In its second interim staff report released January 14, 2025, the Federal Trade Commission (FTC) revealed that the top three pharma benefit managers (PBM) in the US inflated prices of specialty generic drugs over the past several years, resulting in them raking in billions of dollars in profits.
The Big Three PBMs are vertically integrated with major insurers CVS, Cigna and UnitedHealthcare.
According to the FTC staff report, the country’s Big Three PBMs — CVS Health’s Caremark Rx, Cigna’s Express Scripts and UnitedHealth Group’s OptumRx — collectively amassed approximately $7.3 billion from price increases over a five-year period from 2017 to 2022.
The FTC estimates that the Big Three PBMs administer around 80% of all prescriptions in the US.
Drugs that were marked up included those for the treatment of heart disease, cancer and HIV, among other critical drugs.
The commission reported that cancer drugs accounted for nearly half of the $7.3 billion, while medications for multiple sclerosis made up about a quarter.
Increases ranged from hundreds to thousands of percent compared to the National Average Drug Acquisition Cost (NADAC), which is an estimate of how much it costs a pharmacy to acquire a drug.
“The FTC staff’s second interim report finds that the three major pharmacy benefit managers hiked costs for a wide range of lifesaving drugs, including medications to treat heart disease and cancer,” said FTC chair Lina M. Khan.
“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.”
What is a PBM and Why Are They Being Investigated?
PBMs serve as intermediaries between insurers, pharmacies and drug manufacturers, negotiating discounts and managing drug formularies.
While PBMs were originally intended to lower costs and streamline drug delivery, critics argue that their practices often lead to inflated prices and restricted access for consumers.
The FTC first launched its investigation into PBMs in 2022. The FTC’s investigation first targeted the six largest PBMs — CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics and MedImpact Healthcare Systems — which collectively control approximately 95% of the US market. These entities play a crucial role in determining which drugs are covered by insurance and at what cost.
As part of the investigation, the FTC required the PBMs to turn over extensive information and records regarding their business practices dating back five years.
The FTC’s first interim staff report based on the inquiry, released in July 2024, focused on the effects of vertical integration and unfair contractual relationships. However, it only looked at a few specialty generic cancer drugs.
It revealed that pharmacies affiliated with the Big Three PBMs accounted for 68% of dispensing revenue from specialty drugs in 2023, a significant increase from 54% in 2016.
Second Interim Report Findings
Significant Price Markups Lead to Massive Profits
The analysis in the FTC’s second interim report covered 51 specialty generic drugs and 882 National Drug Codes. These included generic versions of medications such as multiple sclerosis drug Ampyra, leukemia treatment Gleevec, renal disease medication Sensipar and a medication used for transplant recipients called Myfortic.
The new analysis examines a broader range of specialty generic drugs, compared to the two specialty generic drugs covered in the July report.
It examined all specialty generic drugs dispensed between 2017 and 2022 for members of commercial health plans as well as Medicare Part D prescription drug plans managed by the Big Three PBMs.
Across the drugs analyzed, the Big Three’s price-markup revenue went from $522 million in 2017 to $2.1 billion in 2021.
Cancer drugs were marked up by over 1,000% in some cases, while HIV and transplant drugs saw markups ranging from 100% to 1,000%.
The findings highlight that the Big Three PBMs impose substantial markups across a wide variety of specialty generic medications.
Dispensing revenue from PBM-affiliated pharmacies above NADAC grew significantly, with a compound annual growth rate of 42% between 2017 and 2021.
Collectively, the top 10 specialty generic drugs accounted for $6.2 billion in revenue above NADAC, representing 85% of the total excess revenue of $7.3 billion.
The second interim report received unanimous approval from all five FTC commissioners, including incoming chair Andrew Ferguson. While Ferguson is expected to diverge from chair Khan on antitrust issues and mergers in certain industries, he seems to support efforts to rein in PBMs.
“FTC staff have found that the Big Three PBMs are charging enormous markups on dozens of lifesaving drugs,” said Hannah Garden-Monheit, director of the FTC’s Office of Policy Planning. “We also found that this problem is growing at an alarming rate, which means there is an urgent need for policymakers to address it.”
PBMs Found to Reimburse Affiliated Pharmacies at a Higher Rate
The FTC’s latest analysis revealed that pharmacies affiliated with the Big Three PBMs generated 83% of dispensing revenue from commercial claims on specialty generic drugs, with markups exceeding $1,000 over NADAC per 30-day prescription, compared to 72% overall.
This indicates that members of commercial health plans managed by the Big Three PBMs filled a significantly higher proportion of high-markup specialty generic drug prescriptions at PBM-affiliated pharmacies.
The FTC said the findings also suggest that the Big Three PBMs may be steering these prescriptions to their own pharmacies and away from unaffiliated ones.
