The Federal Trade Commission on Tuesday slammed drug plan managers, saying in a scathing 71-page report that “these powerful middlemen could profit from rising drug costs and pressure on Main Street pharmacies.”
The regulator’s review indicates a significant tightening of its oversight of benefit managers under Lina Khan, a remarkable turnaround for an agency that has long taken a hands-off approach to overseeing such companies.
The FTC has yet to file lawsuits or take other enforcement action against any benefit managers. But the industry worries that the report could lead to a formal investigation into its practices or a lawsuit accusing benefit managers of anticompetitive conduct. The agency’s findings could also fuel legislative efforts in Congress and states to impose limits on the industry.
The three largest benefit managers — CVS Health’s Caremark, Cigna’s Express Scripts and UnitedHealth Group’s Optum Rx — together process about 80% of prescriptions in the United States. Hired by employers and government health insurance programs like Medicare, benefit managers are responsible for negotiating prices with drugmakers, paying pharmacies and helping decide which drugs are available and at what price to patients.
Benefit managers are supposed to save everyone money. But in recent years, the industry has consolidated further and taken more control over how patients get their drugs, a shift that critics say is helping to drive up drug prices.
In a statement Tuesday, Khan said the agency’s investigation showed “how dominant drug plan managers can drive up drug costs, including by overcharging patients for cancer drugs.” She added that the agency found evidence of “how drug plan managers can crush independent pharmacies that many Americans, especially those in rural communities, rely on for essential care.”
The pharmaceutical industry has strongly disputed the FTC’s findings. “These biased findings will do nothing to address the problem of pharmaceutical-driven prescription drug price hikes,” said Justine Sessions, a spokeswoman for Express Scripts.
Benefits managers have defended their business practices, saying they save money for employers, governments and patients. They say their size gives them crucial leverage to tackle Pharmaceutical companies say they are being frugal with their customers’ money by paying outside pharmacies low fees for purchasing and dispensing drugs.
A New York Times investigation published last month found that benefits managers often act in their own interests, to the detriment of patients, employers and taxpayers.
The FTC report cites the Times’ findings, detailing a series of ways benefit managers appear to inflate prescription drug prices. The agency’s study describes benefit managers in scathing terms, saying they “wield enormous power and influence” and that their practices “can have disastrous consequences for Americans.”
The report, for example, highlighted one major area of business: corporate-affiliated pharmacies, including warehouse-based operations that mail prescriptions to patients. The agency looked at two generic cancer drugs and found that benefit managers often paid their own pharmacies far more than it would cost them to buy the drugs from a wholesaler. That practice translated into nearly $1.6 billion in revenue in less than three years for the three largest conglomerates, the report found.
The agency also looked at the role of benefit managers in single-product blockade agreements. These are deals in which a drugmaker pays a large rebate, managed by the benefit manager and passed on to the employer, in exchange for restrictions that push the drug company’s product to patients while discouraging the use of similar, potentially cheaper, products. The report suggests that this practice may be illegal because it hampers competition.
The commission voted 4-1 to release the report Tuesday. Both Republican commissioners issued statements expressing concern about some elements of the report, saying it relied too heavily on weak evidence.
David Whitrap, a spokesman for CVS Caremark, said policies that would limit PBMs’ ability to negotiate “would instead reward the pharmaceutical industry, leaving American companies and patients at the mercy of prices set by drugmakers.”
The FTC has consistently given these middlemen the benefit of the doubt, believing their mission of lowering drug prices is beneficial to consumers. The agency has cleared a series of mergers, saying in 2012 that there was strong competition.
Benefit managers have “done a very clever job of avoiding regulation,” said David Balto, a Washington antitrust lawyer who worked at the commission during the Clinton administration and is a vocal critic of benefit managers.
Over the past decade, the three major benefit managers have steadily gained market share. By the end of 2018, each was part of the same company as a giant insurer. Critics said the corporate structure created an uneven playing field that squeezed out smaller competitors. The Trump and Biden administrations each grew more skeptical about whether patients were benefiting.
Under Ms. Khan, who became chairwoman in 2021, the FTC has made clear that it is looking closely at benefits managers and other large companies.
With a broader view of competition harm than her predecessors, Ms Khan has been aggressive in her fight against big companies across sectors, including technology, supermarkets and pharmaceuticals. Her efforts to block corporate mergers have generated mixed results and criticism that she is overstepping her powers.
In a statement Tuesday with her two fellow Democratic commissioners, Khan said the agency’s report reflected a groundswell of concern from patients and pharmacists about PBMs. “Given the stakes, understanding PBM practices is extremely urgent,” they wrote.