FTC Interim Report Shows Need for Action on PBMs: Q&A

Rising consolidation among pharmacy benefit managers (PBMs) allows the companies to profit at the expense of patients and independent pharmacists. That’s the conclusion of a recent Federal Trade Commission (FTC) report on interim findings from the agency’s ongoing investigation of PBMs. 

Lawmakers are increasingly scrutinizing the industry amid growing concern among physicians and consumers about how PBMs exploit their market dominance. The top six PBMs managed 94% of US drug claims in 2023, with the majority handled by the industry’s three giants: CVS Caremark, Cigna’s Express Scripts, and United Healthcare’s OptumRx.

PBMs manage prescription drug benefits for health insurers, Medicare Part D drug plans, and large employers. They act as middlemen between health insurers and pharmacies, developing formularies of covered drugs and promising savings from the discounts and rebates they negotiate with drugmakers.

The FTCs interim report found that the giant PBMs often exercise significant control over what drugs are available and at what price and which pharmacies patients can use to access their prescribed medications. Consumers suffer as a result, the report concluded.

Madelaine A. Feldman, MD, vice president for advocacy and government affairs for the Coalition of State Rheumatology Organizations, shared her perspective on the FTC report in an email Q&A with Medscape Medical News. She is affiliated with The Rheumatology Group, based in Metairie, Louisiana. 

Feldman has long tracked the PBM industry and appeared as a witness before influential government panels, including the House Energy and Commerce Committee. She has highlighted for lawmakers the challenges physicians face in helping patients get needed medicines. 

For example, she shared cases of PBMs steering patients toward the more expensive of three widely used rheumatoid arthritis medicines that have a similar mechanism of action, the Janus kinase (JAK) inhibitors, Feldman said. 

One of the drugs cost roughly half of the other two — about $30,000 per year vs $65,000-$70,000. Yet only the two expensive drugs were included in the PBM formulary. As a result, the cheapest drug holds only a sliver of market share; the remainder is dominated by the two expensive products, she told the House Oversight and Accountability Committee in 2021.

This Q&A has been edited for length and clarity.

What would you want federal and state policymakers to do in response to the FTC’s report?

I think Congress needs to clearly delineate the differences between anticompetitive pharmacy issues, drug pricing issues, and their effect on formulary construction issues.

Lawmakers should demand more transparency and consider legislation that would remove perverse incentives that prompt PBMs to choose higher priced drugs for their formularies. 

That may require other regulatory or legislative actions to ensure lower prices (not higher kickbacks) are incentivized. Ultimately, in order to gain true competition within the health insurance business, these oligopolies of multiple businesses need to be broken up. Anything less seems to be nibbling around the edges and allows the Big Three to continue their “whack-a mole” in circumventing piecemeal regulatory and legislative policies.

You’ve followed PBM practices closely for many years. Was there anything in this interim FTC report that surprised you?

Though not surprised, I am glad that it was released because it had been a year in investigation and there were many requests for some type of substantive report. 

Two things that are missing that I feel are paramount are investigating how the three big PBMs are causing physical harm to patients as a result of the profit component in formulary construction and the profound financial impact of hidden PBM profit centers in self-insured employer health plans.

What we have seen over the years is the result of the perverse incentives for the PBMs to prefer the most profitable medications on their formularies. 

They use utilization management tools such as step therapy, nonmedical switching, and exclusions to maintain their formularies’ profitability. These tools have been shown to delay and deny the proper care of patients, resulting in not just monetary but physical harm as well. 

I would think the physical harm done to patients in manipulating the formularies should be addressed in this report as well and, in fact, may be the most important aspect of consumer protection of this issue.

In terms of the FTC’s mission to not “unduly burden” legitimate business, I would like to see

the sector of self-insured employers addressed. 

The report details how PBMs steer prescriptions to their affiliated pharmacies. The FTC says that can push smaller pharmacies out of the market, ultimately leading to higher costs and lower quality services for people. What’s your perspective? 

Having more community pharmacies is better than having less. We are seeing more “pharmacy deserts” in rural areas as a result of many community pharmacies having to close.

The FTC voted 4-1 to allow staff to issue the interim report, with Commissioner Melissa Holyoak voting no. And some FTC commissioners seem divided on the usefulness of the report. Why?

Commissioner Holyoak states the “the Report leaves us without a better understanding of the competition concerns surrounding PBMs or how consumers are impacted by PBM practices.” 

I do agree with her that the harm to patients’ medical status was not even addressed as far as I could tell in this report. There are multiple news articles and reports on the harms inflicted upon patients by the UM tools that drive the construction of ever changing formularies, all based on contracting with manufacturers that result in the highest profit for the PBM.

Holyoak also states, “Among other critical conclusions, the Report does not address the seemingly contradictory conclusions in the 2005 Report that PBMs, including vertically owned PBMs, generated cost savings for consumers.” 

That may be true, but in 2005, the rise of PBMs was just beginning and the huge vertical and horizontal integration had yet to begin. Also, 2005 was still in the beginning of the biologic drug deluge, which did create competition to get on the formulary. Since then, PBMs have done nothing to control the rise in prices but instead, apparently have used the competition to get higher price concessions from manufacturers based on a percentage of the list price to line their pockets.

Commissioner Ferguson agreed with releasing the report but he had many issues with this report including the lack of PBM response. 

I do agree with him that the FTC should have used some type of “force” to get the

information they needed from the PBMs. The Big Three are known for obfuscation and

delaying providing information to legislative and regulatory agencies.

Kerry Dooley Young is a freelance journalist based in Washington, DC.