FTC: PBMs Inflate Drug Costs & Punish Local Pharmacies
A landmark Federal Trade Commission report finds that pharmacy benefit managers – large corporations which control 90% of US prescriptions – routinely adopt aggressive business practices that increase costs for consumers and financially penalize local pharmacies.
July 10, 2024
Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies
Interim Staff Report
July 2024
Federal Trade Commission
EXECUTIVE SUMMARY
PBMs [negotiate] the terms and conditions for access to prescription drugs for hundreds of millions of Americans. They wield enormous power and influence over patients’ access to drugs and the prices they pay. This can have dire consequences for Americans, with nearly three in ten surveyed Americans reporting rationing or even skipping doses of their prescribed medicines due to high costs.
PBMs also exert substantial influence over independent pharmacies, who struggle to navigate contractual terms imposed by PBMs that they find confusing, unfair, arbitrary, and harmful to their businesses. Between 2013 and 2022, about ten percent of independent retail pharmacies in rural America closed. Closures of local pharmacies affect not only small business owners and their employees, but also their patients. …
PBMs oversee critical decisions about access to and affordability of medications without transparency or accountability to the public. Indeed, PBM business practices and their effects remain extraordinarily opaque. In 2022 & 2023, the FTC … requested data and documents regarding the large PBMs’ businesses and business practices …. some of the PBM respondents have not yet fully complied …
Even as FTC staff continues to press the PBM respondents to turn over the required information, … this Interim Report provides the following key insights:
> 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 percent of the approximately 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023, while the top six PBMs processed more than 90 percent. All of the top six PBMs are vertically integrated downstream, operating their own mail order and specialty pharmacies, while one PBM owns and operates the largest chain of retail pharmacies in the nation. Pharmacies affiliated with the three largest PBMs now account for nearly 70 percent of all specialty drug revenue. In addition, five of the top six PBMs are now part of corporate healthcare conglomerates that also own and operate some of the nation’s largest health insurance companies …
> As a result of this high degree of consolidation and vertical integration, the leading PBMs can now exercise significant power over Americans’ access to drugs and the prices they pay. … 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.
> Vertically integrated PBMs may have the ability and incentive to prefer their own affiliated businesses, which in turn can disadvantage unaffiliated pharmacies and increase prescription drug costs. … Our analyses highlight examples of affiliated pharmacies receiving significantly higher reimbursement rates than those paid to unaffiliated pharmacies …. These practices have allowed pharmacies affiliated with the three largest PBMs to retain levels of dispensing revenue well above estimated drug acquisition costs, resulting in nearly $1.6 billion of additional revenue on just two cancer drugs in under three years.
> [I]ncreased concentration may give the leading PBMs the leverage to enter into complex and opaque contractual relationships that may disadvantage smaller, unaffiliated pharmacies and the patients they serve. Independent pharmacies generally lack the leverage to negotiate terms and rates when enrolling in PBMs’ pharmacy networks, and subsequently may face effectively unilateral changes in contract terms without meaningful choice and alternatives. This has increased uncertainty in pharmacy reimbursements, which can make it difficult for smaller pharmacies to manage basic business operations. [T]he rates in PBM contracts with independent pharmacies often do not clearly reflect the amount the pharmacy will ultimately be paid.
> PBMs and brand drug manufacturers sometimes negotiate prescription drug rebates that are expressly conditioned on limiting access to potentially lower cost generic alternatives. …PBMs and brand pharmaceutical manufacturers sometimes enter agreements to exclude generic drugs and biosimilars from certain formularies in exchange for higher rebates from the manufacturer. These exclusionary rebates may cut off patient access to lower-cost medicines ….
Comment by: Jim Kahn
The odd and secretive business intermediary known as “pharmacy benefit manager” is being critically examined. HJM has discussed this. PBM scrutiny is even that rare beast in Washington — bipartisan. Indeed, the FTC released this report by a 4:1 Dem & GOP vote of Commissioners, despite the “interim” status (which reflects the non-response of some PBMs to requested information). The process of oversight seems to be working.
The substance is also impressive: The top 6 PBMs, part of a corporate merger frenzy in health care, control 90% of pharmacy-dispensed prescriptions, in a highly irregular and exploitive fashion. They favor pharmacies in their own corporate structure. They force other pharmacies to accept complex and uninterpretable contracts that result in large take-back payments and thus financial harm. And they accept pharma incentive payments (aka rebates) to prefer more expensive brand-name drugs over generics, adding system costs and penalizing patients both financially and medically. I suspect that eventually other abusive tactics will come to light.
Glimpses into the exploitive approach of PBMs are long in coming. PBMs have always claimed that they reduce costs, but the evidence has never been forthcoming, even as the corporate profits of this novel intermediary skyrocketed. What’s the advantage of inserting a new corporate entity between drug manufacturers, insurers, and pharmacies? And letting that entity merge with the insurers and pharmacies? Turns out – and we suspected this – there is none. Consumers and patients lose, and so do unaffiliated pharmacies.
Under single payer, drug purchasing is simple: the public insurer establishes an evidence-based drug formulary, negotiates fair prices, and pays for prescriptions. That’s how it’s done in almost all wealthy nations. Surprise – there is an approach proven to work, and we’re not using it. Yet.
About the Commentator, Jim Kahn
![Avatar photo](https://healthjusticemonitor.org/wp-content/uploads/2021/06/cropped-JGK-1-200x200.png)
Jim (James G.) Kahn, MD, MPH (editor) is an Emeritus Professor of Health Policy, Epidemiology, and Global Health at the University of California, San Francisco. His work focuses on the cost and effectiveness of prevention and treatment interventions in low and middle income countries, and on single payer economics in the U.S. He has studied, advocated, and educated on single payer since the 1994 campaign for Prop 186 in California, including two years as chair of Physicians for a National Health Program California.
See All PostsYou might also be interested in...
Recent and Related Posts
Project 2025 Health Policy Critique Redux