMs are operating in an extremely competitive market and have a proven track record of reducing prescription drug costs, notably by promoting lower-cost generics and biosimilars.”

Dennis Carlton, a professor of economics at the University of Chicago and former head economist at the Department of Justice Antitrust Division for the Bush administration, agreed the report is flawed in a news conference Tuesday afternoon. He said he received copies of the data submitted by CVS Caremark, Express Scripts and OptumRx to the FTC.

The data, he says, does not support the claims that PBMs are responsible for rising drug prices or the closure of independent pharmacies. If PBMs earned no margin, drug expenditures would decrease by less than $5 from $100 to $95, and the number of independent pharmacy locations have increased and total shares at the largest three PBMs has grown, he explained.

Carlton has a reputation for specializing in antitrust and merger cases, often siding with corporations. He serves as the managing director for Compass Lexecon, an economic consulting firm. Carlton argues, normally against the government, that mergers and corporate consolidation result in more efficiencies for the company and market at-large, even if consumers may be adversely impacted. His forecasts are not always accurate, ProPublica reported in 2018.