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

The Federal Trade Commission’s report yesterday laying out how pharmacy benefit managers (PBMs) profit at the expense of patients and independent pharmacies is just the latest critique of these companies’ business practices.

Over the last year, there have been congressional hearings, as well as a recent study that assessed PBM spread price practices. And last month, the New York Times published a long investigative story about how PBMs often act in their own financial interests.

Yesterday’s 73-page report generated significant interest in the media, on LinkedIn and X (formerly Twitter) and comments from PBMs large and small. The large PBMs that are the subject of the FTC investigation said the agency rushed to publish an incomplete report.

Managed Healthcare Executive and Formulary Watch reached out to four of the six largest PBMs. All indicated that the FTC report is flawed. Only CVS Caremark responded to specific questions about the substance of the report. The PBMs pointed to a dissenting opinion from FTC Commissioner Melissa Holyoak, who said the report relies in large part on secondhand public information and anonymous sources, and she critidized the lacks analysis of the industry or evidence of PBMs’ market influence.

“The report leaves us without a better understanding of the competition concerns surrounding PBMs or how consumers are impacted by PBM practices,” Holyoak said in a dissenting statement.

Holyoak cited a 2005 FTC report that found that vertically integrated PBMs generated cost savings for consumers, and the current report does not provide analysis that rebuts that analysis. The current report, she said, “cobbles together structural observations.”

Additionally, Holyoak said the report doesn’t examine or provide empirical evidence about how PBM practices affect consumer prices or how PBMs impact competition in the marketplace. “The Rreport does not present empirical evidence that demonstrates PBMs have market power — i.e., ‘the ability to raise price profitably by restricting output,’” she wrote, citing a 1966 case that defined monopoly power.

She said any review of the industry should shed light on how the market is performing and determine whether PBM practices are raising costs for patients.

A CVS spokesperson said the pharmacy benefit industry is competitive. He told Managed Healthcare Executive that since 2020, CVS Caremark has competed against more than 30 PBMs in bids to win client business.

David Whitrap

“Our bidding data shows that when CVS Caremark loses business as an incumbent, it has lost more frequently to a PBM competitor other than Express Scripts or OptumRx,” said David Whitrap, vice president, external affairs at CVS Health.

PBM Impact on Pharmacies

The FTC in its report pointed out that PBMs are now part of large vertically integrated healthcare organizations, with retail and mail-order pharmacies, health insurance companies and healthcare clinics. The "big 3" — CVS Caremark, Optum Rx and Express that manage 80% of pharmacy claims — have recently added private labeling businesses.

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.

Related: Interim FTC Report Finds PBMs Squeeze Independent Pharmacies, Overcharge for Drugs

Antonio Ciaccia

“Vertical integration is not intrinsically evil, but in the insurance/PBM marketplace, it presents obvious conflicts of interest that make it intrinsically prone to abuse,” Antonio Ciaccia, president of 3 Axis Advisors, told Managed Healthcare Executive.

“This preliminary FTC report provides great validation of many of the themes we have uncovered in our research and analyses, where market concentration and vertical integration of the PBM industry has birthed perverse incentives that can work against the traditional competitive fundamentals that we rely upon to govern the pharmacy marketplace, patient cost-sharing dynamics, and the broader prescription drug cost experience incurred by employers and government programs," he said.

This consolidation, the FTC said, has given the large PBMs significant power and influence, created incentives to prefer their own organizations, led to conflicts of interests, steered patients to their own pharmacies and developed unfair contracts with independent pharmacies.

In a statement, B. Douglas Hoey, CEO of the National Community Pharmacists Association, which represents community pharmacies, said “it’s no longer 2005. Without question – and as the interim report makes clear – the marketplace has exploded because of countless mergers and acquisitions as well as tactics like patient steering and take-it-or-leave-it contracting. It’s a system that may work for massive PBM middlemen, but it’s anti-consumer and anticompetitive. 

CVS’s Whitrap, however, said independent pharmacies’ share of U.S. retail pharmacies has remained steady at about 35% for more than a decade. Store counts have corresponded with retail sector trends. Independent pharmacies, he said, account for 30% of every dollar spent in CVS Caremark’s pharmacy network.

