Treasury

PBMs are inflating drug costs and could need more regulation, FTC says

The commission’s interim report could build support for more enforcement of the middlemen.
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As prescription drug costs keep pushing up employer spending on health benefits, a new Federal Trade Commission report has slammed a key player involved in setting the prices of those drugs.

A handful of the largest benefit managers (PBMs) have used their near-total dominance over US prescriptions to drive up costs and limit access to drugs, the commission said in a new report that could be used to more aggressively police the middlemen that connect patients, pharmacies, and drugmakers.

“Prescription drugs have been the fastest-growing component of health benefit cost for years,” according to Mercer, and were the largest driver of employer healthcare costs last year. The role of PBMs in climbing prices has been the focus of executive actions, congressional hearings, lawsuits, and news investigations. What’s another report, and is there anything CFOs can do about it?

Big middleman. The commission has been investigating the power of large PBMs, just six of which control 94% of all US prescriptions, it said. Of those six, just three—CVS Caremark, Express Scripts, and Optum Rx—manage 79% of prescriptions. That concentrated power means they can “significantly influence what drugs are available and at what price,” the commission said in a press release.

PBMs are also vertically integrated in some of the largest corporate health empires. CVS is the parent company to CVS Caremark and Aetna, while UnitedHealth Group owns Optum, and Cigna owns Express Scripts. “Certain PBMs may be steering patients to their affiliated pharmacies” over competitors, the report said, which could be reducing competition and also driving up costs.

The commission claims that pharmacies affiliated with the big three have earned revenue from dispensing drugs that’s “well above estimated drug acquisition costs, resulting in nearly $1.6 billion of additional revenue on just two cancer drugs in under three years.”

Oh rly? The industry had, shall we say, some thoughts about the report. JC Scott, CEO of the Pharmaceutical Care Management Association, claimed in a statement that the report left out data that could show PBMs make drugs cheaper and easier to get. “This report is based on anecdotes and comments from anonymous sources and self-interested parties,” he said.

What comes next. The FTC, which enforces federal antitrust laws for industries including healthcare, says its report ”share[s] initial evidence about PBM and brand pharmaceutical rebating practices that urgently warrant further scrutiny and potential regulation.” As the New York Times reported, PBMs are worried that this will set the agency up to investigate or sue them. In the commission’s press release, Chair Lina Khan said it’s keeping busy: The commission, she said, “will continue to use all our tools and authorities to scrutinize dominant players across healthcare markets.”

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.