Titled "Controversy Surrounds PBMs once More: Will Bipartisan Pressure Lead to Reform?"
As Lina Khan, the outgoing chair of the Federal Trade Commission (FTC), wraps up her tenure, her agency released a scathing report accusing pharmacy benefit managers (PBMs) of manipulating drug prices, leading to higher costs for patients. Specifically, the report pointed out that PBMs inflate the prices of specialty generic medications beyond their acquisition costs, favoring their own affiliated pharmacies in the process. This practice, according to Khan, contributes to soaring pharmaceutical costs and higher out-of-pocket expenses for patients.
Recently, President-elect Trump voiced his disapproval of PBMs, labeling them "rich as hell" and blaming them for the hike in prescription drug prices. Interestingly, despite bipartisan support, drug pricing reforms involving PBMs were left out of the end-of-year continuing resolution. This omission might indicate growing political fractures among lawmakers in 2025, making it difficult to break the stalemate over PBM reforms.
For the average layperson, PBMs might not mean much. However, these intermediaries play a significant role in the complex and often shrouded U.S. pharmaceutical distribution chain. Most Americans' prescription drug benefits are managed by PBMs, which negotiate the terms and conditions for access to prescription drugs for around 275 million people. After a series of mergers and acquisitions, the leading PBMs have evolved into healthcare behemoths that include health insurers, pharmacies, and healthcare provider services.
The three dominant PBMs – OptumRx, Express Scripts, and CVS Caremark – control about 80% of the U.S. prescription drug market. Given their size and extensive vertical integration, PBMs wield significant control over the availability, pricing, and accessibility of medications for patients.
The FTC's analysis of 51 specialty generic drugs dispensed to enrollees in commercial health plans and Medicare's outpatient pharmacy benefit found that from 2017-2022, PBMs raised prices beyond their estimated acquisition costs. This practice generated more than $7.3 billion in revenue and led to higher reimbursements for affiliated pharmacies. Moreover, the FTC report confirmed that the high markup rates applied to medications in the HIV, hepatitis, cancer, and multiple sclerosis treatment areas.
Furthermore, the three PBMs pocketed another $1.4 billion in revenue from "spread pricing" – the practice of billing health plans and employers more than what they pay pharmacies for dispensing medications.
The FTC unanimously voted to release the report, which marked the culmination of an inquiry that began in June 2022. The report also outlined how PBMs exert undue influence over independent pharmacies, steering patients towards more expensive drugs.
Rebates have been a central topic of policy discussions, as they are widely believed to drive up list prices and, consequently, patient out-of-pocket costs. Rebates are essentially payments from drug manufacturers to PBMs for favoring their products in pharmacy formularies. While rebates may help PBMs and drug manufacturers financially, they offer no direct benefits to patients.
However, PBM leaders argue that their services are vital to lowering net prescription drug costs for employers and health plans. UnitedHealth's OptumRx claims to have saved eligible patients $1.3 billion in out-of-pocket costs. Moreover, the PBM trade group, the Pharmaceutical Care Management Association, defended its use of specialty pharmacies, stating that they are less expensive than others.
In response to the FTC report that criticized their practices, the Pharmaceutical Care Management Association took a defensive stance, referencing the report's lack of concrete evidence and factual assessment.
Despite escalating scrutiny and condemnation from various stakeholders for almost seven years, including lawmakers, the FTC, and the media, PBMs have managed to fend off meaningful reforms. Although Trump frequently criticized PBMs and issued executive orders to curb their power, significant changes to business practices remained elusive during his first term.
However, Trump's strong anti-PBM rhetoric and the recent bipartisan legislation that aimed to bar companies with both PBM and health insurance ownership from owning pharmacy businesses might signal a potential turning point in PBM regulations. Reforms such as delinking PBM revenue from list prices in Medicare and enforcing transparency requirements remain relevant issues in the ongoing efforts to regulate PBM practices.
- Lina Khan, the outgoing chair of the FTC, criticized pharmacy benefit managers (PBMs) for manipulating drug prices, which contributes to higher costs for patients.
- Trump-elect voiced his disapproval of PBMs, labeling them as "rich as hell" and blaming them for the increase in prescription drug prices.
- The report from the FTC accused PBMs, such as OptumRx, Express Scripts, and CVS Caremark, of raising prices beyond acquisition costs, generating billions in revenue.
- Rebates, payments from drug manufacturers to PBMs for favoring their products, are widely believed to drive up list prices and patient out-of-pocket costs, but offer no direct benefits to patients.
- Despite criticism and calls for reform, PBMs have managed to fend off meaningful changes in their business practices, even with Trump's strong anti-PBM rhetoric and bipartisan legislation aiming to regulate their operations.