The agency noted that the results align with those of the First Interim Staff Report’s observation that two of the Big Three PBMs filled a disproportionately large share of specialty prescriptions at their own pharmacies compared to those pharmacies’ overall dispensing revenue.
It also corresponds with documents from the PBMs that discuss “optimization levers” used to direct patients to affiliated pharmacies as well as strategies to “push to retail” prescriptions for “low/no margin drugs” and to “effectively block” the dispensing of such drugs at their affiliated pharmacies.
In 2021, operating income from specialty generics dispensed by the pharmacies affiliated with these PBMs accounted for 12% of the total operating income across the parent corporations’ business segments.
Spread Pricing Practices Generate More Profits
The FTC’s analysis also revealed that PBMs often engage in ‘spread pricing,’ where the amount charged to insurers and employers for a drug exceeds what is paid to the pharmacy.
This discrepancy allows PBMs to pocket the difference.
The Big 3 PBMs generated an estimated $1.4 billion of income over the study period from using spread pricing tactics.
Specialty Generics Help Drive Parent Healthcare Operating Income
Leading specialty generic drugs represented a substantial portion of the business segments reported by the parent healthcare conglomerates of the Big Three PBMs.
In 2021, operating income from the dispensing of these specialty generic drugs by The Big Three PBMs’ affiliated pharmacies accounted for 12% of the total operating income generated by the business segments of the parent companies, which include their PBM and pharmacy operations.
Higher Plan Sponsor and Patient Spending on Speciality Drugs
Spending on specialty generic drugs by plan sponsors and patients rose significantly over the years. In 2021, the most recent year with complete data available for the study, plan sponsors paid $4.8 billion, while patients contributed $297 million in cost-sharing.
Between 2017 and 2021, payments from both plan sponsors and patients grew at compound annual rates of 21% for commercial claims and 14% to 15% for Medicare Part D claims.
PBM Pushback
In a statement, CVS Health criticized the new FTC report, saying it “is inappropriate and misleading to draw broad conclusions from cherry-picked ‘specialty generic’ outliers.” It said the company’s “top priority is to make healthcare more affordable.”
OptumRx shared that it is “lowering the cost of specialty medications, which comprises half of all drug expenditures, and providing clinical expertise, programs and support for patients with complex and rare conditions.”
The company boasted that in 2024, it “helped eligible patients save $1.3 billion and the median out-of-pocket payment for these patients was $5.”
Express Scripts accused the FTC report of containing “another set of misleading conclusions on a subset of medications.”
Express sued FTC after the agency’s released its first report last summer and filed another lawsuit against the agency in November. The FTC has filed a motion to dismiss the case.
In September 2024, the FTC also sued the Big Three PBMs — Caremark, Express Scripts and Optum — for “artificially inflating” the prices of insulin. The companies stated that the accusation was baseless.
The following month, the PBM trio demanded that FTC chair Linda Khan disqualify herself from the insulin lawsuit, alleging that she was biased against their pricing model.
On January 14, 2025, the same day as the release of the FTC’s second interim report, the agency issued an order denying motions to disqualify chair Khan.
And in the first week of January, nine PBMs filed a motion seeking a subpoena for the FTC’s communications with various organizations, including those “known to be hostile to PBMs.”
In response, the FTC moved to dismiss the PBMs’ claims, labeling their counter-litigation efforts as “scare tactics.”
The high cost of drugs in the US has come under intense criticism and scrutiny over the past several years.
Last year, US Senator Bernie Sanders launched an investigation into what he called the “outrageously high” cost of diabetes and weight loss drugs Ozempic and Wegovy.
Due to pressure, pharma giants Eli Lilly, Sanofi and Novo Nordisk agreed to cap the price of their insulin products to $35 beginning in 2023, marking cuts of up to 70% of the original prices.
High drug prices are seen to be a part of the larger issue of the high cost of healthcare in the country, driven by a healthcare insurance industry that commands high fees and is accused of routinely denying coverage.
PBMs often lay the blame for rising drug prices on the pharmaceutical industry.
Moreover, in a recent paper, Casey Mulligan, former chief economist for the White House Council of Economic Advisors during Trump’s first term, authored a paper published by the Pharmaceutical Care Management Association (PCMA), a PBM trade group, that claimed PBMs contribute $148 billion in annual savings to the healthcare system through rebates and discounts.
On the other hand, the Pharmaceutical Research and Manufacturers of America (PhRMA), the country’s largest pharma lobby group, accuses PBMs of prioritizing their financial interests over patient needs.
US President Donald Trump is in alignment with the industry’s criticism of PBMs. According to Barron’s, at a press conference in Mar-a-Lago last month, Trump suggested that his administration would abolish the role of PBMs in the healthcare system.
Lawmakers from both US political parties are hoping to enact PBM reform this year, after it was excluded from a federal funding package last month.
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