FTC report slams pharmacy benefit managers, finds companies inflate costs, squeeze competitors

An ongoing Federal Trade Commission investigation finds that pharmacy benefit managers can inflate drug costs while putting pressure on independent pharmacies, profiting the nation’s largest companies at the expense of patients.

An interim FTC report released Tuesday details the market influence of companies known as PBMs, which are hired and in many cases owned by health insurers to manage drug benefits for health plans. Their roles include negotiating prices, setting co-payments for drugs and creating networks of pharmacies where patients can fill prescriptions.

Eagan-based Prime Therapeutics and OptumRx, a unit of Minnetonka-based UnitedHealth Group, are two of six PBM companies highlighted in the report.

“The FTC’s interim report outlines how dominant pharmacy benefit managers can raise drug costs — including overcharging patients for cancer drugs,” FTC Chairwoman Lina Khan said in a statement. “The report also details how PBMs can squeeze independent pharmacies that many Americans — especially those in rural communities — rely on for essential care.”

The PBM industry trade group slammed the report, saying it “falls far short of a definitive, fact-based assessment” and falls short of the objectivity for which the FTC is known.

The Pharmaceutical Care Management Association noted in a statement that one member of the five-person committee disagreed with the decision to release the report, which was based on anecdotes, anonymous comments and “selectively selected case studies,” according to the trade group.

“Throughout this process, FTC leadership has demonstrated that it has set conclusions that it wants to advance regardless of the facts or data, and this report demonstrates its intent to advance its agenda regardless of the evidence,” the association said in a statement. “Nothing can change the fact that PBMs operate in an extremely competitive marketplace and have a proven track record of lowering prescription drug costs.”

The interim studies are unusual and do not constitute the FTC’s final report, Commissioner Andrew Ferguson wrote in a statement Tuesday. The final version, Ferguson said, should include more definitive evidence of drug reimbursement practices and incentives, but he concluded: “It is important for the commission to share what staff has learned so far, as is.”

In 2022, the FTC launched a review of PBMs, a topic highlighted by Commissioner Alvaro Bedoya during a speech at an event in Minneapolis on economic competition that same year.

Last month, Minnesota Attorney General Keith Ellison led a bipartisan group of 32 attorneys general in asking the U.S. Supreme Court to hear a case that could limit state regulation of PBMs.

In 2023, the state Department of Commerce levied a $500,000 fine against Rhode Island-based CVS Caremark, alleging the PBM used strategies prohibited under Minnesota law to direct consumers to its own pharmacies. CVS Caremark, which denied the allegations and did not admit liability, was one of six PBMs singled out in the FTC report.

Express Scripts, owned by Connecticut insurer Cigna, rounds out the “Big Three” PBMs, the FTC says, along with CVS Caremark and OptumRx, owned by Minnesota-based UnitedHealth Group. Together, they manage 79% of prescription drug claims for about 270 million people, according to the report. Add the next three largest PBMs, one of which is Prime Therapeutics, and the group manages 94% of prescription drug claims in the United States.

In 2004, the three largest PBMs collectively served 190 million people and handled 52 percent of prescription drug claims, according to FTC data.

“In addition to this high degree of horizontal concentration, the Big Six PBMs have become vertically integrated entities within powerful conglomerates that provide a wide range of services across the pharmaceutical supply chain and other segments of the health care industry,” the FTC report said.

According to the FTC, PBMs enter into rebate agreements with drugmakers, whereby the manufacturers pay for favorable placement on health plans’ lists of covered drugs, which can shape demand by determining how much patients must pay out-of-pocket for a drug.

The FTC says it has evidence that PBMs and drugmakers “sometimes enter into rebate agreements expressly conditioned on excluding (cheaper) generic drugs from coverage,” according to the report. In other cases, there is evidence that PBMs and manufacturers enter into agreements so that prior authorization rules and step-therapy requirements — where patients must try some drugs before others — discourage the use of generic alternatives, the study found.

The report also highlights the potential problems with vertical integration, in which large companies such as UnitedHealth, CVS and Cigna own both PBMs and insurance companies, as well as specialty pharmacies that handle expensive and complex drugs.

“In the face of increasing vertical integration and concentration, these powerful intermediaries can profit by inflating drug prices and reducing the number of high street pharmacies,” the report said.

In a statement, OptumRx said the FTC rushed to release an analysis that was incomplete and reached erroneous conclusions. Its findings, the company added, are not based on more than six years of data and millions of pages of information it has provided to the commission.

“PBMs like OptumRx are a critical counterweight to pharmaceutical companies’ monopoly power to set and raise drug prices,” the company said in a statement. “The money we save employers, unions, governments and payers who rely on us to negotiate savings helps consumers through reduced premiums, point-of-sale discounts and greater investment in population health and wellness programs.”

Prime Therapeutics said in a statement that it was disappointed that the report did not acknowledge differences between its structure and business practices and those of other large PBMs.

“Prime is not owned by or affiliated with any single national payer, private equity, or public company,” the company said. “Prime is an independent company owned by a consortium of 19 separate, mission-driven, nonprofit Blue Cross Blue Shield plans located across the country, each with its own unique attributes, geographies, and membership.”

OptumRx said it agreed with several parts of a dissenting opinion released Tuesday by one of the FTC’s five commissioners — Melissa Holyoak — that said the report should not have been released, arguing it did not present empirical evidence to support claims about PBMs’ market power, including suggestions that competition in the market had declined.

“The Commission has failed to raise public awareness of PBM practices,” Holyoak wrote. “Our job is not to score cheap political points—our job is to identify and protect against anticompetitive harm.”

Commissioners Khan, Bedoya and Rebecca Kelly Slaughter issued a statement supporting the publication, saying the interim report “presents preliminary economic analysis, including a discussion of how exclusionary rebates may have negative side effects on competition in drug markets by making it more difficult for generic drugs to enter the market.”