FTC Issues First Report Regarding Ongoing PBM Inquiry

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The FTC released its interim report detailing PBM practices, staggering market consolidation statistics, and the disparities between PBMs and their smaller competitors.

As part of its ongoing inquiry into the business operations of the top pharmacy benefit managers (PBMs), the Federal Trade Commission (FTC) released an interim report that detailed PBMs’ immense power in determining prescription drug access and affordability to the detriment of independent pharmacies and their patients. Using several key industry tactics, specifically focusing on anti-competition, there are 6 PBMs wielding the greatest power in the health care industry due to vertical integration and significant power over the pharmaceutical supply chain.

What’s the Issue?

The FTC released the interim report on Tuesday detailing its initial findings on the 6 major PBMs that have been manipulating the pharmaceutical supply chain. This report, part of the FTC’s ongoing inquiry beginning in 2022, highlighted the extreme market control of CVS Health Corporation, the Cigna Group, UnitedHealth Group, Humana Inc, MedImpact Holdings, and 19 BlueCross BlueShield.1

The FTC released an interim report that detailed PBMs’ immense power in determining prescription drug access and affordability. | image credit: Postmodern Studio / stock.adobe.com

The FTC released an interim report that detailed PBMs’ immense power in determining prescription drug access and affordability. | image credit: Postmodern Studio / stock.adobe.com

While these health care conglomerates have secured great market control of pharmacies, general health care providers, health insurers, and more, the main sign of their immense control of the supply chain lies in the number of prescriptions they fill. Indeed, the top 3 PBMs—CVS Caremark, Express Scripts, and Optum Rx—fill 79% of all prescriptions in the US. Along with the aforementioned PBMs, as well as Humana, MedImpact, and 19 BlueCross BlueShield, the top 6 fill 94% of all US prescription drugs, according to FTC data.1

Furthermore, these same revenue-driving PBMs are working to increase profits by manipulating drug prices at the expense of patients and the independent pharmacies that are looking to fill their prescriptions. In an FTC survey, 30% of Americans reported drug prescription rationing to keep up with inflated prices.

Why It Matters

The FTC broke down its report into 5 key insights detailing PBM tactics; these insights were separated into concentration and vertical integration, significant power and influence, self-preferencing, unfair contract terms, and efforts to limit access to low-cost competitors.

  • “Vertical integration is a strategy that allows a company to streamline its operations by taking direct ownership of various stages of its production process rather than relying on external contractors or suppliers,” wrote Adam Hayes for Investopedia.2 While vertical integration is not exclusive to corporations within health care, the ever-increasing control that health care giants have been able to attain is alarming for Americans. Along with statistics on the top 6 PBMs controlling almost all of the US market concentration, the same companies also have control of 70% of all specialty drug revenue in the country. This vertical integration has led PBMs to exhibit significant power and influence. Because of their ability to consolidate the market and make their prescriptions the only options, PBMs have gained more and more power as smaller competitors are bought out.1
  • When it comes to deterring competition, the major PBMs have been successful in limiting access to lower-cost drugs, in favor of brand name prescriptions, as well as self-preferencing and incentivizing insurers and patients to seek out PBM-affiliated medications. In exchange for rebates, brand name drug manufacturers and the PBMs that purchase their drugs work together to keep their products in high demand on formularies, squeezing out low-cost alternatives that could be useful for lower-income individuals. Likewise, with PBMs’ ability to self-preference, they work with their affiliated drug dispenser—for example, CVS Caremark working with CVS Pharmacy—to ensure their drugs are incentivized for prescribing.
  • Finally, PBMs seem to dwell in the business of unfair contracts that usually force smaller entities, specifically independent pharmacies, to comply with lower reimbursements while the PBMs yield even more revenue. “The rates in PBM contracts with independent pharmacies often do not clearly reflect the ultimate total payment amounts, making it difficult or impossible for pharmacists to ascertain how much they will be compensated,” wrote the FTC.1

READ MORE: FTC Role in Regulating Prescription Drugs: 2000 to 2022

Expert Commentary

  • “The FTC’s interim report lays out how dominant pharmacy benefit managers can hike the cost of drugs—including overcharging patients for cancer drugs,” said FTC Chair Lina M. Khan.1 “The report also details how PBMs can squeeze independent pharmacies that many Americans—especially those in rural communities—depend on for essential care. The FTC will continue to use all our tools and authorities to scrutinize dominant players across healthcare markets and ensure that Americans can access affordable healthcare.”
  • “In recent years, the pharmacy benefits space has undergone massive transformation. 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 anti-competitive. It has been abundantly clear for years that policymakers must level the playing field. Congress must swiftly enact reforms to rein them in, and states should continue doing so as well. Regulators at all levels must keep a close eye on these entities and enforce the laws that are on the books. And the FTC must continue its investigation and pursue the information that the PBMs have so far defiantly withheld. Patients and community pharmacies need this fight to be finished, and need it urgently,” said B. Douglas Hoey, PharmD, CEO of the National Community Pharmacists Association.3

In Depth Insights

  • Aside from non-transparent business deals and tactics to keep smaller corporations out of the top 6 prescription drug businesses, these industry giants are also struggling to comply with the FTC’s demands. “The report notes that several of the PBMs that were issued orders have not been forthcoming and timely in their responses, and they still have not completed their required submissions, which has hindered the Commission’s ability to perform its statutory mission. FTC staff have demanded that the companies finalize their productions required by the 6(b) orders promptly. If, however, any of the companies fail to fully comply with the 6(b) orders or engage in further delay tactics, the FTC can take them to district court to compel compliance,” wrote the FTC.1

Extra Reading

Update, July 9 at 4:05 PM:

The Pharmaceutical Care Management Association (PCMA), the national association representing PBMs in the US, released a statement in response to the FTC report.4

"Today's interim FTC report falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market," said PCMA president and CEO JC Scott in the statement. "The report completely overlooks the volumes of data that demonstrate the value that PBMs provide to America's health care system by reducing prescription drug costs and increasing access to medications."

The full statement from PCMA is available here.

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References
1. FTC releases interim staff report on prescription drug middlemen. Federal Trade Commission. July 8, 2024. Accessed July 9, 2024. https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen
2. Hayes A. Vertical integration explained: how it works, types, and examples. Investopedia. May 30, 2023. Accessed July 9, 2024. https://www.investopedia.com/terms/v/verticalintegration.asp
3. Scathing FTC interim report on PBMs warrants further investigations, immediate action by policymakers and regulators. News Release. NCPA. July 9, 2024. Accessed July 9, 2024. https://www.ncpa.org/newsroom/news-releases/2024/07/09/scathing-ftc-interim-report-pbms-warrants-further-investigations
4. PCMA statement on FTC interim PBM report. News release. Pharmaceutical Care Management Association. July 9, 2024. Accessed July 9, 2024. https://www.pcmanet.org/press-releases/pcma-statement-on-ftc-interim-pbm-report/07/09/2024/
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