How the Big 3 PBMs Utilize Various Market Strategies

Regarding the 3 major pharmacy benefit managers (PBMs) significantly controlling the US drug supply chain—CVS Caremark, Express Scripts, and Optum Rx—their concentration varied noticeably amongst commercial insurance, Medicare Part D, and Medicaid managed care markets. With each PBM dominating their respective markets using multiple different strategies, experts agree that federal reform is one of the few options at regulating the market power these PBMs have been wielding.

“PBMs play an important role in financing and delivering prescription drugs for health insurers, including designing formularies and pharmacy networks, negotiating drug prices, and reimbursing pharmacies. Despite evidence that 3 PBMs (CVS Caremark, Express Scripts, and Optum Rx) accounted for 79% of prescriptions in the US in 2023 and growing concerns about the role of the highly concentrated PBM market on rising out-of-pocket costs and pharmacy closures, information on whether and how PBM concentration varies across payers is limited,” wrote authors of a research letter published in JAMA.¹

With several PBM reports circulating in the media and ongoing PBM reform legislation moving throughout Congress, a recent spotlight has been shined on the practices of PBMs, and even more so for the aforementioned “Big 3.” Market concentration has given these 3 PBMs and their various consolidated business entities immense power in the drug supply chain, pushing several organizations and advocacy groups to speak up regarding necessary change within the prescription drug market.

One of the most recent groups to speak up on PBMs—specifically market concentration amongst CVS Caremark, Express Scripts, and Optum Rx—was the American Medical Association (AMA). On September 9, the AMA released its report detailing the market consolidation of the Big 3 PBMs and their efforts to decrease competition and increase vertical integration.

“The call for increased regulatory oversight of PBM business practices is overwhelmingly welcomed by physicians as a check against possible anticompetitive harm resulting from low competition and high vertical integration in the PBM industry,” said AMA President Bruce A. Scott, MD.² “The findings from the new AMA analysis warrant attention as Congress and the administration continue their work to protect patients and ensure prescription drugs remain affordable and accessible. The AMA urges careful monitoring, and intervention when needed, of both horizontal and vertical integration to ensure competition in PBM and health insurance markets.”

Congressional legislation is one of the only provisions that can regulate the ongoing market consolidation conducted by these 3 PBMs. While groups such as the AMA and other pharmacy advocacy organizations cannot enact change alone, elected officials are noticing the outspoken nature of these groups and their calls for reform. Aside from advocacy groups and health care industry experts, researchers are also collecting market consolidation data to further persuade congressional leaders to consider PBM reform.

READ MORE: How PBMs Impact Independent Pharmacies

In Qato et al’s study published in JAMA, researchers “analyzed PBM market concentration separately for commercial insurance, Medicare Part D, and Medicaid managed care in the US.”

They analyzed every prescription filled in the US in 2023 and observed 5 PBMs’ market share and concentration by payer type (commercial insurance, Medicare Part D, and Medicaid managed care). Along with the Big 3 PBMs, researchers also included the market share data of MedImpact and SS&C Health. Finally, using the Herfindahl-Hirschman Index (HHI), they determined that HHI scores above 1800 were defined as “highly concentrated markets.”¹

After analyzing a total of 14 billion prescriptions across 91 different PBMs, researchers found the PBM market to be considered highly concentrated with an overall score of 1972, 172 points above the researchers’ “highly concentrated” threshold.

“The degree of concentration varied by payer type; the HHI was lowest in commercial insurance (1940), with 90 PBM participants, and highest in Medicare Part D (2399), with 21 PBM participants. CVS Caremark, Optum Rx, and Express Scripts accounted for 73.6% of retail prescriptions overall, yet their shares varied by payer type,” they wrote.¹

Indeed, each of the Big 3 PBMs’ highest percentage of market share varied across all 3 markets. For CVS Caremark, its largest share was in the Medicaid managed care market at 39.2%; Express Scripts’ largest share was in the commercial market at 28%; and Optum Rx’s largest share was held in the Medicare Part D market at 27.7%.

However, at 73.6% of the total market share, the 3 largest PBMs still carry immense power across all 3 types of payer markets. Despite researchers’ data not matching that of other PBM reports—such as the Federal Trade Commission’s recent report that the Big 3 PBMs control 79% of the entire prescription drug market—a plethora of recent findings are similar across the board and highlight the need for slowing down vertical integration and PBM market consolidation.³

“These findings underscore the importance of considering payer-specific concentration when evaluating PBMs’ anticompetitive practices, as the 3 top PBMs may be pursuing different market strategies. The dominance of a few large PBMs across all payers and a smaller PBM (SS&C Health) in Medicare Part D alone has important antitrust implications. These findings could inform federal policies, including proposed legislation that would prohibit unfair and deceptive PBM business activities and the Federal Trade Commission’s ongoing investigation of PBM anticompetitive practices,” concluded authors of the study.¹

READ MORE: FTC Issues First Report Regarding Ongoing PBM Inquiry

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References

1. Qato DM, Chen Y, Van Nuys K. Pharmacy benefit manager market concentration for prescriptions filled at US retail pharmacies. JAMA. Published online September 10, 2024. doi:10.1001/jama.2024.17332

2. New AMA analysis of consolidation in PBM markets. American Medical Association. September 9, 2024. Accessed September 11, 2024. https://www.ama-assn.org/press-center/press-releases/new-ama-analysis-consolidation-pbm-markets

3. 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