By Ahmed Aboulenein and Jody Godoy
WASHINGTON (Reuters) – The consolidation of pharmacies and health insurance companies through years of deal making has led to a handful of pharmacy benefit managers exercising outsized influence over prescription drug prices, the U.S. Federal Trade Commission said on Tuesday.
Pharmacy benefit managers, or PBMs, act as middlemen between drug companies and consumers. They negotiate volume discounts and fees with drug manufacturers, create lists of medications that are covered by insurance, and reimburse pharmacies for prescriptions.
The FTC argues the three biggest PBMs – managing 79% of U.S. prescription drug claims – have greatly enriched themselves at the expense of smaller pharmacies and consumers, according to an interim staff report calling for possible greater regulation.
“These powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies,” the FTC said in its findings, two years into an investigation of top PBMs and their impact on prescription drug prices in the United States.
The consumer protection agency “will continue to use all our tools and authorities to scrutinize dominant players across healthcare markets,” said FTC Chair Lina Khan.
The three biggest PBMs are UnitedHealth Group Inc (NYSE:)’s Optum unit, CVS Health Corp (NYSE:)’s CVS Caremark and Cigna Corp (NYSE:)’s Express Scripts.
The report included some closely guarded information about how companies, such as CVS Caremark, contract for formulary placement for drugs.
Formulary drugs is the term used for the list of medications covered by various insurance plans.
The report also detailed how the three largest PBMs recently established separate affiliated entities called group purchasing organizations, or PBM GPOs, that negotiate contracts and rebates with drug makers, traditionally something the PBMs engaged in directly. The term GPO usually refers to companies that purchase drugs and medical supplies on behalf of healthcare providers.
The report comes amid a renewed effort by President Joe Biden to combat soaring healthcare costs and drug prices after the passage of his landmark Inflation Reduction Act.
The PBM market has become highly concentrated with the largest companies being vertically integrated with the largest insurance companies and pharmacy chains. This has given PBMs significant power over prescription drug prices and the ability of Americans to access them, the FTC said.
PBMs set which drugs are covered by insurance and at what price, as well as which pharmacies patients can use to fill their prescriptions. They do this without transparency or public accountability, the report said.
Of the three biggest PBMs, CVS owns the nation’s largest retail pharmacy chain as well as insurance company Aetna. UnitedHealth and Cigna also have insurance units and own specialty pharmacies.
The FTC also investigated Humana Pharmacy Solutions, Prime Therapeutics and MedImpact Healthcare Systems. These six companies together control over 90% of the market.
UnitedHealth Group Inc, CVS Health Corp, Cigna Group, and Humana Inc (NYSE:) and their subsidiaries — which include the biggest PBMs — took part in more than 190 transactions over the 2016 to 2023, the report said, citing data from PitchBook.
The market consolidation has led to PBMs favoring their own affiliated businesses, which creates conflicts of interest that prevent smaller independent pharmacies from staying competitive by steering patients away from them.
PBMs are also able to lock independent pharmacies into unfair contracts that do not accurately reflect the final payment amounts these pharmacies will get, the FTC said.
The FTC said it found evidence that PBMs and the makers of brand drugs negotiate rebates conditioned on limiting access to cheaper generic competitors.
Rebates, the term for volume-based discounts, are negotiated on the behalf of health insurance companies, large employers, and Medicare prescription drug plans with drugmakers and pharmacies.
The FTC began investigating the top PBMs and their impact on pricing and access to prescription drugs in 2022. It initially went after the three biggest PBMs, but later expanded its probe to include the top six.
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