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FTC Issues 2nd Report Exposing Practices of Pharmacy Benefit Managers
The Federal Trade Commission found that the big three PBMs have marked up the price of numerous specialty generic drugs, gaining more than $7.3 billion over a five-year period.
The Federal Trade Commission published a second interim report on Tuesday on prescription drug middlemen, this time focusing on the influence pharmacy benefit managers have had on price markups for drugs treating cancer and HIV, among other illnesses.
The FTC issued its first interim report in July 2024 and, a few months later, filed an administrative lawsuit against the “big three” PBMs—Caremark Rx, Express Scripts and Optum Rx—and their affiliated group purchasing organizations.
Under the Consolidated Appropriations Act of 2021, plan sponsors are required to attest that the fees they pay for health care plans are fair and reasonable. As a result, it is important that plan sponsors apply a fiduciary process when evaluating their health plans, including pharmacy benefit managers, as well as remain aware of any pending litigation involving the providers.
PBMs Net Revenue Due to Steady Payment Increases
The FTC’s latest report analyzed specialty generic drugs dispensed from 2017 through 2022 to members of commercial health plans and Medicare Part D prescription drug plans managed by the big three PBMs. The review included an analysis of 51 specialty generic drugs comprising 882 national drug codes.
In its investigation, the FTC found that the big three PBMs marked up numerous specialty generic drugs dispensed at their affiliated pharmacies by thousands of percent and many others by hundreds of percent. The markups allowed the PBMs to generate more than $7.3 billion from in revenue from 2017 to 2022 by dispensing drugs in excess of their estimated acquisition costs, as measured by the National Average Drug Acquisition Cost, published by the federal Centers for Medicare and Medicaid Services.
The report stated that the PBMs netted significant revenues while patient, employer and other health care plan sponsor payments for drugs steadily increased annually.
Pharmacies affiliated with the big three PBMs received 68% of the dispensing revenue generated by specialty generic drugs in 2023, up from 54% in 2016, according to the report.
A spokesperson at Express Scripts said in response to the report, “This is another set of misleading conclusions based on a subset of medications that represent less than 2% of what our health plans spend on medications in a year – much like their first interim report that the FTC itself has already said is ‘limited’ and ‘tentative’. Nothing in the FTC’s report addresses the underlying cause of increasing drug prices, or helps employers, unions, and municipalities keep prescription benefits affordable for their members. We look forward to continuing to address the blatant inaccuracies in the Commission’s reports.”
Caremark Rx and Optum Rx have not yet commented publicly on the report since its release and did not immediately respond to requests for comment.
In addition, the FTC found that the big three PBMs reimbursed their affiliated pharmacies at a higher rate than unaffiliated pharmacies on nearly every specialty generic drug examined. The PBMs were also found to have generated significant income on specialty generic drugs through spread pricing—the practice of retaining the difference between the amount they bill their plan sponsor clients and the reimbursement rate they pay pharmacies for a prescription. According to the report, PBMs often bill their plan sponsor clients more than they reimburse pharmacies for drugs.
Plan sponsor expenditures and patient cost sharing on specialty generic drugs were also found to have increased at compound annual growth rates of 21% for commercial claims and 14% to 15% for Medicare Part D claims.
Further Scrutiny Expected
Jamie Greenleaf, co-founder of Fiduciary In A Box, says most PBMs technically allow this pricing, which unfortunately means employers may be unknowingly entering agreements that do not align with their fiduciary responsibilities.
Greenleaf explains that, under the Employee Retirement Income Security Act, fiduciaries overseeing employee benefit plans, including health and retirement plans, must act with the “care, skill, prudence and diligence” of a knowledgeable expert in the field. She emphasizes that having the right guidance can make all the difference.
“If [plan sponsors] don’t understand their contracts and/or how PBMs work, [they should] work with an expert who understands these contracts inside and out,” Greenleaf says. “Employers must rely on independent, conflict-free specialists to ensure their agreements are transparent, fair and don’t enable the ‘shell game’ we often see in the industry.”
Based on the information found in the report, the FTC wrote that specialty generic drug pricing and steering practices should receive further scrutiny, and plan sponsors should be aware that they and their members are paying the big three PBMs and their affiliated pharmacies “very significant markups over the acquisition costs for critical medications.”
The ERISA Industry Committee called on Congress last September to deem PBMs as fiduciaries under ERISA, as they play a significant role in negotiating prescription drug costs for plan sponsors managing health plans. Congress has yet to take any action to do so.