“Independents charge higher prices, which patients end up paying directly,” Whitrap said. “Ordinary-course documents and data show year after year that independent pharmacies, compared with national chains and other pharmacies, charge Caremark much higher prices. The price difference is significant. The impact on Caremark’s commercial clients alone exceeds $300 million.”

PBMs and Rebates

The report also finds that PBMs and drug companies enter into agreements that limit access to lower-cost medications and exclude lower cost competitors from formularies in exchange for rebates. The report said that PBMs’ group purchasing organizations serve as rebate aggregators that generate fees from pharmaceutical companies that are not passed on to clients. The FTC cites data showing these fees generated $7.6 billion in 2022, up from $3.8 billion in 2018.

Whitrap said that where competition exists, rebates are an effective way of lowering the cost of high-priced drugs.

“In 2022 and 2023, we passed along more than 99% of negotiated rebates to clients – including manufacturer administrative fees. This includes employer, government and union clients, who use these rebates to lower overall insurance costs as governed by ERISA,” he said.

Whitrap indicated that third-party analyses show rebates are not associated with list price increases.

He pointed to research from the economic consulting company Matrix Global Advisors in January 2024, which found that among the drugs with the largest price increases 9 out 10 were non-rebated. Rebated drugs saw a price increase between 38% to 56%, while non rebated drugs saw increases as high as 413%. This analysis focused on a subset of 29 drugs that Matrix Global Advisors identified as having the largest percent increase in wholesale acquisition costs.

“Rebates help to lower the cost of high list price drugs,” Whitrap said. “Where competition exists, rebates are an effective way of lowering the cost of high-priced drugs. However, it is those drugs that have no competition and are subject to arbitrary increases in list prices that represent 70% of our drug spending.”

FTC Report a First Step

Joseph M. Shields

Joseph M. Shields, managing director of Transparency-Rx, a coalition of small PBMs that launched in September 2023, pointed out in an interview that the FTC’s report is preliminary.

“They’re trying to articulate as to why this is an antitrust inquiry,” he said. “It's the first step. If I were to put my lawyer hat on, they’re trying to decide whether or not they can proceed with antitrust proceedings regarding the level of control or market concentration, and assessing whether that type of behavior exists in the market.”

This is more of a discovery process, he said. “The FTC is trying to articulate ways in which they think how things are currently operating or problematic, knowing that they will have to give a broader legal framework to get above legal thresholds that they can pursue litigation.”

The question the FTC is trying to answer, Shields said, is whether PBMs are exerting that control and power and influence in a way that’s responsible or not. “The early indications are that pharmacists are concerned with regard to reimbursements, clawback and DIR fees that lead to not getting paid reasonable rates and fair rates.”

Shields said one the most striking parts of the report was that FTC indicated that some of the PBMs have not fully complied with the agency’s request for documentation and information.

But the four PBMs contacted by Managed Healthcare Executive — CVS Caremark, Express Scripts, Optum Rx and Prime Therapeutics — said they’ve complied with the FTC’s requests.

Optum Rx said it has provided more than six years of data with millions of pages of information, or nearly 2,000 gigabytes of data. Optum Rx also supplied more than 20 narrative responses describing the PBM’s formulary process, communications with pharmaceutical companies, and had either weekly or bi-weekly calls with the FTC since February 2023 to answer questions and provide updates.

Executives from Prime Therapeutics said the FTC ignored the fact that Prime is a different type of company. Prime is not owned by or affiliated with any single national payer, private equity, nor publicly traded. Prime is owned by a consortium of 19 not-for-profit Blue Cross Blue Shield plans and also serves health plans, employer groups, Medicare plans and Medicaid agencies in 26 states.

A statement pointed out that Prime does not require clients to use its own specialty or mail order pharmacies. “We work closely with our clients to provide transparency and pass-through savings. This means we help make prescription drugs more affordable for our clients and their members instead of maximizing our own earning,” Prime said in the statement.

Shields said he is concerned that the PBMs may have supplied paperwork that has not been truly responded to the FTC’s requests. “My guess is that they are providing documents that include aggregate information that isn’t really germane or responsive to the type of questions that people have,” he said. “Government stakeholders have been frustrated with the process particularly related to the compliance piece.”