Does the expansion of PBM into the pharmaceutical sector create further risks of anti-competitive behavior?

Pharmacy benefit managers received significant attention in 2024. Congressional and regulatory agencies, including the FTC and HHS, scrutinized PBM’s business practices and associated profits. As a new Congress prepares to take office, this issue remains an important part of the health care problem that needs to be solved.

PBMs came into use in the 1960s to help insurers increase the value of pharmacy benefits and control drug spending by encouraging the adoption of generic drugs when medically appropriate and by handling drug claims. PBMs evolved in the 1990s to create tiered formularies and negotiate rebates with drug manufacturers, leveraging their market influence to lower net drug prices. Over the past 15 years, PBMs have expanded their services to include medication utilization reviews, disease management programs and specialty pharmacy services.

More recently, significant consolidation among PBMs, health insurers, healthcare providers, and specialty pharmacies has reshaped the landscape of the healthcare ecosystem and pharmacy benefits. Major health insurers have purchased PBMs to create vertically integrated healthcare entities, and vice versa. CVS Health acquired Aetna and Cigna acquired Express Scripts, while United Healthcare grew OptumRx. The six largest PBMs (CVS Caremark, Express Scripts, OptumRx, Humana Pharmacy Solutions, MedImpact and Prime Therapeutics) have become vertically integrated within massive conglomerates. The combined entities have significant bargaining power with drug manufacturers, as I previously described.

This market consolidation poses risks to patients. Reduced competition, preferential treatment in pricing and formulation decisions with affiliated organizations, and market barriers for smaller independent pharmacies have often resulted in more limited access to medications for patients. PBMs have been criticized for failing to reduce costs for consumers by not passing on rebates to patients. These entities have also been criticized for opaque formulary models that make drug pricing and coverage unclear.

According to the July FTC Interim Staff Report on Prescription Drug Intermediaries, Pharmacies affiliated with the Big Three PBMs (CVS Caremark, Express Scripts and OptumRx) are often paid 20 to 40 times the national average drug acquisition cost, and significantly more than unaffiliated pharmacies. This preferential treatment hurts independent pharmacies and ultimately limits patients’ choice of medications.

But the migration of PBMs to other parts of the healthcare system doesn’t stop with the integration of pharmacies and payers. Expansion into the drug industry supply chain is coming through investments such as Cordavis, a wholly owned subsidiary of CVS Health. The stated goal of this move is to work directly with drug manufacturers to bring biosimilar products to the U.S. market, ostensibly to shift patients from brand-name drugs to biosimilars, in the same way that PBMs have shifted patients over time from brand-name drugs with small molecules to cheaper generic equivalents. . During the launch of Cordavis on August 23, 2023, Shawn Guertin, CFO of CVS Health, asserted that this “is a logical evolution… and will help ensure sufficient supply of biosimilars in the US… while ultimately improving health outcomes and reducing costs for consumers will decrease.”

This is an interesting position for CVS. One might assume that there are few biosimilars available, and that this move offers cheaper alternatives than what the pharmaceutical industry has made available. However, the data suggests otherwise. Before Cordavis, there were already numerous biosimilar entrants competing with each other and with the original brand agent. Perhaps the most notable example is Humira, a blockbuster drug that faced competition from biosimilars. AbbVie reported fiscal 2023 global sales of $14.5 billion for Humira, down 32.2% from 2022 performance due to biosimilar competition. You would expect that the market price of Humira would still plummet due to the arrival of biosimilars Humira’s WAC 2023 remained higher than the nearly dozens of biosimilar options on the market.

Despite the presence of biosimilars in the market, there has historically been a lack of uptake of biosimilars on PBM formulations, likely due to less favorable PBM rebate models that favor high list price drugs over cheaper alternatives, such as biosimilars. But now CVS, with its own investment in biosimilar development, wants to be a participant in the biosimilar manufacturing process. This integrated structure introduces conflict of interest concerns: Through its role as a PBM and now as a drug manufacturer, CVS Health’s PBM could influence which drugs are promoted and covered, potentially favoring Cordavis’ products over others. The result would stifle competition in the market. Directing patients to in-house pharmacies and a lack of price transparency are already accusations PBMs face. The co-branding of a Cordavis product sold to its own pharmacies, resulting in reimbursement to its own health insurer, creates a closed loop of transactions that encourages monopolistic behavior. It is precisely these behaviors that are being questioned in healthcare, largely because of the potential harm to patients.

By affecting both the distribution and production of biosimilars, CVS could limit market access for therapies from other manufacturers. Cordavis is another example of PBMs that emphasize returns for their integrated partners and subsidiaries rather than pursuing lower costs for patients through competition and choice.

The Patient Before Monopolies Act, introduced on December 11 by Sens. Warren and Hawley, and Rep. Harshbarger and Auchincloss propose banning PBMs or insurers from owning a pharmacy business. If adopted, it would represent a new and important step towards ensuring that the potential conflicts of interest arising from PBM involvement in pharmaceutical manufacturing are eliminated, in the interests of patient access and affordability. Regardless of whether this bill moves forward, the new Congress has an opportunity to foster a competitive marketplace that provides value and choice for patients. The answer is not the complete dissolution of these large, vertically integrated organizations. Instead, better oversight to address the anticompetitive patient impacts of vertical integration and more attention to consumer needs is the better path. Ensuring optimal access and affordability of medicines for patients should be the primary focus of PBMs, their partners and the regulatory authorities that monitor them.