FTC says middlemen have disproportionate influence over U.S. drug prices

Authors: Ahmed Aboulenein and Jody Godoy

WASHINGTON, — Consolidation of pharmacies and insurance companies over years of deals has left a handful of pharmacy benefit managers with a disproportionate influence over prescription drug prices, the U.S. Federal Trade Commission said Tuesday.

Pharmacy benefit managers, or PBMs, act as intermediaries between pharmaceutical companies and consumers. They negotiate volume discounts and fees with drug manufacturers, create lists of covered drugs, and reimburse pharmacies for prescriptions.

The three largest PBMs, which manage 79% of U.S. prescription drug reimbursement, have grown richer at the expense of smaller pharmacies and consumers, according to an interim report from the FTC that calls for more regulation.

“These powerful middlemen can profit by inflating drug prices and driving down the number of pharmacies on the main street,” the FTC said in its findings, following a two-year investigation into the major PBMs and their impact on prescription drug prices in the United States.

The three largest PBMs are UnitedHealth Group Inc.’s Optum unit, CVS Caremark, owned by CVS Health Corp., and Express Scripts, owned by Cigna Corp.

UnitedHealth, CVS and Express Scripts condemned the findings. Express Scripts said the report contained “glaring” inaccuracies and its conclusions were biased. Increased regulation of PBMs would reward drugmakers and harm consumers, CVS said. The FTC issued an incomplete report with a flawed conclusion, Optum Rx said.

PBM shares fell following the report, with CVS down 1%, Humana down 1.2% and UnitedHealth down marginally.

The report included closely guarded information about how companies enter into agreements to place drugs on formularies.

Reimbursable medicines is a term used to describe the list of medicines covered by various insurance plans.

The report also details how the three largest PBMs recently created separate affiliates called group purchasing organizations, or PBM GPOs, that negotiate contracts and rebates with drugmakers, something that PBMs traditionally engage directly. A CVS spokesman said the company uses its GPO, Zinc, to lower prices for Caremark customers. Cigna did not address the issue in its response to Reuters questions.

RENEWED EFFORT

The report was released as part of U.S. President Joe Biden’s renewed efforts to combat rising health care costs and drug prices following his landmark inflation-reduction bill.

The PBM market has become highly concentrated, with the largest firms vertically integrated with major insurance companies and pharmacy chains. This has given PBMs significant power over prescription drug prices and access for Americans, the FTC said.

PBMs determine which drugs are covered and at what price, as well as which pharmacies patients can use to fill their prescriptions, without transparency or public accountability, the report said.

Of the three largest PBMs, CVS owns the nation’s largest retail pharmacy chain, as well as insurance company Aetna. UnitedHealth and Cigna also have insurance units and their own specialty pharmacies.

The FTC also investigated Humana Pharmacy Solutions, Prime Therapeutics and MedImpact Healthcare Systems. Together, these six companies control more than 90% of the market

Prime Therapeutics said it is not owned by or affiliated with any single insurer or pharmacy. MedImpact did not respond to requests for comment, and Humana declined to comment.

Market consolidation has led PBMs to favor their own affiliated businesses, creating conflicts of interest that prevent smaller, independent pharmacies from remaining competitive by drawing patients away from them, the FTC said.

The FTC found that PBMs may also force independent pharmacies to enter into unfair contracts that do not accurately reflect the final payment amounts the pharmacies will receive.

CVS said independent pharmacies accounted for 30% of Caremark’s pharmacy spending and were reimbursed at a higher rate, on average, than CVS’s pharmacies. The FTC said it found evidence that PBMs and brand-name drugmakers negotiate rebates — volume-based rebates for plans and pharmacies — conditioned on limiting access to lower-priced generic competitors.

Several PBMs received data requests but failed to respond in a timely manner, the report said, hampering the investigation.

CVS said it had complied with all data requests. Cigna said it had provided the agency with millions of lines of data and documents. UnitedHealth said it had provided the FTC with six years of data. Prime said it had fully complied with the agency’s requests.

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