New FTC Report Critiques PBMs: What Does This Mean For Payers?

Payers must carve A path forward As A Result Of The Recent FTC Report

On July 9, 2024, the Federal Trade Commission (FTC) released an interim report that highlights the significant and singular role pharmacy benefit managers (PBMs) play in the prescription drug supply chain. It calls out the largest PBMs, including CVS Caremark, Express Scripts, and OptumRx, for wielding “enormous power” over how, when, and what drugs are available to patients. In this blog, we will review the report and explain the impact it may have on payers and the industry as a whole.

A Brief History: The FTC and PBMs

The interim report follows the initial inquiry launched in 2022 under the leadership of FTC Chair, Linda M. Khan. At that time, the FTC promised to examine the impact of vertical integration on prescription drug pricing and access. The initial inquiry compelled the six largest PBMs (CVS Caremark LLC, Express Scripts, Inc., OptumRx, Inc., Humana Pharmacy Solutions, Inc., Prime Therapeutics LLC, and MedImpact Healthcare Systems, Inc.), as well as related pharmacy rebate GPOs (Ascent Health Services, LLC; Zinc Health Services, LLC; Emisar Pharma Services, LLC), to provide information and documentation on their business practices.  According to the recent interim report, they have not all complied with this request.

The role of the PBM has traditionally been viewed as leveraging size and scale to negotiate lower prices with drug manufacturers and competitive reimbursement rates from pharmacies to help control the cost of healthcare. In recent years, as mergers and acquisitions have led to vertical consolidation, critics have been more vocal that PBM practices are reducing competition and driving up the cost of prescription drugs.

FTC Interim Report: Key Findings

The report focuses on the following key findings:

Asset concentration and vertical integration (as illustrated in the graphic below) has led to market domination by a select few PBMs. The largest PBMs — CVS Caremark, ESI and Optum —control 80% of all prescriptions dispensed, with the top six, as noted below, control over 90% of the market. The report also notes that pharmacies affiliated with these PBMs control 70% of all specialty drug revenue.

The size and scale of these integrated corporations enable them to have substantial influence over how, when, and at what price drugs are available to patients.  The report also notes the lack of transparency and accountability to patients.

The report highlights the appearance of partiality, where vertically integrated PBMs can drive revenue through their own affiliated businesses. This can create conflicts of interest and challenges for unaffiliated pharmacies who wish to participate in the PBM’s retail network.

Independent pharmacies were acknowledged by the FTC in what it sees as “unfair contract terms” that make it difficult for independent pharmacies to participate “in-network” or even understand the reimbursement rates they must agree to. The report focuses specifically on the impact these practices have on struggling independent pharmacies, often in rural areas, where patients rely on them for easy access to fundamental care.

Lastly, the FTC interim report touches on the ability of these large, consolidated PBMs to limit access to low-cost prescription drugs by negotiating with pharmaceutical manufacturers for rebates on higher-priced drugs, on the condition that they will reduce access to lower-cost generic and biosimilar players.

While the FTC promises to provide updates as it receives and examines additional information, this interim report is directing the spotlight on certain PBM practices that lack sufficient transparency to determine their overall value in the healthcare ecosystem. It is important to also note that two members of the Commission offered dissenting statements to the release of this interim report, calling for a more comprehensive examination before drawing conclusions

Impact of the FTC Interim Report on Payers

So, how does one proceed following the observations in this interim report?

For health plans, the key is to pause and consider your span of control. You have the opportunity to control every aspect of your pharmacy benefit program. Listen to members of your community, examine the performance of your pharmacy program in your service area, and then work to reach your communities with transparent healthcare options.

Discuss with your PBM the concerns raised in this report and ask that they facilitate discussions with your independent pharmacy associations and conduct pharmacy satisfaction surveys. Work with your PBM to listen to the concerns of the local pharmacy participants, get involved in the pharmacy network process, and address any disparities. Request and examine alternative pricing structures that could give pharmacies a definitive and transparent reimbursement model. Competitively evaluate your holistic pharmacy pricing on an annual basis and leverage audit and transparency rights to validate your PBM’s performance and compliance commitments. Get your government affairs departments involved to ensure fair market access and consumer protection principles are at the forefront.

Employer plans should also leverage audit rights and proactively discuss with their PBM plan design options that target claim-level savings for the member at the point of sale.  Closely examine your quarterly performance reviews and ask your PBM for alternative pricing structures that center around stability and transparency in pharmacy reimbursement. Don’t hesitate to take advantage of a competitive bid procurement that includes an analysis of contracted services, including pricing model options, discounts, and rebate guarantees.

And most of all, communicate with your members and employees. Help them understand that your business practices center around providing affordable healthcare and facilitating access to low-cost prescription drugs is a crucial first step in better health outcomes.

As we await further updates from the FTC and actions of policymakers, let’s remember that payers can and will drive innovation and change. With various aspects of the healthcare industry in flux and under scrutiny, your members look to you for the path forward.  Take the lead. We can guide and support you in this endeavor, leveraging our deep market expertise and 30 years of industry experience. Reach out if you would like to learn how we can help.