PBMs are under fire, but despite political pressure, reforms remain elusive

With Federal Trade Commission Chairwoman Lina Khan ending her term this week, her agency published a second report within six months criticizing the pharmacy benefits manager industry. Specifically, the FTC accused PBMs of raising the prices of specialty generic drugs, often far higher than their purchase costs, and then sending reimbursement to their affiliated pharmacies. Khan stated that the practice contributes to rising pharmaceutical costs and higher out-of-pocket costs for patients. Moreover, newly elected President Trump recently reiterated his position criticism of PBMs, calling them “rich as hell” and accusing the middlemen of being responsible for raising prescription drug prices. However, the failure to include price reforms for pharmaceutical products involving PBMs in the ongoing year-end resolution, despite bipartisan support, could be a sign of political divisions among lawmakers in 2025 and the difficulties of to break the impasse.

To most laypeople, the acronym PPE means nothing. But PBMs serve as important middlemen at the center of the complex and often opaque U.S. pharmaceutical distribution chain. Most Americans’ prescription drug benefits — the part of their insurance that covers pharmaceutical care — is managed by a PBM. In effect, PBMs negotiate the terms of access to prescription drugs approximately 275 million Americans.

After a series of recent mergers and acquisitions, the leading PBMs are now part of healthcare giants that also include health insurers, pharmacies and healthcare providers. The three largest PBMs that control 80% of the U.S. prescription drug market are OptumRx, Express Scripts and CVS Caremark. Because of them mate and the way vertical integration has brought together multiple entities in the drug supply chain into a single conglomerate, PBMs have significant control over which drugs are available to patients, at what price, and where patients can access them.

The FTC analysis of 51 specialty generic drugs dispensed to participants in commercial health plans and prescription drug plans in Medicare’s outpatient pharmacy benefit (Part D) – overseen by the three largest PBMs – suggests that the PBMs increased prices above their estimates between 2017 and 2022 acquisition costs , as measured by the national average acquisition costs for pharmaceuticals. This generated more than $7.3 billion in revenue. In addition, PBMs reimbursed their affiliated pharmacies at a higher rate than they paid to non-affiliated pharmacies.

The high markup rates applied to drugs in HIV, hepatitis, cancer, multiple sclerosis and other disease areas. Drugs with hefty profit margins included imatinib, a generic drug (brand name Gleevec) used to treat chronic myelogenous leukemia, and lamivudine, prescribed for HIV patients (brand name Epivir).

In addition, the three PBMs raked in an additional $1.4 billion during the study period from spread pricing — the practice of charging health plans and employers more than they reimburse pharmacies for dispensing medications — for the specialty drugs under investigation.

The agency voted 5-0 to allow staff to release the report. This includes Khan’s Andrew Ferguson designated replacement under Trump.

The two FTC reports are the result of an investigation that began in June 2022. In a separate interim report published last summer, the agency alleged that PBMs exert undue influence over independent pharmacies, and that so-called that the three largest PBMs “used bargaining tactics to push patients to use more expensive medications.”

A central issue in the policy discussions has been the role of rebates in driving up list prices and thus cost sharing for patients. Rebates are payments from drug manufacturers to PBMs in exchange for shifting market share to preferred products on the formulary. When a patient fills a prescription for a discounted drug, the drug manufacturer transfers an amount to the PBM, according to the terms set forth in the contract. The PBM then passes on a portion of the rebate to the patient’s plan sponsor, while retaining a portion as profit.

From a drug manufacturer’s perspective, rebates can act as a way to increase or maintain market share for products. Accordingly, PBMs can do a number of things to ensure that certain medications receive adequate volume absorption. Their main tool for this purpose is form management, which places a discounted product in a preferred spot on the form. Rebates can benefit both PBMs and the manufacturers of the preferred drugs. Further, rebates can help mitigate the increase in premiums for beneficiaries by reducing the net costs to health plans, employers, and other customers for whom PBMs work.

But while rebates can help PBMs, health plans and employers financially, they do not have an immediate positive impact for patients. They are not passed on directly to patients at the pharmacy counter. In addition, patients’ out-of-pocket costs are often calculated based on percentages of list prices that are often significantly higher than net prices.

Still, PBM leaders say the role of intermediaries is indispensable as they work on behalf of employers and health plans to reduce the net cost of prescription drugs, negotiate with drug manufacturers and promote pharmacy benefits on behalf of health care providers and employers. to manage. OptumRx from UnitedHealth said this Fortune that this was not simply passed on to contracted entities. It also helped eligible patients save $1.3 billion in out-of-pocket costs.

In addition, the PBM trade group, the Pharmaceutical Care Management Association, defends PBMs’ use of their own specialty pharmacies, saying they are cheaper than other pharmacies.

Finally, blame the pharmaceutical industry high drug costs have traditionally been PBMs’ main defense. In a rebuttal to the FTC report released over the summer, the PCMA stated criticized The Commission’s analysis finds that it “falls far short of being a definitive, evidence-based assessment of PBMs or the prescription drug market.”

PBMs have been under near-constant pressure at the federal level for more than six years by a host of entities, including the executive branch, Congress, the FTC, and the media, for their alleged role in increasing patients’ out-of-pocket costs and putting pressure on medical costs. independent pharmacies. So far, the intensive research and subsequent debate have not resulted in much tangible action to curb PBMs. Even though Trump regularly criticized PBMs and issued executive orders to rein in them, during his first term at the FTC permitted consolidation that will take place in the sector at the end of 2010. And despite the anti-PPE rhetoric in the Trump White House, virtually nothing substantive was done to change business practices.

Perhaps things will change now, however, given the bipartisan nature of the bills in Congress and Trump’s further statements that reforms are on the horizon. For example, bipartisan legislation was introduced in December bar companies that own PBMs and health insurers also own pharmacy companies. But we’ve been in this position of inertia for a long time. The fact that legislation that would have led to immediate PPE reforms was removed from the continuing resolution late last year signals the reluctance of some lawmakers to prioritize policy changes. These reforms would include decoupling PBM revenues from list prices of drugs in Medicare, curbing rebate incentives that could lead PBMs to steer patients toward more expensive drugs, and transparency requirements that require PBMs to report to Medicare on the drug pricing. It remains to be seen whether these articles will be adopted as separate bills.