Major PBMs Inflated Drug Prices, Pocketing $7.3 Billion Along the Way, FTC Says
The three largest pharmacy benefit managers (PBMs) inflated the price of specialty generic drugs beyond their costs of acquisition, earning more than $7.3 billion in revenue from 2017 to 2022, according to a report issued by the Federal Trade Commission (FTC) on Tuesday.
“The FTC staff’s second interim report finds that the three major pharmacy benefit managers” — Caremark Rx, Express Scripts, and OptumRx — “hiked costs for a wide range of lifesaving drugs, including medications to treat heart disease and cancer,” said outgoing FTC Chair Lina Khan in a press release.
The costs of these specialty generic medications, which also included treatments for HIV and other serious illnesses, were marked up by “hundreds and thousands of percent,” the agency noted in their report.
Moreover, PBMs reimbursed affiliated pharmacies at higher rates than unaffiliated independent pharmacies for almost every one of the generic drugs that staff analyzed.
“The FTC should keep using its tools to investigate practices that may inflate drug costs, squeeze independent pharmacies, and deprive Americans of affordable, accessible healthcare — and should act swiftly to stop any illegal conduct,” Khan said.
The agency voted 5-0 to allow staff to release the report. Commissioners Melissa Holyoak and Andrew Ferguson (who is expected to replace Khan as chair after President-elect Trump takes office) were absent from a virtual meeting of the commission on Tuesday.
In the FTC’s second report — an earlier report on PBMs was released in July — agency staff looked closely at all specialty generic drugs dispensed to enrollees in commercial health plans and Medicare Part D prescription drug plans overseen by the three largest PBMs from 2017 to 2022. The inquiry included 51 specialty generic drugs in total.
Beyond the noted markups, the FTC highlighted the following key findings:A disproportionate share of the most profitable prescriptions (those marked up more than $1,000) were dispensed by the three PBMs’ own pharmacies and not independent, unaffiliated pharmacies — a pattern indicative of potential steering, the report suggested.PBM-affiliated pharmacies saw growth in dispensing revenues above the National Average Drug Acquisition Cost at a compound annual growth rate of 42% from 2017 to 2021. In total, the top 10 specialty generic drugs brought in $6.2 billion in dispensing revenue, accounting for 85% of total revenue.Additionally, the three PBMs took in another $1.4 billion from spread pricing — the practice of billing plans more than they reimburse pharmacies for dispensing medications — for the specialty drugs being investigated over the study period.Dispensing of the top specialty drugs represented a significant share of business — about 12% of operating income — reported by the three PBMs’ “parent healthcare conglomerates” (insurance companies that own the PBMs) in 2021.Drug spending by both plan sponsors and patients increased substantially over the study period. In 2021, plan sponsors paid $4.8 billion for specialty generic drugs and cost-sharing amounted to $297 million. From 2017 to 2021, the amount that plan sponsors and patients paid grew at a compound annual growth rate of 21% for commercial claims and 14% to 15% for Medicare Part D claims.
In a press release, B. Douglas Hoey, RPh, MBA, a pharmacist and CEO of the National Community Pharmacists Association, criticized the PBMs for their “wild profiteering and self-dealing.”
“While the Big 3 have consolidated and vertically integrated over the years, they increasingly declare expensive medications to be ‘specialty’ to steer patients to a PBM-affiliated specialty pharmacy to the tune of $7.3 billion above the drug cost,” he said. “They crush their competition by reimbursing their own pharmacies as much as 100% more than they reimburse independent pharmacies for the same drug, or more.”
“This exploitative behavior is bad for taxpayers who subsidize Medicare prescription coverage but the FTC report found that commercial employers are getting hosed even worse. It’s no wonder employees are questioning why their employers are listening to insurance brokers who often recommend one of the giant PBMs,” he noted, adding that patients would be “well-served” if they were able to obtain the “so-called specialty drugs” from their own preferred community pharmacy.
During the public comment period of the virtual meeting, Chris Hobart, PharmD, RPh, an independent pharmacist, described the situation at his pharmacy where patients, their children, and grandchildren have been customers for decades.
He noted that the website through which customers enrolled in health plans stated that his pharmacy would be their “premier pharmacy,” but they then received letters indicating that they would need to switch to a mail-order pharmacy or pay more for their medications if they continued to use his pharmacy. Later that year, the pharmacy closed after 65 years.
Hobart thanked the commission for its work and urged the agency to continue its investigation into PBMs.
“If plan sponsors have the full benefit of information, including how much PBMs profit from making patients use PBM-owned mail-order pharmacies versus the actual cost of allowing patients to use local pharmacies, nobody would be saying these things [asking for mandatory mail-order pharmacies]. They wouldn’t be in the contract,” he said.
Shannon Firth has been reporting on health policy as MedPage Today’s Washington correspondent since 2014. She is also a member of the site’s Enterprise & Investigative Reporting team. Follow
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