Lina Khan, the chairman of the Federal Trade Commission, has led a two-year investigation into the business … [+]
As Lina Khan, the chairman of the Federal Trade Commission, ends her term this week, her agency released a second report in six months critical of the pharmacy benefit manager industry. Specifically, the FTC accused PBMs of marking up the prices of specialty generic drugs, often far exceeding their acquisition costs, and then directing the reimbursement to their affiliated pharmacies. Khan stated that the practice contributes to increased pharmaceutical costs and higher out-of-pocket costs for patients. Additionally, President-elect Trump recently reiterated his criticism of PBMs, calling them “rich as hell” and accusing middlemen of being responsible for driving up prescription drug prices. However, the failure to include pharmaceutical price reforms that include PBMs in the continuing year-end resolution, despite bipartisan support, could be a sign of a political fracture among lawmakers in 2025 and difficulties in breaking the impasse.
To most lay people, the acronym PBM means nothing. But PBMs serve as key intermediaries at the center of the complex and often opaque US pharmaceutical distribution chain. Most Americans’ prescription drug benefit—the portion of their insurance that includes pharmaceutical care—is managed by a PBM. In fact, PBMs negotiate the terms and conditions for nearly 275 million Americans’ access to prescription drugs.
After a series of recent mergers and acquisitions, major PBMs are now each part of healthcare giants that also include health insurers, pharmacies and healthcare provider services. The three largest PBMs that control 80% of the US prescription drug market are OptumRx, Express Scripts and CVS Caremark. Because of their size and the way vertical integration has wrapped multiple entities in the drug supply chain into a conglomerate, PBMs have significant control over which drugs are available to patients, at what price, and where. to access patients.
The FTC’s analysis of 51 specialty generic drugs dispensed to enrollees in commercial health plans and prescription drug plans in the Medicare outpatient pharmacy benefit (Part D) — overseen by the three largest PBMs — suggests that since 2017 -2022 PBMs raised prices above their prices. estimated acquisition cost, measured by national average drug Acquisition cost. This generated more than $7.3 billion in revenue. In addition, PBMs reimbursed their affiliated pharmacies at a higher rate than unaffiliated pharmacies paid.
High mark-up rates apply to drugs in HIV, hepatitis, cancer, multiple sclerosis and other disease areas. The big-label drugs included imatinib, a generic drug (brand name Gleevec) used to treat chronic myeloid leukemia, and lamivudine, prescribed for HIV patients (brand name Epivir).
In addition, the three PBMs received another $1.4 billion during the study period from spread pricing — the practice of billing health plans and employers more than they reimburse pharmacies for dispensing medications — for the specialty drugs being investigated.
The agency voted 5-0 to allow staff to release the report. That includes Andrew Ferguson, Khan’s designated replacement under Trump.
The FTC’s two reports are the culmination of an investigation that began in June 2022. In a separate interim report released last summer, the agency asserted that PBMs exert undue influence over independent pharmacies and alleged that three PBMs— the larger ones “used negotiating tactics to steer patients to use more expensive drugs.”
A focal point of policy discussions has been the role of rebates in increasing list prices and therefore patient cost sharing. Rebates are payments from drug manufacturers to PBMs in exchange for shifting market share to preferred formulary products. When a patient fills a prescription for a drug that carries a discount, the drug manufacturer sends an amount to the PBM, according to the terms defined in the contract. The PBM then passes through a portion of the rebate to the patient’s plan sponsor, keeping a portion as profit.
From the drug manufacturer’s perspective, rebates can function as a way to increase or maintain market share for products. Consequently, PBMs can do a number of things to ensure that certain drugs receive sufficient volume. Their main tool for this purpose is form management, specifically placing a discounted product in a preferred place on the form. Rebates can mutually benefit PBMs and drug manufacturers who are given preferred status. Further, rebates can help moderate increases in beneficiary premiums by lowering net costs for health plans, employers, and other clients for whom PBMs work.
But while the rebates may help PBMs, health plans and employers financially, they have no direct positive effect on patients. They are not passed directly to patients at the pharmacy counter. Additionally, patients’ out-of-pocket costs are often calculated based on percentages of list prices that are often significantly higher than net prices.
However, PBM executives say the role of intermediaries is necessary as they work at the behest of employers and health plans to lower net prescription drug costs by negotiating with drug manufacturers and managing pharmacy benefits on behalf of health plans and employers. UnitedHealth’s OptumRx said wealth that this did not go only to the contracted entities. It also helped eligible patients save $1.3 billion in out-of-pocket costs.
Additionally, the PBM trade group, the Pharmaceutical Care Management Association, advocates the use of their specialty pharmacy PBMs, saying they are less expensive than other pharmacies.
Finally, blaming the pharmaceutical industry for high drug costs has historically been the defense of PBMs. In a rebuttal to the FTC’s report released this summer, the PCMA criticized the Commission’s analysis for “falling far short of being a definitive, evidence-based assessment of PBMs or the prescription drug market.”
PBMs have been under near-constant pressure at the federal level for more than six years from a host of entities, including the executive branch, Congress, the FTC, and the media, for their alleged role in raising patient out-of-pocket costs and squeezing them. independent pharmacies. So far, the intense scrutiny and ensuing debate has not led to much tangible action to curb PBMs. Although Trump often criticized PBMs and issued executive orders to curb them, during his first term the FTC allowed consolidation in the industry to occur in the late 2010s. And despite anti-PBM rhetoric in the White House Trump, virtually nothing substantial was done to change business practices.
Perhaps now, however, things will change, given the bipartisan nature of the bills in Congress and Trump’s further statements that reform is imminent. For example, bipartisan legislation introduced in December would bar companies that own PBMs and health insurers from also owning pharmacy businesses. But we have been in this position of inertia for a long time. The fact that the legislation was cut short by a continuing resolution late last year, which would have led to immediate PBM reforms, indicates a reluctance among some lawmakers to prioritize policy changes. Those reforms would have included decoupling PBM revenue from Medicare drug list prices, curbing rebate incentives that could lead PBMs to steer patients to more expensive drugs, and transparency requirements that mandate reporting of PBM in Medicare for drug pricing. It remains to be seen whether these items will pass as separate bills.
