The Federal Trade Commission today released an interim report on the prescription drug brokerage industry, highlighting the impact of pharmacy benefit managers (PBMs) on the accessibility and affordability of prescription drugs.
The interim staff report, part of an ongoing investigation launched in 2022 by the FTC, details how increasing vertical integration and concentration have allowed the six largest PBMs to handle nearly 95% of all prescriptions filled in the United States.
This vertically integrated and concentrated market structure has allowed PBMs to profit at the expense of patients and independent pharmacists, the report details.
“The FTC’s interim report details how dominant drug plan managers can drive up drug costs, including by overcharging patients for cancer drugs,” said FTC Chairwoman Lina M. Khan. “The report also details how drug plan managers can squeeze the independent pharmacies that many Americans, especially those in rural communities, rely on for essential care. The FTC will continue to use all of its tools and powers to scrutinize dominant players in health care markets and ensure that Americans can access affordable health care.”
The report found that PBMs wield considerable power over patients’ ability to access and pay for their prescription drugs, allowing them to significantly influence which drugs are available and how much they cost. That can have dire consequences, with nearly 30% of Americans surveyed reporting rationing or even skipping doses of their prescription drugs because of high costs, the report said.
The interim report also reveals that PBMs exert significant influence over independent pharmacies by imposing unfair, arbitrary and prejudicial contractual terms that can impact the ability of independent pharmacies to remain in business and serve their communities.
The Commission’s interim report stems from special orders issued by the FTC in 2022, under Section 6(b) of the FTC Act, to the six largest PBMs: Caremark Rx, LLC; Express Scripts, Inc.; OptumRx, Inc.; Humana Pharmacy Solutions, Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc. In 2023, the FTC issued additional orders to Zinc Health Services, LLC, Ascent Health Services, LLC, and Emisar Pharma Services LLC, each of which are rebate aggregation entities, also known as “group purchasing organizations,” that negotiate drug rebates on behalf of PBMs.
PBMs are part of complex, vertically integrated healthcare conglomerates, and the PBM industry is highly concentrated. As the image below shows, this concentration and integration gives them considerable power over the pharmaceutical supply chain. The percentages reflect the number of prescriptions filled in the United States.
The interim report highlights several key insights gathered from documents and data obtained from FTC orders, as well as publicly available information:
- Concentration and vertical integration: The market for pharmacy benefit management services has become highly concentrated, and the largest PBMs are now also vertically integrated with the nation’s largest health insurers and specialty and retail pharmacies.
- The top three PBMs processed nearly 80% of the approximately 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023, while the top six PBMs processed more than 90%.
- Pharmacies affiliated with the three largest PBMs now account for nearly 70% of all specialty drug revenue.
- Considerable power and influence: Because of this high degree of consolidation and vertical integration, major PBMs now wield considerable power over Americans’ ability to access and afford their prescription drugs.
- Larger PBMs often exercise significant control over what drugs are available and at what price, as well as which pharmacies patients can use to access their prescribed medications.
- PBMs oversee these critical decisions about access and affordability of lifesaving medicines, without transparency or accountability to the public.
- Self-preference:Vertically integrated PBMs appear to have the ability and incentive to favor their own affiliated businesses, creating conflicts of interest that can disadvantage unaffiliated pharmacies and increase prescription drug costs.
- PBMs could direct patients to their affiliated pharmacies and away from smaller, independent pharmacies.
- These practices have allowed pharmacies affiliated with the three largest PBMs to maintain high levels of dispensing revenue above their estimated drug acquisition costs, including nearly $1.6 billion in excess revenue on just two cancer drugs in less than three years.
- Abusive contractual clauses: The data suggest that increased concentration gives major PBMs leverage to enter into contractual relationships that disadvantage smaller, unaffiliated pharmacies.
- PBM contract rates with independent pharmacies often do not clearly reflect the final total payment amount, making it difficult or impossible for pharmacists to determine how much they will be compensated.
- Efforts to limit access to low-cost competitors: PBMs and brand-name drugmakers negotiate discounts on prescription drugs, some of which are expressly conditioned on limiting access to potentially lower-cost generic and biosimilar competitors.
- Data suggest that PBMs and brand-name drug manufacturers sometimes strike deals to exclude lower-cost competing drugs from the PBM’s formulary in exchange for increased discounts from the manufacturers.
The report notes that several of the PBMs that received orders failed to respond promptly and have yet to complete required filings, hampering the Commission’s ability to carry out its statutory mandate. FTC staff has required the companies to promptly complete their filings required by the 6(b) orders. If, however, a company fails to fully comply with the 6(b) orders or engages in further delay tactics, the FTC can take the company to district court to compel compliance.
The FTC remains committed to providing timely updates as the Commission receives and reviews additional information.
The Commission voted 4-1 to allow staff to release the interim report, with Commissioner Melissa Holyoak voting against. Chairwoman Lina M. Khan issued a statement, joined by Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya. Commissioners Andrew N. Ferguson and Melissa Holyoak each issued separate statements.