FTC report criticizes pharmacy 'middlemen' for allegedly raising prices and limiting access

Pharmacy benefit managers (PBMs) have enormous power when it comes to the accessibility and affordability of prescription medications, and a damning new report An investigation by the Federal Trade Commission (FTC) found that “these powerful middlemen may profit from inflating drug costs and squeezing Main Street pharmacies.”

The report signals a significant intensification of scrutiny of the business practices of PBMs, the opaque intermediaries at the heart of the pharmaceutical distribution system.

The interim report, part of an ongoing investigation launched by the FTC in 2022, details how increasing vertical integration and concentration has enabled the three largest PBMs — CVS Caremark Rx, Express Scripts, OptumRx — to manage nearly 80 percent of the approximately 6.6 billion prescriptions filled in the United States.

According to the report, six of the largest PBMs are responsible for nearly 95 percent of all prescriptions.

PBMs negotiate the terms of access to prescription drugs for hundreds of millions of Americans. They are responsible for negotiating prices with pharmaceutical companies, paying pharmacies, and determining which drugs patients can get and how much they cost.

As the industry has consolidated, critics say PBMs have exerted more control over patient access to drugs. PBMs are vertically integrated, acting as health plans and pharmacists. The largest PBMs are owned by insurers, which own specialty, mail-order or retail pharmacies.

The report also found that pharmacies affiliated with the three largest PBMs generated nearly $1.6 billion in additional revenue from just two cancer drugs in less than three years, by paying their own pharmacies much higher rates than non-affiliated pharmacies.

PBMs “have significant influence on independent pharmacies by imposing unfair, arbitrary, and harmful contractual terms that can impact the ability of independent pharmacies to survive and serve their communities,” the report found.

FTC Chair Lina Khan said in a statement that the report shows “how dominant pharmacy benefit managers can inflate drug costs — including overcharging patients for cancer drugs.”

Khan added that the FTC found evidence of how “PBMs can squeeze out independent pharmacies that many Americans — especially those in rural communities — rely on for essential care.”

The interim report also examined how intermediaries enter into agreements designed to block competition in favour of one manufacturer's product.

PBMs and brand-name drug manufacturers negotiate rebates (volume discounts for plans and pharmacies), which the PBM then passes on to employers, in exchange for restrictions that limit access to lower-cost competitors and force the manufacturer's drug on patients instead.

“The result is that dominant PBMs can often exercise significant control over what drugs are available, at what price, and which pharmacies patients can use to access their prescribed medications,” the report said.

The agency has not filed lawsuits or taken enforcement action against individual benefit administrators, but lawmakers have been highly critical of the industry’s business practices. The report could prompt action in Congress as lawmakers seek to hold parties responsible for high prescription drug costs accountable.

“I am proud that the FTC has launched a bipartisan investigation into these shady middlemen, and the preliminary findings demonstrate once again that it is time to break up the PBM monopoly,” said Rep. Buddy Carter (R-Ga.), a pharmacist. “I call on the FTC to quickly conclude its investigation and initiate enforcement actions if — and when — it discovers illegal and anti-competitive PBM practices.”

Pharmaceutical companies and PBMs are blaming each other for rising drug costs. Manufacturers say they have to raise list prices because of the big PBM rebates, but the middlemen claim those rebates are passed on to health plan sponsors.

In a statement, the PBM trade group Pharmaceutical Care Management Association criticized the FTC for what it called a biased report “based on anecdotes and comments from anonymous sources and self-interested parties” and only two “cherry-picked case studies.”

JC Scott, president and CEO of PCMA, said the agency's leadership “has demonstrated that they have predetermined conclusions that they intend to push through regardless of the facts or the data, and this report shows that they intend to push through their agenda regardless of the evidence.”

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