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For Release
FTC RELEASES INTERIM STAFF REPORT ON PRESCRIPTION DRUG MIDDLEMEN
Report details how prescription drug middleman profit at the expense of patients
by inflating drug costs and squeezing Main Street pharmacies
July 9, 2024
Tags:
* Competition
* Office of Policy Planning
* Merger
* Horizontal
* Vertical
* Nonmerger
* general purchasing organizations (GPOs)
* Pharmacy Benefits Managers (PBM)
* Health Care
* Prescription Drugs
The Federal Trade Commission today published an interim report on the
prescription drug middleman industry that underscores the impact pharmacy
benefit managers (PBMs) have on the accessibility and affordability of
prescription drugs.
The interim staff report, which is part of an ongoing inquiry launched in 2022
by the FTC, details how increasing vertical integration and concentration has
enabled the six largest PBMs to manage nearly 95 percent of all prescriptions
filled in the United States.
This vertically integrated and concentrated market structure has allowed PBMs to
profit at the expense of patients and independent pharmacists, the report
details.
“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. “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.”
The report finds that PBMs wield enormous power over patients’ ability to access
and afford their prescription drugs, allowing PBMs to significantly influence
what drugs are available and at what price. This can have dire consequences,
with nearly 30 percent of Americans surveyed reporting rationing or even
skipping doses of their prescribed medicines due to high costs, the report
states.
The interim report also finds that PBMs hold substantial influence over
independent pharmacies by imposing unfair, arbitrary, and harmful contractual
terms that can impact independent pharmacies’ ability to stay in business and
serve their communities.
The Commission’s interim report stems from special orders the FTC issued in
2022, under Section 6(b) of the FTC Act, to the six largest PBMs—Caremark Rx,
LLC; Express Scripts, Inc.; OptumRx, Inc.; Humana Pharmacy Solutions, Inc.;
Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc. In 2023, the
FTC issued additional orders to Zinc Health Services, LLC, Ascent Health
Services, LLC, and Emisar Pharma Services LLC, which are each rebate aggregating
entities, also known as “group purchasing organizations,” that negotiate drug
rebates on behalf of PBMs.
PBMs are part of complex vertically integrated health care conglomerates, and
the PBM industry is highly concentrated. As shown in the below image, this
concentration and integration gives them significant power over the
pharmaceutical supply chain. The percentages reflect the amount of prescriptions
filled in the United States.
Image
The interim report highlights several key insights gathered from documents and
data obtained from the FTC’s orders, as well as from publicly available
information:
* Concentration and vertical integration: The market for pharmacy benefit
management services has become highly concentrated, and the largest PBMs are
now also vertically integrated with the nation’s largest health insurers and
specialty and retail pharmacies.
* The top three PBMs processed nearly 80 percent of the approximately 6.6
billion prescriptions dispensed by U.S. pharmacies in 2023, while the top
six PBMs processed more than 90 percent.
* Pharmacies affiliated with the three largest PBMs now account for nearly 70
percent of all specialty drug revenue.
* Significant power and influence: As a result of this high degree of
consolidation and vertical integration, the leading PBMs now exercise
significant power over Americans’ ability to access and afford their
prescription drugs.
* The largest PBMs often exercise significant control over what drugs are
available and at what price, and which pharmacies patients can use to
access their prescribed medications.
* PBMs oversee these critical decisions about access to and affordability of
life-saving medications, without transparency or accountability to the
public.
* Self-preferencing: Vertically integrated PBMs appear to have the ability and
incentive to prefer their own affiliated businesses, creating conflicts of
interest that can disadvantage unaffiliated pharmacies and increase
prescription drug costs.
* PBMs may be steering patients to their affiliated pharmacies and away from
smaller, independent pharmacies.
* These practices have allowed pharmacies affiliated with the three largest
PBMs to retain high levels of dispensing revenue in excess of their
estimated drug acquisition costs, including nearly $1.6 billion in excess
revenue on just two cancer drugs in under three years.
* Unfair contract terms: Evidence suggests that increased concentration gives
the leading PBMs leverage to enter contractual relationships that
disadvantage smaller, unaffiliated pharmacies.
* 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.
* Efforts to limit access to low-cost competitors: PBMs and brand drug
manufacturers negotiate prescription drug rebates some of which are expressly
conditioned on limiting access to potentially lower-cost generic and
biosimilar competitors.
* Evidence suggests that PBMs and brand pharmaceutical manufacturers
sometimes enter agreements to exclude lower-cost competitor drugs from the
PBM’s formulary in exchange for increased rebates from manufacturers.
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.
The FTC remains committed to providing timely updates as the Commission receives
and reviews additional information.
The Commission voted 4-1 to allow staff to issue the interim report, with
Commissioner Melissa Holyoak voting no. Chair Lina M. Khan issued a statement
joined by Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya. Commissioners
Andrew N. Ferguson and Melissa Holyoak each issued separate statements.
The Federal Trade Commission develops policy initiatives on issues that affect
competition, consumers, and the U.S. economy. The FTC will never demand money,
make threats, tell you to transfer money, or promise you a prize. Follow the FTC
on social media, read consumer alerts and the business blog, and sign up to get
the latest FTC news and alerts.
PRESS RELEASE REFERENCE
FTC Launches Inquiry Into Prescription Drug Middlemen Industry
FTC Further Expands Inquiry Into Prescription Drug Middlemen Industry Practices
FTC Deepens Inquiry into Prescription Drug Middlemen
CONTACT INFORMATION
MEDIA CONTACT
Victoria Graham (link sends email)
Office of Public Affairs
415-848-5121
RELATED ACTIONS
Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and
Squeezing Main Street Pharmacies
Dissenting Statement of Commissioner Melissa Holyoak In the Matter of the
Pharmacy Benefit Managers Report
Concurring Statement of Commissioner Andrew N. Ferguson Regarding the Pharmacy
Benefit Managers Interim Staff Report
Statement of Chair Lina M. Khan Joined by Commissioners Alvaro M. Bedoya &
Rebecca Kelly Slaughter Regarding the Pharmacy Benefit Managers Interim Staff
Report
Statement of Commissioner Rebecca Kelly Slaughter Regarding FTC Staff Interim
Report: Pharmacy Benefit Managers
TOPICS
Merger Review
Health Care Competition
Competition in the Health Care Marketplace
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