FTC report levies strong criticism at the business practices of pharmacy benefit managers

Vertical integration by pharmacy benefit managers (PBMs), including with providers, is one reason to be concerned about the excessive reach of PBMs in the healthcare industry, according to an interim staff report issued this month by the Federal Trade Commission (FTC).

“Due to decades of mergers and acquisitions, the three largest PBMs now manage nearly 80% of all prescriptions filled in the United States,” the report states. “They are also vertically integrated, serving as health plans and pharmacists, and playing other roles in the drug supply chain as well. As a result, they wield enormous power and influence over patients’ access to drugs and the prices they pay.”

The report may have served as an opening argument by the federal government. In the ensuing days, the Wall Street Journal reported (login required) that the FTC is set to sue the PBMs of UnitedHealth Group (OptumRx), CVS (Caremark) and Cigna (Express Scripts) for steering members away from low-cost alternatives and toward brand-name drugs, including for insulin.

The FTC’s report is based on data and documents requested from the six largest PBMs in response to a 2022 order, with the commission seeking insight on “extraordinarily opaque” PBM business practices and the impacts of those practices. Two years later, some respondents have not fully complied with the document request, according to the FTC. Hence the labeling of the report as interim.

The FTC said it may take legal action to compel compliance if PBMs continue to delay their responses.

An expanding footprint

The report notes that PBMs have expanded over the decades from functioning as administrative service providers, to negotiating with drug manufacturers on behalf of clients, to setting reimbursement terms and conditions for pharmacies and even developing formularies.

“But now, after years of acquisitions, the leading PBMs are each part of massive healthcare conglomerates that are often comprised of a health insurer, pharmacies and the PBM negotiator between health insurers and pharmacies — all rolled into one,” the report states. “The result is that the dominant PBMs can often exercise significant control over which drugs are available, at what price, and which pharmacies patients can use to access their prescribed medications.”

Companies such as UnitedHealth Group, CVS Health Corp., The Cigna Group and Humana Inc. all have a PBM, health plans and a presence in the provider space, putting them in position to potentially sway which drugs are prescribed.

Among the ways in which PBMs leverage relationships with providers, per the report, are white bagging, which refers to contractually requiring providers to obtain specialty drugs from pharmacies affiliated with a particular PBM; and brown bagging, in which the PBM obligates patients to acquire a specialty drug from a particular pharmacy for the provider to administer.

“PBMs also use information obtained through their vertically integrated insurers to conduct marketing campaigns targeting patients and specialty providers,” the report states. Stakeholder feedback suggests “these marketing campaigns employ inaccurate information to coerce patients into switching to affiliated pharmacies.”

When PBMs are under the same corporate umbrella as a health plan, payments to an affiliated pharmacy represent “internal transfers” of funds, the report states, explaining that such organizations may be able to “game MLR [medical loss ratio] requirements by shifting funds between affiliated entities.”

A cross-aisle concern

The FTC’s report did not represent the unanimous perspective of the commission. Melissa Holyoak, one of two Republican commissioners on the five-member panel, issued a dissenting statement in which she said the report was “plagued” by both process-related and substantive issues. It also “leaves us without a better understanding of the competition concerns surrounding PBMs or how consumers are impacted by PBM practices.”

Bipartisan support has emerged in Congress for efforts to limit the clout of PBMs, however. In the Senate, a 2023 bill sponsored by Sen. Bernie Sanders (I-Vt.), along with three Republicans and one Democrat, includes provisions that prohibit spread pricing and require that PBMs remit to plan sponsors (e.g., employers) “all rebates, fees, alternative discounts and other renumeration received from a drug manufacturer.”

In the House, a 2023 bill sponsored by three Democrats and two Republicans would increase transparency requirements for PBMs regarding the services they provide to health plans.

“[PBMs] are financially incentivized to negotiate higher-cost drugs onto the formularies because their revenue is based [on] a percentage of the rebates,” Sophia Tripoli, MPH, senior director for health policy with the consumer-health advocate Families USA, said during a May 23 hearing of the House Budget Committee. “Transparency is a really important piece to just pull back the curtain and get underneath the hood, understand what’s going on.”

Chapin White, PhD, healthcare analyst with the Congressional Budget Office, said transparency would improve PBM pricing rationality.

“If [employers] have better information on PBMs and what different PBMs charge, they’re going to be able to shop better for PBM services,” White said during the hearing. “So, more transparency for employers, especially small employers, is going to drive down the fees that PBMs are able to retain. Similar with state Medicaid agencies.”

340B concerns not addressed

The FTC’s report does not discuss PBM issues pertaining to the 340B Drug Pricing Program, specifically practices in which PBMs seek to establish unfavorable reimbursement rates for 340B hospitals.

In a 2023 letter to senators, the American Hospital Association (AHA) said PBMs are seeking to “reduce the scope and benefits of the program.”

“Most importantly, PBMs have created terms and policies that discriminate against 340B hospitals by paying them less than non-340B hospitals for certain outpatient drugs in order to protect their rebate revenue from drug manufacturers,” the letter states.

The AHA said Congress should prohibit PBM practices that include:

• Offering differential reimbursement to providers depending on whether they participate in 340B
• Steering patients away from 340B pharmacies and to PBM-owned pharmacies
• Engaging in white bagging and brown bagging