New FTC Report: PBMs Mark Up Specialty Generic Drugs

Pharmacy benefit managers’ (PBMs) charge significant mark ups for cancer, HIV and other specialty generic drugs, according to a new interim report from the Federal Trade Commission (FTC) published today.

This latest report indicates that the three largest PBMs — CVS Caremark, Express Scripts and Optum Rx — marked up numerous specialty generic drugs dispensed at their affiliated pharmacies. The FTC found that between 2020 and 2023, 63% were reimbursed at rates marked up by more than 100% over their estimated acquisition cost while 22% were marked up by more than 1,000%.

FTC officials said these three PBM and their affiliated specialty pharmacies generate more than $7.3 billion in revenue from dispensing drugs in excess of the drugs’ estimated acquisition costs from 2017 to 2022. The FTC used the National Average Drug Acquisition Cost (NADAC) price as estimated acquisition cost. NADAC is the approximate invoice price pharmacies pay for medications in the United States.

“FTC staff have found that the Big 3 PBMs are charging enormous markups on dozens of lifesaving drugs,” Hannah Garden-Monheit, director of the FTC’s Office of Policy Planning, said in a news release. “We also found that this problem is growing at an alarming rate, which means there is an urgent need for policymakers to address it.”

This analysis follows the agency’s July 2024 report on PBMs, which found that the six largest pharmacy benefit companies manage almost 95% of all prescriptions. This has allowed PBMs to profit at the expense of patients and independent pharmacists, FTC officials said.

Related: What Influence Do PBMs Have? The FTC is Still Trying to Figure That Out

FTC officials said the first report in July was meant to provide an overview of how vertical integrated and a concentrated market of PBMs have given these large companies significant power and influence. The agency cited data that four of the largest companies now account for 22% of all national healthcare expenditures, up from 14% eight years ago. Collectively, these four large healthcare companies have seen net revenue rise by 159% over the period from 2016 to 2023, driven by mergers and acquisitions.

This second report analyzed specialty generic drugs dispensed from 2017 to 2022 for members of commercial health plans and Medicare Part D prescription drug plans managed by the CVS Caremark, Express Scripts and OptumRx for which the FTC has data. The analysis included 51 specialty generic drugs comprising 882 National Drug Codes. These include generic versions of Ampyra, which is used to treat multiple sclerosis; Gleevec, which is used to treat leukemia; Sensipar, which is used to treat renal disease and Myfortic, which is used by transplant recipients.

Other findings from the new FTC report:

• A disproportionate share of commercial prescriptions for specialty generic drugs that were marked up more than $1,000 per prescription were dispensed by pharmacies affiliated with the "big 3" PBMs compared with pharmacies not affiliated with those PBMs
• In the aggregate, the three largest PBMs generated an estimated $1.4 billion of income from spread pricing on the analyzed specialty generic drugs over the study period.
• Specialty generic drugs accounted for 12% of the aggregated operating income reported by the parent healthcare companies’ business segments that include their PBM and pharmacy businesses in 2021.
• In 2021, plan sponsors paid $4.8 billion for specialty generic drugs, while patient cost sharing totaled $297 million. Between 2017 and 2021 plan sponsors and patient payments both increased at compound annual growth rates of 21% for commercial claims, and 14% to 15% for Medicare Part D claims.

“Specialty generic drug pricing and steering practices should receive further scrutiny, and plan sponsors in particular should be aware that they and their members are paying the Big 3 PBMs and their affiliated pharmacies very significant markups over the acquisition costs for critical medications,” the FTC wrote in its report.

PBMs answer FTC concerns

In statements to Formulary Watch, the three largest PBMs each said the FTC report is misleading, and they point out that specialty generic drugs are a small percentage of the products they managed

David Whitrap

David Whitrap, vice president, external affairs, at CVS Health told Formulary Watch that it is inappropriate and misleading to draw broad conclusions from cherry-picked “specialty generic” outliers, as the FTC has done in both of its interim reports.

“Between 2017-2022, specialty generic products have represented less than 1.5% of our clients’ total drug spend and only 51 out of thousands of drugs,” he said. “In contrast, branded specialty products represent more than 50% of our clients’ total drug spend and are entirely ignored by the FTC.”

Whitrap said the FTC in its report did not take into account cost-saving guarantees the CVS Health provide to clients across all drug categories to reduce their drug costs. “How many more interim reports will it take before the FTC includes the mountain of data that refutes these few outliers?,” he asked.

Separately, officials at Optum said they are lowering the cost of specialty medications, which comprises half of all drug expenditures, and providing clinical expertise, programs and support for patients with complex and rare conditions. “In 2024, we helped eligible patients save $1.3 billion and the median out-of-pocket payment for these patients was $5.”

Officials from Express Scripts the current FTC report is another set of misleading conclusions based on a subset of medications that represent less than 2% of what its health plans spend on medications in a year.

“Nothing in the FTC’s report addresses the underlying cause of increasing drug prices, or helps employers, unions, and municipalities keep prescription benefits affordable for their members,” Express Script officials said.

In a statement provide to Formulary Watch, the Pharmaceutical Care Management Association said: “It’s clear this report again fails to consider the entirety of the prescription drug supply chain and makes sweeping assertions about the role of PBMs disconnected from a full appreciation of their critical cost-saving role for employers, unions, taxpayers, and patients. Pharmacists and physicians at specialty pharmacies provide critical clinical support to patients with complex medical conditions, and specialty pharmacies uniquely have the technology and expertise to enhance the safety and quality of care for patients.”

Dennis W. Carlton, Ph.D.

Research funded by CVS Caremark, Express Scripts, and Optum Rx, and released in October 2024, found that PBMs’ operating margins are less than 5% and were not responsible for high drug prices. This study, conducted by Dennis W. Carlton, Ph.D., senior managing director and his team at Compass Lexecon, found that PBMs pass on the majority of manufacturer rebates and fees, and the net price of rebated drugs decreased by 5% between 2018 and 2021. This study also found that non-rebated drugs increased by 4%.