FTC releases interim staff report on prescription drug middlemen

The Federal Trade Commission today published an interim report on the prescription drug middleman industry that underscores the impact pharmacy benefit managers 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% of all prescriptions filled in the United States, the FTC said.  

This vertically integrated and concentrated market structure has allowed PBMs to profit at the expense of patients and independent pharmacists, the FTC said. “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.”

According to the FTC, 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% of Americans surveyed reporting rationing or even skipping doses of their prescribed medicines due to high costs, the report states. 

[Read more: NACDS: House Ways & Means action reflects priority status of PBM reform]

The interim report also finds that PBMs hold substantial influence over independent pharmacies by imposing unfair, arbitrar, 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; Express Scripts.; OptumRx; Humana Pharmacy Solutions; Prime Therapeutics; and MedImpact Healthcare Systems. In 2023, the FTC issued additional orders to Zinc Health Services, Ascent Health Services, and Emisar Pharma Services, 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 healthcare conglomerates, and the PBM industry is highly concentrated. 

[Read more: NACDS unleashes new TV ad urging Congress to get PBM reform done]

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% of the approximately 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023, while the top six PBMs processed more than 90%.
• Pharmacies affiliated with the three largest PBMs now account for nearly 70% 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 lifesaving 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.

[Read more: NCPA applauds new class action lawsuit against UnitedHealth, OptumRx to recoup DIR fees]

The FTC said it 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.

Pharmacy organizations, including the National Association of Chain Drug Stores, the National Community Pharmacists Association and the Association for Accessible Medicines were quick to respond to the report. 

Steve Anderson, president and CEO of NACDS issued the following statement following the release of the interim staff report:

“The FTC’s initial findings in its study of PBM tactics provide further evidence of the dire need for action at the federal and state levels. According to the FTC, ‘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.’ The FTC also describes PBM tactics as ‘imposing unfair, arbitrary, and harmful contractual terms’ on pharmacies’ with devastating effects on pharmacies and on communities.

“NACDS emphasizes that these harms are experienced brutally by pharmacies of diverse sizes and formats, including independents and chains, that do not receive preferential treatment from their vertically integrated plans and PBMs. In fact, the interim report released today discusses extensively the effects of ‘self-preferencing’ and ‘unfair contract terms’ – whereby ‘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.’ Make no mistake, smaller and larger pharmacies unaffiliated with plans and PBMs are harmed – and these harmed pharmacies include unaffiliated chains.

“This report is yet another example of the momentum for reform that has reached critical mass among government leaders across political ideologies, healthcare providers, patients, employers, and the media. The Congress and states need no further validation for their bipartisan work to immediately confront pharmaceutical benefit manipulation that is devastating Americans, communities, and pharmacies of all sizes.

“For more than two years, the FTC has been studying PBM tactics, and NACDS has contributed insights to this important work. Unfortunately, this study also exemplifies the PBMs’ focus on delaying reforms. As the FTC said today, ‘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.’

“In January 2024, NACDS praised U.S. Sens. Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) for leading a bipartisan letter to the Commission saying that the PBMs were stonewalling the investigation and ultimately harming Americans. We encourage the FTC and the Congress to keep pressing. The issue of PBM reform indeed has strong bipartisan support, which is supported by the fact that the House Oversight and Accountability Committee also is engaged in a vigorous investigation.

“It is now time for the U.S. Congress to move forward and enact the broad and bipartisan consensus reforms that are ready to go. These reforms would do much to confront devastating PBM tactics in Medicare, Medicaid, and the commercial markets – including the establishment of enforcement, oversight, and accountability. PBM reform is must-pass legislation in the 118th Congress.

“For patients and for the pharmacies on which they rely, all branches of government at the federal and state levels must act to bring about comprehensive PBM reform, and do so without delay.”

NCPA released a statement, which said, "The interim report published today by the Federal Trade Commission – titled “Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies” – should leave no doubt that these massive healthcare conglomerates are creating unfair advantages for themselves that are driving up costs for consumers, limiting consumer choices, and killing access to quality pharmacy care." 

NCPA CEO Douglas Hoey praised the FTC’s findings thus far, also reiterating the need for further investigation into PBM-insurers and definitive action to rein them in. 

Hoey continued, “In recent years, the pharmacy benefits space has undergone massive transformation. It’s no longer 2005. Without question – and as the interim report makes clear – the marketplace has exploded because of countless mergers and acquisitions as well as tactics like patient steering and take-it-or-leave-it contracting. It’s a system that may work for massive PBM middlemen, but it’s anti-consumer and anticompetitive." 

Hoey added, “It has been abundantly clear for years that policymakers must level the playing field. Congress must swiftly enact reforms to rein them in, and states should continue doing so as well. Regulators at all levels must keep a close eye on these entities and enforce the laws that are on the books. And the FTC must continue its investigation and pursue the information that the PBMs have so far defiantly withheld. Patients and community pharmacies need this fight to be finished, and need it urgently.” 

David Gaugh, interim president and CEO of AAM said, “PBM practices too often block patient access to lower-priced generic and biosimilar medicines. Today’s FTC report is merely further evidence that policymakers must act to ensure that safe and effective generic and biosimilar medicines are more available for patients.”

Tom Kraus, vice president of government relations at The American Society of Health-System Pharmacists said, "We are pleased the FTC is finally recognizing the negative impact of pharmacy benefit managers on health care in its interim report. The report, which is part of an ongoing inquiry ASHP has called for since 2022, focuses on the abusive practices of PBMs.  Addressing abusive practices of pharmacy benefit managers is a top priority. ASHP has previously testified before the FTC and wrote to the FTC commissioner highlighting these dangerous practices.”