Pharmacy benefit managers levy ‘very significant markups’ on drug prices for $7.3B payday

Key takeaways:

• The FTC detailed how pharmacy benefit managers significantly mark up specialty generic drugs and steer many to their affiliate pharmacies.
• This led to $7.3 billion in revenue in excess of the acquisition costs.

Pharmacy benefit managers overcharged for specialty generic medications — in many cases by hundreds and thousands of percent — for billions in profits, according to a report from the Federal Trade Commission, or FTC.

The document, which evaluated the prescription drug middlemen industry from 2017 to 2022, described “a growing profit center” in these massive markups.

The report revealed that the three largest pharmacy benefit managers (PBMs) in the United States — Optum (a subsidiary of UnitedHealth Group), Caremark Rx (a subsidiary of CVS Health Corporation, which also owns Aetna and CVS Pharmacy) and Express Scripts (a subsidiary of Cigna) — significantly marked up the prices of certain medicines, including for heart disease, cancer, HIV, pulmonary hypertension, multiple sclerosis and more. This translated to a whopping $7.3 billion in revenue in excess of the acquisition costs of the drugs.

“The FTC should keep using its tools to investigate practices that may inflate drug costs, squeeze independent pharmacies and deprive Americans of affordable, accessible health care — and should act swiftly to stop any illegal conduct,” Lina M. Khan, chair of the FTC, said in a press release.

While what the FTC has labelled “The Big 3 PBMs” got billions in revenue, employers, patients and health care plan sponsor payments for these medications rose steadily each year, according to the report.

Hannah Garden-Monheit, director of the FTC’s Office of Policy Planning, said in the release that the “enormous markups” were charged on “dozens of lifesaving drugs.”

“We also found that this problem is growing at an alarming rate, which means there is an urgent need for policymakers to address it,” Garden-Monheit added.

For example, between 2017 and 2021, patient payments and plan sponsors both increased by an estimated 15% compound annual growth rate for Medicare Part D claims and a 21% rate for commercial claims. In 2021, patient cost sharing totaled $297 million and plan sponsors paid $4.8 billion for specialty generic drugs.

Pharmacies affiliated with the Big 3 PBMs also get notably different treatment, according to the report.

In 2023, the affiliate pharmacies received 68% of the dispensing revenue specialty drugs generated; in 2016, they received 54%. The Big 3 seemingly “reimbursed their affiliated pharmacies at a higher rate than they paid unaffiliated pharmacies on nearly every specialty generic drug examined,” the report read.

Additionally, the dispensing patterns examined indicate that “the Big 3 PBMs may be steering highly profitable prescriptions to their own affiliated pharmacies (and away from unaffiliated pharmacies).”

The practices for pricing and dispensing specialty generic drugs “should receive further scrutiny,” the report concluded.

“Plan sponsors in particular should be aware that they and their members are paying the Big 3 PBMs and their affiliated pharmacies very significant markups over the acquisition costs for critical medications.”

The FTC reserved judgment on whether any of the aforementioned practices violate laws like the FTC Act.

“Nothing in this staff report should be interpreted as prejudging a determination about potential law violations,” it stated..

“Legislative reforms may be warranted,” the report added. “FTC staff is encouraged to see bipartisan interest in Congress and among the states in addressing PBM practices, and we stand ready to provide assistance to policymakers as needed.”

References:

This post was originally published on this site